Happy Chinese New Year! The year of the Ox officially began on January 26th and this year promises to be a challenge for everyone. The Ox is one of 12 animals that represent the Chinese Lunar Calendar. The Ox symbolizes prosperity, strength and ambition.
It is clear that 2009 will be a challenge for everyone (buyer and factories alike) and the need to be Ox like will be a must. Dealing with and overcoming the world wide recession is a task we must all address. Our clients all over the world are telling us the same things. They want to move forward cautiously because of the uncertainty in the market now.
As someone that is buying in China and then selling to your customers in another country, here are some tips (besides paying attentions to Project Management, Third Party Inspection and QC) when talking to your existing or new Chinese factories and suppliers:
1. Ask your current suppliers for a price decrease because of raw material prices have gone down. You can use web sites that track world wide commodity prices as a reference and reason for asking for the discount. The price of steel is a good example because recently from September 08 to till now, it is down about 20%).
2. Push for lower Minimum Order Quantities (MOQs). The factories are more willing to reduce their MOQs now than they were before 2008. Use this to your advantage to lower your inventory dollars.
3. Make sure your suppliers understand the current economic situation and ask them to focus on increasing efficiency and productivity. Help them by sharing your manufacturing knowledge.
4. All buyers are trying to reduce the amount of cash tied up in inventory, so they are pushing for better payment terms. Unless you have a long standing, strong relationship with your supplier or suppliers, I don't see many Chinese factories giving better payment terms. Especially now with lenders not lending as much money, the supply of money is tight. If anything factories might start pushing for larger deposits and quicker payments. This could be a sign they have financial problems, they are questioning your financial strength, or they are just being very conservative. None-the-less, ask for improved payment terms and see how they react.
5. When talking to your suppliers about finances make sure you are asking many questions and getting the whole picture. Visiting the factory, doing inspection, and seeing their current production line will give you a good idea of their volume of business and is a good indicator of financial strength. Ask harmless questions to line supervisors and assistants (not the boss or the sales staff) like have they been working a lot of overtime, are they loading a lot of containers each day or week, are they buying raw material from the same suppliers they used in 2007 and 2008, etc. These are simple questions that a non-suspecting person will answer honestly while the salesperson or boss might give you a different answer. Be diligent and don't get caught holding a worthless PO.
6. Be aware of the product codes, description, etc of the raw material used in your items. With pressure to reduce costs, using less expensive materials than used previously is a high possibility. Make sure your factory uses your specified raw material.
7. Having and keeping a good supply chain is better than no supply chain. So working with your factories to get the best pricing is important but not at the expense of driving them out of business. I have seen factory bosses drive themselves out of business trying to meet all their client's needs. Work together with your suppliers and not against them, so you both make money and can be around a long time to support each other.
8. Finally explain to your suppliers exactly what is going on in your market. You are both in business to make money and as you succeed, so do they. If they have a better understanding of what is going on, they will not be as stressed and more willing to help you however possible.
Take this opportunity to use the Ox as your motivation to face this challenging 2009 with a positive attitude. With proper Project Management, Third Party Inspection, and QC at your Chinese suppliers, your company will strive and stake market share from your competitors.
Best regards,
Greg Schultheis President AMROSIA Group Limited info@amrosia.com www.amrosia.com
It is clear that 2009 will be a challenge for everyone (buyer and factories alike) and the need to be Ox like will be a must. Dealing with and overcoming the world wide recession is a task we must all address. Our clients all over the world are telling us the same things. They want to move forward cautiously because of the uncertainty in the market now.
As someone that is buying in China and then selling to your customers in another country, here are some tips (besides paying attentions to Project Management, Third Party Inspection and QC) when talking to your existing or new Chinese factories and suppliers:
1. Ask your current suppliers for a price decrease because of raw material prices have gone down. You can use web sites that track world wide commodity prices as a reference and reason for asking for the discount. The price of steel is a good example because recently from September 08 to till now, it is down about 20%).
2. Push for lower Minimum Order Quantities (MOQs). The factories are more willing to reduce their MOQs now than they were before 2008. Use this to your advantage to lower your inventory dollars.
3. Make sure your suppliers understand the current economic situation and ask them to focus on increasing efficiency and productivity. Help them by sharing your manufacturing knowledge.
4. All buyers are trying to reduce the amount of cash tied up in inventory, so they are pushing for better payment terms. Unless you have a long standing, strong relationship with your supplier or suppliers, I don't see many Chinese factories giving better payment terms. Especially now with lenders not lending as much money, the supply of money is tight. If anything factories might start pushing for larger deposits and quicker payments. This could be a sign they have financial problems, they are questioning your financial strength, or they are just being very conservative. None-the-less, ask for improved payment terms and see how they react.
5. When talking to your suppliers about finances make sure you are asking many questions and getting the whole picture. Visiting the factory, doing inspection, and seeing their current production line will give you a good idea of their volume of business and is a good indicator of financial strength. Ask harmless questions to line supervisors and assistants (not the boss or the sales staff) like have they been working a lot of overtime, are they loading a lot of containers each day or week, are they buying raw material from the same suppliers they used in 2007 and 2008, etc. These are simple questions that a non-suspecting person will answer honestly while the salesperson or boss might give you a different answer. Be diligent and don't get caught holding a worthless PO.
6. Be aware of the product codes, description, etc of the raw material used in your items. With pressure to reduce costs, using less expensive materials than used previously is a high possibility. Make sure your factory uses your specified raw material.
7. Having and keeping a good supply chain is better than no supply chain. So working with your factories to get the best pricing is important but not at the expense of driving them out of business. I have seen factory bosses drive themselves out of business trying to meet all their client's needs. Work together with your suppliers and not against them, so you both make money and can be around a long time to support each other.
8. Finally explain to your suppliers exactly what is going on in your market. You are both in business to make money and as you succeed, so do they. If they have a better understanding of what is going on, they will not be as stressed and more willing to help you however possible.
Take this opportunity to use the Ox as your motivation to face this challenging 2009 with a positive attitude. With proper Project Management, Third Party Inspection, and QC at your Chinese suppliers, your company will strive and stake market share from your competitors.
Best regards,
Greg Schultheis President AMROSIA Group Limited info@amrosia.com www.amrosia.com
About the Author:
Mr. Greg Schultheis has been living in China for more than 6 years. He is American born and living in China full time has allowed him to learn Chinese. He has consulted for big and small companies across the globe. To get a free consultation on Project Management and Third Party Inspection in China email us at info@amrosia.com
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