by David Dayton in 'Silk Road International'
1. Location counts—Sure the price may be better, but you need to factor in how long people have been doing business both in that factory and in that area (sub suppliers). The rule of thumb is this: the most advanced suppliers are found in HK/Taiwan, then Guangdong, then other East Coast cities, then the rest of China.
Sure there are different types of factories in all places. And no doubt there are different types of bosses in each as well. But in general the different locations will give you a general idea of the quality of the industry in the area–Guangdong province opened up for business 10-15 years before anywhere else in the country and so the depth of managerial experience is better there than anywhere else in the country. Ditto for larger more experienced range of sub suppliers. QC stats bear this out. Remember, China may be cheaper, but it’s also measurably more difficult.
2. Price does not equal cost. Let’s be honest, most people are coming to China to save money. And so that’s why people work with horrible factories and take stupid risks with bad suppliers–they think that the cost savings will be worth it. People would like to think that profit margin will take a small hit in the name of “cooperation.” But my experience is this: when prices go down, quality will be affected first. Competition is VERY high in China, so the incentive to cut prices (quality) to increase margins is VERY high as well. People still have to have a set level of income to stay alive and if getting your business means lowering the price, things OTHER than profit are going to take the hit. The reality is that profit is the very LAST item that will be cut.
Ask yourself these three questions about your supplier. Do they have the right capacity (techniques, processes and machinery)? Do they have the right people (enough workers, experienced mangers professional communicators)? Are they using/have access to the right raw materials (can they pass your independent testing)? If you’re getting a “cheap” price, that probably means that you’re not getting 1 or more of these three questions answered satisfactorily.
3. A lot of things are out of your supplier’s control—and if they can’t control it, they will not take responsibility for it (even if they didn’t tell you they wouldn’t). The dirty little secret in Chinese manufacturing is that EVERYONE is a middle-man, EVERYONE subs out some percentage of their work. But nobody will tell you this. The problem is that they’re usually subbing out to friends and family and they would lose face if they required a 3PQ check on the raw materials they bought from people they were close too. So you have to do it yourself. If you do not step in and QC your supplier's sub suppliers NO ONE ELSE WILL. And, when there are problems, the factory will not be responsible for product they didn’t make (even if they bought it and didn’t tell you).
4. Always be prepared to (re)negotiate! Everything.
5. More love for SRI—we’re in the top 10 of China Business Blogs for the last decade! Great mag on China’s expat culture to boot!