In going through old emails this morning, I came across a gem. It is from a Spanish company that has for around 25 years been successfully sourcing a particular household item for a large number of companies throughout Europe. I had asked the head of this company — the company is based in both China and in Spain — to what he attributed its long-standing success and relatively few problems. I found this person’s advice clear, accurate and helpful, and I run it below, modified a tiny bit for ease of reading:
I appreciate you are asking for input, so here is how we do things:
We stick to our 12-14 long term suppliers, order within their and our comfort zone and pay just before goods reach the destination harbor in Europe. If we need to work with a new supplier, we may agree to pay a deposit on the first three orders, at most. Payment terms are not about money or cash; they are about leverage. No matter how “nice” the factory owner may seem and no matter how “cute” the salesperson, we do not give suppliers leverage over us.
Our contracts and purchase orders and pro forma invoices are bilingual and clear as to the rights, obligations and responsibilities of the parties. We rarely use our contracts to hammer our suppliers’ heads, but they are very useful in case we need to clarify who got something wrong and who needs to solve it (sometimes it is us, by the way). As you are always saying, it certainly helps even in these sorts of situations to have a contract that is actually enforceable against your Chinese partner, because without that you do not have the leverage you need.
Quality starts with the right supplier and ends with the right product. In the middle you have clear product specifications, proper tooling, sample approvals, production follow ups, quality inspections before shipment, and feedback from the market. Yes, we quality inspect (and, after having had quite a few quality inspectors, we now inspect just about everything OURSELF), but being oblivious to the rest of the quality ecosystem and just relying on a local quality inspector is the kiss of death. By the way, and I am sure you know this, paying ______ [a large and well-known QC company] to send in one of their local inspectors is little (in fact, I would say no) guarantee. The same holds true for buying off Alibaba, which we never do
As I get older I have the impression there is more of a sense of shame in letting me down, so I suppose that helps somewhat, but this can work only with your long-term established suppliers. No matter what, it is a multidimensional moving target, so if you do not have your finger on the pulse it will be hard to make the right decisions. Even if you make the right decisions, there is always an element of uncertainty. Good factories tend to be extremely busy; also, local measures to limit the risk of a second COVID wave may magnify the effect of the already painful enough Chinese New Year hiatus.
We do well and despite so many years in the industry we have had very surprisingly few problems. However, the investment has been and continues to be huge. I doubt smaller companies working through email and the occasional visit (pre-COVID that is) can manage China in a satisfactory manner. In fact, my feeling is for many smaller companies it may be better if they leveraged the possibility to buy direct from China to get better terms from experienced importers. If they absolutely need to buy from China, smaller companies should consider using recommended foreign nationals based in China to source their goods, ensure quality and avoid risks (also deposit payment risks). This will “cost” them part of their profits, but in the long run it should be worth it.
Larger companies should use their leverage to NOT pay deposits. Beyond this, they should not rely on a single supplier and look for better alternatives in China and outside China. This may not be easy or seem urgent, especially when your local office may have gone native, but it is essential.
I admit my advice does not amount to much, especially compared to an investment of 25 years. But I hope it helps.