Managing Supplier Relationships in China – 5 Keys to Success

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Finally, you’ve received your goods from China. Apart from a few defective units, everything is just fine. Congratulations, you’ve made it. You’ve achieved something most small businesses will never do – establishing a successful relationship with a Chinese supplier. It can be a game changer for your business. With the right Chinese supplier, you might be able to bring in handsome profits for years to come. It might even give you the upper hand on the market. Now that’s certainly something that shouldn’t go to waste. Let’s look into how you can maintain your supplier relationship – beyond your first order.

Advice 1: Don’t be lured into switching to a “cheaper” supplier

 

Everything seems fine until one day when you receive an email from a supplier quoting a price, that’s way below what your current supplier is offering. Well, in case you didn’t make a proper price research (e.g. comparing prices between several different suppliers), you might actually be paying more than you should.

However, Chinese suppliers rarely hesitate to make grand promises (as long as they don’t need to sign anything). What I’m saying is that you should take the new offer, with a grain of salt. A supplier that’s quoting far below the market price, is probably not telling you the whole story. You might end up with a product that’s not matching your quality requirements, product specifications or the legal certification standards in your country. Some Chinese suppliers are in fact ready to go that far, in order to get a new customer – if only for one purchase.

If it’s not broke, don’t fix it. Changing a supplier is risky and time consuming.

Advice 2: Don’t squeeze your supplier’s margins

Chinese suppliers are accustomed to price negotiation. To a certain degree, it’s even expected. That being said, your supplier is a commercial enterprise – not a charity. If they don’t make a worthwhile profit on your order, they’ll give your orders less attention. They might even take it as far as reducing the quality of your product, without telling you.

Advice 3: Don’t relax your Quality Assurance procedure

If you relax your requirements after the first shipment, you might experience something called quality fade. The supplier seizes the opportunity to increase their profit margins by using cheap and substandard materials.

The quality is lowered bit by bit, until you notice that something is wrong. That’s not a good thing. Make your supplier know that you’re not one of those gullible fools.

Advice 4: Never rely on one contact person

Ever wondered why Chinese sales agents stick to G-mail and Hotmail email accounts, rather than using the company email? That’s because they essentially consider themselves as freelancers. The staff turnover is very high in China. It’s quite possible that your existing contact person will pack up his or her bags and go to another company at some point.

When that happens, you don’t want him or her to take your business to a new supplier – a supplier you know nothing about.

Advice 5: How to manage price increases

 

China is a chaotic place to run a business. I know from experience. Compared to the West, controlling costs is much harder in China. Minimum wages are increased, shipping costs are changing from week to week and the suppliers subcontractors are doing whatever they can do squeeze their profits. What I’m saying is that price increases are certain. That’s also why Chinese suppliers are highly reluctant to accept fixed price contracts.

However, there are certain limitations to how much the supplier should be able to get away with. While wages might increase 10 – 15% from one year to another, this is not a valid reason for the supplier to raise the price with the same percentage. The labor cost is often a fraction (5 – 20%) of the production cost. Other costs, such as raw material price increases should be backed up by a third party source.

 

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