This month we address “Sourcing”, including B to B sourcing platforms and methods to buy products in China. What works, what are the pitfalls and why it is good to have a competent sourcing partner in China. Light summer reading for you to reflect whilst you soak up the sun.
Happy reading - Roland Schmid
For many years we have seen purchasing people/buyers from all corners of the world visiting trade fairs in China, in particular Hong Kong (Electronics, Lighting, Hardware), Guangzhou (Canton Fair) and Shanghai (Chinaplas, China Die-casting, Automotive Mfg & Technology, International Hardware, …). Fairs are a convenient means for buyers to link with manufacturers and resellers, see products and gauge competence. Strategic purchasing staff from different international manufacturers also visited Asia with focus on component sourcing, notably metal parts, enclosures, printed circuit boards, connectors, …. , just to name a few.
Then came the sourcing platforms
Interestingly, GlobalSources not only organized trade fairs but capitalized on the exhibitor profiles and visitors (potential customers) to setup an internet trading platform!
Let us assess a few sourcing models.
2.0 B to B Trading Platforms:
Purchasing via B to B trading websites has its advantages & disadvantages
Secure way for customers to get products as payment is administered by the trading platform;
Purchasing of standard products is relatively low risk
The buyer does not have to travel, visit different companies, face communication and cultural barriers, etc.
The trading platforms work with so called “qualified/star-rated” suppliers
Companies offering products are generally not high end – they produce mass-market commodities
Interest is on high volumes
Customization is difficult (single/standard product focus)
Companies are small, provincial with basic equipment, manufacturing & business skills (many cannot do export business in USD)
Customers who want to buy products from Asia/China often prefer to have direct contact with manufacturers to negotiate prices, discuss non-standard products/own designs etc.; the following example shows where the traps are.
One of our customers found a supplier for a “give-away/promotional gift” (a Stress Ball) using Alibaba.
· The samples provided were ok (acceptable) – company logo printing and position were approved
· Our customer wanted us to check the order lot of 5k stress balls and handle payments to ensure that payments were in line with local standards and only made after product quality checked by our QC
· Mass produced stress balls did not reflect anything like the sample and the quality/workmanship was poor (e.g. logo was move to another position!)
· The defect rate was > 30%
· The supplier wanted to force our customer to pay double the price if he expected a better mass produced stress ball …
Fortunately we could stop the shipment and prevent payment of the balance of the order – however the manufacturing deposit was lost!
· Refrain from buying customized products via sources advertised on internet platforms
· Only buy advertised/standard products via B to B sourcing platforms as payments are only released if the goods are ok
· If a supplier consistently delivers poor product he will be struck of the B to B trading platform
3.0 Sourcing Agents
The limitations of B to B sourcing platforms gave room for sourcing companies in Asia.
To plug the holes of e-commerce and provide specific industry/sourcing expertise covering different commodities and customer needs, for instance stationary products, giftware, packaging products etc., there is a good selection of credible sourcing companies in the market.
The business model/way of operation may vary – typical scope of work is outlined below.
3.1 Strategic Sourcing/Consulting
· Identification of potential suppliers & filtering
· Linking customers with suppliers
· Help with benchmarking, negotiations, supplier assessments, etc.
· Carry out special assignments to qualify suppliers and products (see below)
· Help with logistics & shipment coordination
This model is fee based – customers purchase products directly from the manufacturers.
Example: Crystal Manufacturer Assessment/Factory Audit
We were asked to audit 3 factories in Thailand and China; this specific commodity required technical understanding of key process steps and impact on part performance/quality – the relevant manufacturing processes that we focused on are:
blank plating (electrode attachment)
annealing/curing (stress relief and aging)
3.2 Sourcing Agent
The sourcing agent handles all aspects of projects from RFQs to product delivery
Contractual relationship is between the purchaser and the sourcing agent
The sourcing agent provides a one-stop service, including arrangement of inspections, transportation, supplier payments, etc.
The challenges are in the segment “technical sourcing”. Here, many traditional sourcing companies come unstuck. The reasons are:
The technical understanding & knowledge for specific commodities/manufacturing domains is weak;
Staff are mostly buyers/purchasing people with little or no engineering knowledge
Most companies want their sourcing agent to take full responsibility for the management of all steps involved in a project, from RFQ to delivery
In some cases, using a strategic sourcing agent to link you directly with the manufacturers may be advantageous, in particular at the EMS/standard component level
4.0 Technical Sourcing – Different Way of Thinking
Advancements in materials, processes, manufacturing, etc., challenging times in logistics, issues with raw material costs and availability, energy prices etc. require a change in the traditional buyer – supplier relationships.
In technical sourcing, comprehensive in-house capabilities and knowledge matter,
Commodity Expertise (eg injection molding tool design, manufacturing and testing)
Problem solving and resolution capability
Project and cost management
Logistics (Import & Export rules, Tariffs, Transportation, Packaging, Preparation of Export Documents, Packaging, etc.)
Industry connections, supplier knowledge, effective project management, ability to travel and visit suppliers, reliable & trustworthy people are vital. This is particularly important if your source from Asia/China.
The complex nature of technical sourcing requires PARTNERSHIPS at different levels of management between the sourcing company and the customers.
Once you work with the right partner, it gives you a significant competitive advantage – the right technical sourcing relationships can be instrumental for the long-term growth and profitability of your business.
Furthermore you can capitalize on the extra brainpower, use an extended talent pool, boost capacity and maintain a foothold in a fast growing market.
Here is a case that demonstrates the value – PCB quality resolution
A German customer engages us as an advisor, technical expert, investigator etc. in case of quality, delivery, commercial or communication problems
I was asked to visit a factory selected by the customer producing PCBs to carry out a manufacturing process audit and to resolve the problem of a track plating issue
The findings were quite staggering:
The PCB supplier turned out to be an agent without an own production facility
The manufacturing plant shown to me was good and the agent had a good relationship
When I asked for process experts and QC personnel to join me to discuss the specific problems experienced by our customer the “sand-bagging” started Lunch time! Staff currently in other meetings/not available...
I was constantly shielded from talking to any person in the factory – then the penny dropped; for cost reasons (to maximize profit) the agent used another PCB manufacturer (lower grade) to produce the sub-standard quality product for our customer but showed me the premium facility of another manufacturing company…
The case was ultimately resolved (plating issue fixed!)
If you visit/audit Chinese manufacturers, always have a Chinese person with you who acts as a translator, understands what is being spoken, acts as another pair of eyes
Validate a company’s credentials – take pictures of the company license plate, certificates, etc. and match them with information/data given to you
Work with an experienced & trustworthy partner in China/Asia who knows the game; this saves a lot of headaches, endless arguments, time …
Developing and maintaining a strong technical sourcing base with a knowledgeable and trustworthy partner in China is a strategic decision and must be endorsed by business owners and top management.
It means working together, sharing information, setting targets, investing to achieve high quality results.
In many cases, we have gone the extra mile for our customers because they understand that we are not a quotation house but a business partner that can solve difficult manufacturing, time to market and supply chain problems.