by Etienne Charlier
Almost one year ago, I posted an article about price quotation from Chinese suppliers. I gave three practical tips useful for most price requests in China. Here are three more tips on the same topic, illustrated by recent projects.
Never assume that your supplier will know what you, as a buyer, want and expect. Requirement misunderstandings are the biggest source of problems between buyer and good suppliers. You, as a buyer, can reduce this by explicitly clarifying your requirement.
The following real case illustrates what to absolutely avoid.
A European SME making building equipment was looking for a specific electromechanical part to integrate in its products. This was a medium complexity product based on standard technologies. But it requires some basic customization to match the buyer’s requirement. We had identified and qualified several suppliers for our client. Armed with a drawing, functional requirements and a set of samples we issued price requests and secured initial pricing from all short listed suppliers. It was now time for a factory visit with the client to review suppliers’ abilities, technical solutions and final pricing.
Each of the suppliers raised an inconsistency between the functional requirement and sample. The torque at operating point specified on the drawings and the measured torque on the delivered sample differed. The conversation went like this:
Supplier: “We measured the torque on your sample and we see xxx Nm, but your drawing states yyy Nm. Which one should we follow?”
Buyer: “You should follow the drawing. This is the requirement and if we change this we will have to requalify the product and go through certification again.”
Supplier: “We are not clear about your requirements. Our lab shows that the sample product has a torque of yyy Nm. Your stated requirements call for xxx Nm. We are not sure why this is different, which one do we need to design the product for?”
Buyer: “You measured the torque. This is the product we use in our system. Just follow the sample, we want the same results as the current part.”
Do you notice any problem here? I bet you do. This is a time bomb starting ticking.
First, the two suppliers will not provide the same product and it will be hard to compare prices.
Second, once production starts and the products come out of the factory, against which standard will the product be tested and accepted or rejected?
This is an extreme case to highlight the problem, but this happens often in a lesser extent. You will be wise to avoid this.
It is relatively easy to receive quotations from suppliers, but not all quotes are valid.
Quotes are only as good as what they include and there is no value in a low price for a product that is not compliant with your requirement or from a supplier which cannot possibly make a compliant product.
When you request prices, before you can take any quote seriously, you will need to qualify the supplier: is this a serious supplier; do they understand what we require and quoted accordingly; are they not just trying to get my business at any cost and planning to negotiation lower standards or higher price later on?
Recently we searched for reliable suppliers of custom tempered glass for an industrial application. In parallel to our search, the client posted a quote request on the website mfg.com. The client received a very attractive quote from a supplier using the online platform. Prices were really competitive. Having some experience in China, the client consulted us regarding this and sent us quote and contacts for further qualification. This was an excellent idea.
Our sourcing engineer called the supplier’s contact person on a mobile phone. The conversation was very short and vague, ending on: “Sorry, I cannot talk much now, I will call later.” This conversation left a “funny feeling”, something was not right. Following up, the sourcing engineer called the supplier main number and asked to talk to the same contact person. The answer was: “Sorry Sir, but this person no longer works for our company!”
The quote was a fake. The so called contact was actually still able to access the mfg.com platform under its former company’s name and get access to potential clients.
You better catch that as early as possible in the process. Low price is good, of course, but it also can mean troubles!
This is an extreme case again, but, more often than not, you will receive fantasy offers from unscrupulous sales people or super competitive proposal from too hungry traders, that finally prove totally speculative.
However attractive an offer looks like, keep cool and proceed with proper supplier qualification before getting excited.
This was already partially touched upon in last post. Here is a real case where a simple but complete price request document helped us save money to our client later on in the sourcing process.
Eight paragraphs illustrated with drawings and photos. A complete document addressing technical specifications, production process requirement, packing and labeling requirements, golden sample process, contact address and delivery address, all within 5 pages.
Unlike the vagueness of the first case in this post, there is not much that can go wrong here.
Later in the process, the client rejected the first samples produced by the suppliers. A new set of samples was requested, of course. Realizing that it would incur additional expenses, the supplier explained that they would obviously make new samples but that they expected the client to pay for the transportation to Europe. You do not get anything if you do not ask, right?
Such small negotiations come all the time when dealing with Chinese suppliers. It is always possible to manage it. But it takes times and energy.
In this case, though, the short price request document clearly indicated that this sample transportation was at the supplier cost. This made the discussion easy to handle and we rapidly settle that this was the supplier responsibility as it was clearly listed before the price quote.
This is a very small item, but it shows how you can anticipate small problems and tilt the negotiation lever to your side early in the process.
You can find good information related to pricing in China on these links:
I will continue to post such tips from time to time.