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Valuable Insights on Procurement from China

2024-02-29
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China leads globally in manufacturing products. Manufacturing plays a huge role in the country’s economy. It boosts domestic spending and creates job opportunities. 

The manufacturing cost in China is low, so it is leading to industrialization. Its manufacturing sector has escalated 18 times in the last 30 years and added US$2.2 trillion in value. The labor cost is low for China companies, its average hourly cost is approximately 80% to 85% less than in the US. Other than that, its engineering talent is consistently increasing. 

Even though the opportunity is undoubtedly alluring, it can be challenging to execute the procurement from China correctly. If you desire a cost-effective business, then choose  product procurement from China. Nevertheless, you will need to consider language barriers as well as business practices from several foreign buyers. Besides, you will feel overwhelmed by the variety of products and manufacturers to choose from.

Companies encounter difficulties in finding high-quality suppliers and negotiating contracts with them in any new location. There are also challenges that businesses rarely encounter locally, such as resolving logistic issues, following different country's laws, and dealing with cultural and linguistic differences.

While sourcing managers are focused on finding the best products at the most affordable prices, negotiating with suppliers as well as testing and qualifying the quality of the goods all require flexibility. It's a crucial stage in global manufacturing that occurs earlier in the process of product development in China.

It is well known that China's manufacturers give importers, particularly those in the west, a significant cost advantage. Planning and executing a procurement from China strategy requires tremendous mental and physical effort for single entrepreneurs. Strategic sourcing involves using the most cost-effective supply channels. 

Crucial elements of procurement from China

1. Action – develop team and gather data

Companies are using the collective team approach more and more often when deciding upon the procurement from China. Create a team of experts from sourcing, operations, finance, and others having a direct interest in the product being developed. 

The team must have a proven procurement from China solutions that specifies the details of sourcing and establishes the actions to be taken to manage the procurement from China strategy. They must gather data about the material being sourced. A quality database requires one full-time work. Data must be precise and in-depth, including volume of parts or ingredients, manufacturing details, or units required for manufacture, truckload/less-than-truckload volume, and detailed current supplier spend.

2. Market research 

An initial step is to create a product profile you wish to sell, and the current and future costs involved with its procurement from China process. Your sourcing decisions will be influenced by the product's size, shape, design, grade, specification, and other factors, as well as by how much it will cost to make and ship the item to your country.

For importers who have never ordered products from China, navigating the market might be difficult. The search for suppliers can be made easier by using online supplier directories like Alibaba, Global Sources, and Made in China. It's usually helpful to have a thorough understanding of China's numerous manufacturing locations, the vibrant trade dynamics, the cost of manufacturing labour per hour, and any unforeseen factors that could disrupt products while choosing your factory.

3. Sourcing guidelines 

To ensure that your decisions on your strategic sourcing are well-informed, a thorough request assessment is necessary. This entails investigating and evaluating demand trends, competitive information, important merchandisers, and diligent fashion practices.

It's crucial to choose your procurement from China and location to maximize the performance of your supplier while lowering risk and expense. Set basic standards for suppliers and begin by establishing your company's goals. Once you have determined which suppliers meet your needs, capabilities, and resources, you can develop a set of selection criteria. This will assist you in selecting the best providers for your company.

4. Negotiation of contract

The next step is to choose the best technique for requesting bids. Issuing a request for proposals (RFP) is a typical strategy that many businesses utilize. The procurement team creates a request for proposals (RFP) to solicit bids. It provides information about the desired product or service's characteristics, requirements, pricing, legal and financial terms, and evaluation criteria.

Only agree to arrangements with suppliers when you are certain that they can fulfil the RFP's requirements as specified in the procurement from China. Face-to-face negotiation always gives convincing results.

Professionals should perform this task. The contract should be handled by the company's legal squad. However, the sourcing team lead should serve as a liaison between the two businesses, relaying any modifications or corrections and responding to any inquiries about the contract.

5. Benchmark 

Once the negotiation phase is over, it's time to choose a supplier and notify the selected partners. After selecting the best supplier, your next step is to ensure that goods and services are delivered without obstacles by forecasting.

It is crucial to regularly review their performance. The first steps in this process are establishing a baseline for the product's current state, monitoring its performance throughout time, and confirming that the desired outcome is being attained.

6. Supplier relationship management 

Someone in the organization must manage the relationship between your business and the supplier. The ongoing relationship needs to be taken care of and fostered, whether that person is in deals, quality, or operations. Moreover, depending on the status of the product or material, the supplier needs to undergo frequent requalification. 

Important keys for successful procurement from China

1. Easy communication 

Contacting your supplier should be easy and convenient, and vice versa. This is especially crucial if your provider is from a foreign country. Make sure you have a local speaker on the call who can translate for you.

2. Monitor regularly

Gather your sourcing team frequently and ask for comments to make sure you're employing the best suppliers. Find out what is working and where changes can be made by asking questions. You can keep getting better by analyzing your suppliers and the sourcing procedure.

3. Quality control

Products that don't perform as expected are useless. Customers are searching for suppliers who can adhere to the fundamental performance requirements set by the industry and, frequently, even surpass them. The supplier must produce a part correctly the first time and every time after that.

With the correct approach, businesses can develop a procurement from China strategy that benefits their operations long-term and fosters the expansion and development of their company. A procurement from China agency can handle every part of procurement if you need more help with marketing or other strategic parts of your organization.

Benefits of hiring a reliable procurement from China agency

1. Saves time

You can save time as you will not have to delve across tons of supplier pages for seeking out a suitable one. Vetting suppliers and the negotiation process are also time-consuming. The purchasing agency will deal with all these and save your precious time. 

2. Helps in negotiation

The aim of choosing China for sourcing is to tap low rates. Nevertheless, when the price is very low, product quality can be questioned. It is where a reliable procurement from China agency helps to strike a balance. You can receive a good deal without product quality sacrifice because the purchase agents speak the local language and are great negotiators. 

3. Verify manufacturer’s credentials.

Before you get into an agreement with the Chinese supplier, it is essential to verify their credentials. The licenses and certificates are in Mandarin, so you need to pay a professional translator to verify them. 

The purchasing agency is familiar with what an original certificate looks like. Besides, they even know the protocols associated with inspection agencies that the supplier must fulfill. Partnering with a reliable sourcing company means your possibility of getting cheated decreases.

4. Connect extensively

You pay the purchasing agency for their experience as well as their vast connection network. They have worked with many suppliers and are aware of which is the suitable one for your project. 

While choosing a manufacturer, you will have to offer an accurate description of the item, you want them to create. Unfortunately, the language barrier limits your communication clarity. The Chinese purchasing agency is the correct link that fills the gap between you and the supplier.

Cost of Chinese sourcing agency

The procurement from China agency earns in different ways including hourly charges, flat fees, or commissions. Many companies are transparent about their charging process but there are a few who aren’t. Therefore, comparing service rates is a daunting task. Product price is the benchmark of a sourcing agency’s charging rates.

1. Commission 

Chinese sourcing agents that work on commission generally range from 2% to 10%. 

A low percentage means few services but if wide services are offered at a very low margin, then be cautious as it is too good to be true.

Highly professional sourcing companies charge 10%. They are those that cannot afford to sacrifice product quality. Their rates define their quality, transparency and honesty. 

2. Flat fee

Some sourcing agencies don’t work on a flat fee. However, a flat fee is charged for other services like quality inspection, normally it ranges from $150 to $300 per manday.  

There are a few agents that specialize in product development, negotiations, quality control, factory management, and logistics. It is an arrangement suitable for importers that don’t need full-time support but occasionally someone working on the ground. 

Even if you feel the Chinese sourcing agent is transparent in his fee structure ensure to verify their credibility first.

Conclusion

Above is the complete insight on procurement from China, hope it helps you on your business venture of sourcing from China. Allow a trial run stage for yourself, start with small orders, and test the water first. Gradually, we believe you will learn from the procurement from China and gain more experience. Eventually, you may have better chances of success.

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