Confused About Purchasing From China? You Need An Expert!
Purchasing has a massive impact on costs, it’s probably the biggest influencer when increasing profits, reducing supply chain cost and ensuring on-time delivery. And its really easy to be confused about purchasing from China.
Purchasing (if we talk about it as an entity); is not just about handing over cash in return for a product.
In this post, we are going to be looking at the importance of purchasing, what’s included in the purchasing systems and how, by engaging in a true sense of purchasing, you can build lasting supplier relationships; gain better product quality, establish on-time delivery and above all else; improve end-customer relationships.
Confused About Purchasing From China? Not any more.
Why is having a strong purchasing team important?
Purchasing is the process of selecting a supplier, negotiating contract terms and managing suppliers performance in completing the terms of that contract.
That’s no small feat; you have to admit.
Selecting the best supplier
It may seem like its simple to select the best supplier for your new product out of China.
Simple; just log onto Alibaba, type your product into the search bar and boom. Lowest cost, sorted, just go for that one.
Well, no it’s not that simple.
We would all love to get the lowest price possible. Indeed that is the aim of the purchasing contract, but we need to get the best value for money, to gain the total lowest cost.
There are fundamentally two ways that you save money:
- The price that you pay directly when purchasing stock
- How efficiently the supplier produces stock to your contract
There are some different approaches on how to get the best bang for your buck. When working in Asia, be it with Chinese, Vietnamese or any other Asian supplier. Companies tend to head straight to the cheapest option, when in fact that is not always the best tactic.
We spoke about the true cost of manufacturing poor quality in previous blog posts.
By choosing the correct supplier from the beginning you can remove a lot of the issues and subsequent costs that you may have down the road.
Relationship building
A lot of companies, when first searching for manufacturing partners; come to Asia with a very heavy-handed negotiating techniques. When in fact you need to develop and build good relationships, this, in turn, pays dividends; good relationships can not be understated in business and it’s the same case here.
A good purchasing buyer builds these relationships from the first initial contact with suppliers. Selecting the correct partner in Asia starts with robust requirements.
The Process
Trying to select the best supplier is a little like selecting the best new TV to watch your favourite shows on. It’s hard to choose; with so many brands and combinations of specifications. You want to ensure that you get the best value for money. This is important for obvious reasons.
Buyers have the same issues.
However, there are some steps that purchasers can use to ensure that they get the best value for money possible.
6 step process to selecting a supplier
- Recognise the need- You require the product, but, do you fully understand all the needs of the product? If you are searching for products when you don’t fully understand what the function, fit, market is then chances are you may be searching for the wrong thing in the wrong place. Get to grips with the product and the request for the product.
- Understand the needs of the end customer- What are the needs of the end customer, in this we mean the end-user the person who will be using the product. What is needed in terms of cost and when does it need to be delivered by?
- Determine the strategy for buying the item- Will you source this item from just one supplier? Will you be looking to purchase this from a manufacturer, trading company or a wholesaler/ distributor? All have benefits and pitfalls. If you have a plan that considers the best fit then you will be in a better place to get the best value for money.
- Identify potential suppliers for this product- This is where you can start to look for suppliers that may make similar items of your proposed product based upon the needs that you have understood in the previous steps.
- Send out your RFQ- We have dedicated an entire post to RFQ compositions and construction. The better the RFQ, the more robust and accurate the quote will be. You can read more on RFQ’s here.
- Award the contract- There are sub-steps between the receiving of quotes from your potential suppliers, ensuring they are the correct supplier for the product and you, and awarding the contract. These can include ensuring that the suppliers understand payment, delivery terms, quality requirements and communication expectations.
Purchasing does more than issue PO’s
A buyer has to have a full list of skills to engage in getting the correct supplier. Reading the above process flow it reads more like a project manager mixed with a quality engineer, with a bit of a buyer thrown in for good measure.
And that’s exactly the skillset a good buyer in 2020 has. What started as a simple role that merely placed PO’s on the supplier, is turning into someone who sources globally, ensuring production is completed on time at the correct quality standard required for the end-user.
Its never been more important to get this level of quality right
In 2020 alone, just in the US Toyota has 27 vehicle recalls for safety issues. These issues are not due to final assembly in the manufacturing plant.
What does that mean?
90% of these failures/ failure modes causing issues are attributed to suppliers and supplier defects. The importance of supplier quality cannot be understated. You could have the most efficient production line in the world, but if your bought in sub-components fail prematurely it’s going to be you that feels the full brunt of the customer’s fury.
Quality throughout the supply chain is paramount. And it all starts with the supplier.
ESI- Early Supplier Involvement
The earlier that you can engage a supplier, or a supplier specialist in your hardware project design; the better. This is because the product is designed with manufacturing in mind from the very beginning. There is no point in designing a product that is impossible to assemble or astronomically expensive to manufacture.
Supplier Quality Management
When looking to start any manufacturing process there is one item that should be at the forefront of all involved:
The end consumer
When engaging with any supplier its imperative that they see the end consumer as the customer, not you as the buyer. Ensure that your manufacturing partner in Asia understands that your end customers needs are number one in quality requirements.
Good suppliers are the ones that not just meet the end customers expectations but keeps it in their mind that the aims are to exceed the end consumers expectations. When you discuss with suppliers and use words like “Your customer’s expectations” then you know that the supplier is along the right track.
How to ensure you have the best suppliers?
Luckily we have saved you the hard work and have listed some of the points to employ when you are looking for a supplier:
1. Contracts are only awarded to suppliers that have standards-
A standard is a repeatable, harmonised, agreed and documented way of doing something. Standards contain technical specifications or other precise criteria designed to be used consistently as a rule, guideline, or definition. They help to make life simpler and increase the reliability and the effectiveness of processes or products.
At the very least ISO: 9001 should be held, ISO 14000 series of standards are a close second. ISO 9001 is an indication that the supplier has a quality management system, it’s a great litmus test to ensure that the management system is capable of actually managing your order. It *should* mean that the supplier employs a system whereby things are held, recorded, documented and is auditable.
The ISO: 14000 series of standards apply to environmental factors. It indicates that the supplier is taking steps to promote environmentally friendly systems.
These are the very minimum standards that you should be looking when earmarking quality suppliers.
2. Audit suppliers and look for process implementation-
We have spoken at length in previous blog posts about the importance of process control in manufacturing environments.
Through robust audits, you can get an understanding of the processes the supplier employs, you can ask to see the process control documentation in the audit. If you are looking for a supplier audit in China or surrounding areas then check out our auditing services here.
3. Be a good customer-
Ok, this may sound a strange one but remember you are trying to build relationships here. Business relationships when strong can pay dividends. You will get good results, a better product and improved communications as a result of a good relationship with your supplier.
How do you keep a good relationship? Paying on time is always well received by anyone.
4. Be concise in your request-
If you want something designed to a robust standard then share the standards and documentation around that example and request in full. Remember, that no one is a mind reader, disagreements nearly always happen because of a misunderstanding, its prudent to build relationships through correct requests made promptly.
Ensure that all your requests are documented and have either drawings or signed off samples to reference against. There is nothing worse than having a misunderstanding down the road and it’s not documented. Its just basic due diligence to have everything documented correctly. It also helps you afterwards to understand what happened when and can be a great additional document to construct lessons learned from at the end of a project.
5. Give suppliers reasonable time frames to produce stock-
Never put yourself or your supplier in a rush situation if at all possible. I agree that this is occasionally easier said than done. But with proper preparation and control then you should be in a position to actively plan production schedules with enough time to not be in a rush.
Rushing creates an additional chance for issues to be introduced into the process and the only loser will be quality.
6. Be a good partner-
Accept supplier issues as issues to be solved together; it may be true that the supplier knows more about manufacturing their stock than you. However, if they are a small company it may be that you hold the necessary skills to apply some fresh eyes to the situation and help.
Besides, you may also have better route cause investigation skills than a small supplier. You should treat suppliers as partners, the issues if they are left to continue, will be your issues when they either get to the end customer or end up stopping production.
Remember that your companies goal is to ensure that quality products meet or exceed the end-users expectation. This is nicely put in our discussion about the Kano model in our operation excellence post here.
I have chosen a supplier, now what?
As discussed in step one of selecting a supplier, you need to understand your requirements. This is no different here. You have selected a supplier, its prudent at this stage to go over the points again one last time to ensure that the supplier has understood your needs and you have understood the needs of your supplier.
Here you want to enter negotiations from a position of understanding all the facts and data around you.
Understanding the suppliers wants and needs will allow you to understand what position you want to take on the negotiating table. Is it a strong arm static, relationship building or somewhere in between? Having an idea of your suppliers wants and needs will allow a better negotiation outcome for both you and the supplier.
Trust and relationships are always the best way to conduct business. You want your supplier to be around for at least as long as you are The reason? Selecting a supplier, developing products, tooling and processes is a laborious and hence expensive process. That time and learning developed by suppliers is not something that can be bought overnight. Relationship building is the key to success here.
Costs
So let’s not beat around here, a decent purchasing team can pay off many times over, they can save you time and money at almost every step in your process. However, to get to a position where you can save costs, you need to first understand costs. This is where cost analysis comes into play and it in itself is a topic with many nuances.
Everyone wants to gain a fair cost in negotiations. When you enter into a negotiation on costs, you need to understand what the cost to produce it is. There are a couple of ways to do this.
Full cost breakdown
You can gain a full cost breakdown from your supplier if they are willing to share this with you. If you are lucky and they do offer you a full itemised cost breakdown you can start to benchmark against an estimated cost against each line.
Adding these estimations up you can start to build a picture up of the full cost of the product. For example, if they are charging 100 USD for material but you know that the material raw cost is 50% cheaper than this, then there will be an area for improvement.
If, like in the majority of cases; the supplier decides not to provide you with the full cost breakdown (which is usually the case), you can embark on conducting a cost breakdown yourself.
BOM
This is usually conducted by requesting a BOM (bill of materials) you will then start to build an estimated cost of each item against a projected benchmark, this will then allow you to best estimate the cost of production.
But that is exactly what it is. Its an estimate. This is the best way to gain the should cost.
Wrap up
If you are still confused about purchasing from China? And You Need An Expert; we write a lot about quality here at Merchsprout Its just what we do. Having a decent purchasing team can pay dividends and when the purchasing team also understand engineering and quality. Then you have a very very strong team. When this team can source globally then its a full recipe for a partnership that can save you costs at every opportunity.
Here at Merchsprout, we don’t just strive for the best quality at the lowest price, we develop our client’s companies into lasting companies by building relationships by partnering them with the perfect suppliers.
If you would like to speak about how we can help your company develop, partner and nurture these perfect manufacturing relationships then please get in touch with us to find out how we can help. And be sure to add us on Linked In here.
Confused About Purchasing From China? You Need An Expert!
