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7 steps to make China industrial sourcing successful

by Etienne Charlier

Successful China industrial sourcing is the result of a systematic approach and hard work. Shortcuts may seem smart, but most often, they result in bad surprises, delays or failure. I am always surprised by how often, even large organizations, will be tempted by these shortcuts. A few years ago, we put together a simple 7-steps approach to describe upfront what we believe is required to succeed in sourcing industrial and technology products from China. I take the main points in this post and also link a few older posts that are related.

1.Prepare

Many China sourcing initiatives run into trouble because of decisions made or not made at the outset.  Unclear targets, unrealistic expectations, lack of resources and many similar aspects, if overlooked, will cause project delays and waste of energy.

Successful companies have thoroughly prepared their project. For example, they dedicate initial time in order to:

  • Define specific ranges of products for sourcing, based on an analysis of volume, labor content, technical complexity and other technical, logistics and commercial aspects.
  • Spell out clear objectives in terms of cost target, volume ramp-up, sourcing project budget and supplier ideal profile.
  • Gather updated internal information such as product specification and standards for the product to be sourced
  • Get a company executive to actively sponsor the project and set up a multi-function project team or involve different functions of the company.
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2.Identify

To get a short-list of suppliers matching the right criteria, a buyer needs to investigate a large number of potential companies. Only a small portion of them will be good enough to be seriously considered for further steps.

There are no reliable “Golden Pages” in China. Online directories are useful but not sufficient. Information provided by many poor suppliers is not a good representation of their actual capabilities.

The right way to build an initial short list will require you to:

  • Identify a long list of potential suppliers as long as possible.
  • Contact each of them by phone to collect information directly from their sales representative and evaluate the credibility of this information.
  • Screen out the ones that fall outside selection criteria or whose credibility is not strong enough.
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3.Qualify

This is probably the single most important step of the whole process. Out of all the suppliers that offer products similar to what you are looking for, you need to find the right match: technical capabilities, required volume and production capacity, account management capabilities, potential for growth and development.

Finding the right supplier requires the most systematic and thorough approach:

  • Perform on-site qualification visits for each short listed supplier.
  • Thoroughly evaluate all aspects of the supplier’s business.
  • Collect samples or visit reference sites.
  • Pre-qualify more than one supplier.
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4.Get pricing

Although it may seem easy, getting reliable pricing information from Chinese manufacturers requires special attention.  For example, many Chinese suppliers are flooded with benchmark pricing requests. They will screen which request they quote for.  In addition, requirements and expectations must be more explicit than when communicating with traditional suppliers.

To get the best out of price requests, it is strongly advised to:

  • Prepare a simple but complete pricing request or RFQ, including all necessary technical elements and standards.
  • Actively manage the quotation process with frequent clarification and follow-up phone calls. This is the only way to ensure  complete quotations on time.
  • Before spending time analyzing data in detail, quickly screen noncompetitive quotations and review the assumptions made by suppliers.
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5.Prepare first p.o.

Once the supplier is selected and the main terms and conditions are agreed upon, the next critical step is the first purchase order. This is when all technical and operational misunderstanding needs to be cleared.

Such technical and operational discussions are best held face to face. It is important to avoid misunderstanding and to build a personal business relationship with suppliers.

The preparation for the first purchase order is an ideal moment to organize a high efficiency China trip during which you can:

  • Have face-to-face meetings with the 2 to 3 pre-qualified suppliers.
  • Take the opportunity for a last technical and operation clarification.
  • Negotiate pricing and other terms.
  • Agree on the first order: estimated size, timing, payment mechanism, documentation.
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6.Inspect

The only truly safe way to source products from China is to retake control of quality control.  It does not necessary mean having extensive inspections for every order.  But it means devising a well structured quality control system, managed by the buyer or its representatives:

  • Prepare and execute a thorough quality management plan.
  • Make regular visits to suppliers to validate planning and progress.
  • Verify supplier quality documentation and run sample inspections.
  • Link payment of the goods to pre-shipment certificates issued by a trusted party.
  • Dispatch engineer on site if there is any doubt of quality or operational problem.
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7.Develop

When arriving at this step, buyers have one or several suppliers they comfortably work with.  It took time and resources to get to this point.

This is the time to consider whether this supplier can provide more bang for the buck:

  • Get more products in the same family of products.
  • Benefit from larger savings by increasing the scope of work of your supplier.
  • Get access to cheap technical resources by asking suppliers to work on product variants.
  • Enter in a supplier development program in order to further improve the deliveries.
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Etienne Charlier is the founder of procurAsia and assists companies in sourcing industrial equipment and parts from China.  He writes about sourcing trends and practical tips on his China Industrial Sourcing Blog. Etienne lives in Shanghai since 1995.  You can contact him here.

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