Some China exporters offer products that were not shipped out due to order cancellations, physical defects or performance problems. While most makers inform buyers about the situation, a few are not as upfront.
Low prices, fixed quantities and short lead times? Chances are, the manufacturer is trying to dispose excess stock.
Although China suppliers take measures to ensure all export output is shipped out, there are some instances when products do not leave the warehouse. In certain cases, this is because the order was canceled when the company was unable to meet the delivery schedule or the buyer pulled out at the last minute. Most of the time, however, these are lots that failed physical and performance tests.
In the garments industry, some buyers refuse to accept delivered goods if they were shipped late and if the color or other design elements do not match exactly the sample or specifications. While this does not happen often, there usually are a few cases per year. Suppliers that do encounter such incidents try to sell these goods to other customers at the same price quoted to the original buyer. Makers do not see the need to reduce prices since they believe the products are in good condition. Plus, the order can be shipped right away.
While the majority of these companies obtain written permission from their OEM clients to offer leftover stock to other customers, some suppliers do not.
Products being offered at unusually low prices, however, may have more noticeable defects. In the home appliances industry, suppliers claim they are transparent with their buyers regarding such items. Defective goods are divided into two groups. Type A products usually have only physical imperfections, while those classified under type B have mild performance problems such as low efficiency.
Daniel Rosa, a professional buyer of IT products and computer hardware for Brazil-based MYMAX, said there are ways to distinguish new and stock products. The manufacturing date and other information are printed on the PCBA and power cable. The packaging should be inspected, as well as the logos. It will be noticeable if the supplier tried to rework the logo into a new one.
Suppliers that are trying to resell good-quality surplus stock are generally upfront about product specifications, available quantities and where such items were supposed to be exported. Those offering slightly defective models, however, may not be so forthcoming.
In many industries, suppliers tend to overstock on raw materials and components as a precautionary measure. Some home appliance makers, for instance, procure 10 percent more than the requirement as buffer against wastage and shortages.
Many of these companies then try to contact buyers and see whether they would be willing to have products made using excess materials and components. The parts are not brand new, but models will still be made to specifications and can be offered at slightly lower prices. The only drawback is that output is limited by the number of products that can be made using the available components.
There are also some suppliers that disassemble stock products and reuse the components. In this instance, unless makers are upfront, it will be difficult for clients to know their products will not be made from brand new parts. Buyers of split air conditioners could check the manufacturing date of the indoor and outdoor units. If the difference is more than five months, then it is likely that reused components were employed. The compressor can be inspected for the lot number and manufacturer, but this would entail having to open the outdoor unit's housing.
Note: This article "Sourcing excess stock in China" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.
All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.
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