By David Dayton in 'Silk Road International'
One of the most frustrating things that I hear on a regular basis from suppliers in China is some version of this: "This project is really difficult." I agree. Most things of value in life are. What's the point behind the words, though is the real issue? It's a complaint. But there is a point; some hidden meaning in the sentiments.
What it means is: "This is going to cost you more (time and/or money) than I originally estimated. We won't be able to do what we agreed to." Notice I didn't say "we can't do" but rather said "we won't do" it. That's the real point —what the supplier is willing to do.
1. "These molds are really difficult to make. We usually don't make them like this." Just about any tooling is expensive and detailed tooling takes both time and skill (aka money). When factories agree to do projects that require new tooling they often do not do a lot of research into the details of the new product if it's similar to items that they are doing currently. There are often, we found, sight design details that affect the look or the functionality of a product that have not been included in previous products. That's not a profound statement, I know. But the follow up is that many of these unique design details have been excluded for a very good reason —they can't be done with normal everyday mold/tooling technology. This means that once an engineer (as opposed to a sales guy) really gets into your tooling designs they quickly realize that there will be additional monies, time and maybe even a new factory involved in getting things done correctly. Or you can change your designs, eliminate the unique functions and pay the original bid price.
So who eats the costs for the under-researched bid? Unless your order is HUGE or you're a major client, you do, of course. Your supplier will not be willing to do pay these additional costs just because you tell him about your products' "potential" or how big your next order will be.
What happens if you refuse to pay? With tooling you may not even have this choice. More than any other production step, deposit money for tooling can be returned fairly easily since it's a) not usually more than a few hundred to a few thousand dollars, and b) they haven't invested in any raw materials that may have already been delivered. If you don't want to do more expensive tooling (which usually means going to a different mold & die factory) then you typically have to start all over with a new supplier or with new art.
2. "This packaging is really hard to do. Wow, it's taking us tons of time." Time is money —it's true in the West and more and more it's true in China. Gone are the good old days of extremely cheap, never-ending labor supply. Now you're going to be paying a piece rate or a price per action rate. Problem is, accurate forecasting is not yet as urgent a skill as is finance. So bids for labor are often too low and do not include enough time to actually get things done correctly. And of course, bids never include extra time needed to ramp up to full capacity, correct problems, or re-do any mistakes. But when you find out that the costs are higher than originally bid, you're usually 10-15% into the fulfillment, you're committed, you're within 1-2 weeks of your ship date, you can't back out. Your supplier knows this too. Unfortunately, this often means that unless you've detailed out every step in the packaging process (and photographed and translated them and had them signed by the factory) you're going to be asked to pay more just to get what you thought you already had agreed too.
What happens if you refuse to pay? This is much more complex than the situation with tooling. At this point, not only have you invested money and time, but your supplier is into the project even more than you are (they've paid 100% of the project costs already). If you refuse to pay you better have a) unlimited time to wait them out, or b) the ability to both let your projects die (and lose your money and see your product sold on the black market), or c) have a great local negotiator that can get you what you want with either a manageable or no price increase.