Evaluating a potential supplier – more tips

I have been thinking more about this over the last several days and I have come up with a couple more tips that you might find useful when trying to determine if a prospective supplier is right for you. These are as follows:

1.) Consider how far your vendor lives from the factory. You are going to be communicating with your vendor on a regular basis and will be expecting them to pass on all of your instructions and concerns to their workers. It is imperative, therefore, that the vendor lives in close proximity to the factory and is there at least a few times a week. “Mr Huang” in my previous post lived three hours from his factory and relied on his brother – who lived nearby – to manage the workers. When I was at the factory, I asked one of the workers how often Mr. Huang or his assistant came to the factory and was told once every two weeks. Vendors do not like to go to the factories because the roads are bad causing significant wear and tear on vehicles, there are sometimes significant bottlenecks with the traffic meaning a three-hour trip can take all day and, most importantly, there is an abundance of down-time at the factory and nothing to do.

2.) It can sometimes be insightful to meet a vendors family. I will never forget making a trip to China to talk to a couple of suppliers, one from Anhui and one from Guangxi Province. I spent a few days with each and in that time had occasion to meet their families. Mr Zhang, the Anhui vendor, had a son whom he seemed to be having significant trouble with. He was attending a private school in Beijing but, from all appearences, was not very motivated. Well, as it turned out, Mr. Zhang’s son was just like Mr. Zhang. Even when we dangled promises of lucrative orders in front of him, Mr Zhang moved with all the alacrity of a snail. He was always behind on the production and shipping schedule and this caused significant problems with our customer because we were delivering a seasonal product. In fact at one point our customer had to stop their order processing just to wait for our deliveries. After just one year we cut ties with Mr. Zhang.

Mr. Ma, the Guangxi vendor, on the other hand, was an impeccable vendor. Although he could not boast first-rate production facilities he always delivered product on time that was according to specifications and very clean. But this was not surprising to me after meeting Mr. Ma’s son, a sharp kid who was studying engineering at a very good university in Beijing. He also spoke great English. In fact, Mr. Ma’s other two sons were also attending very reputable universities. That a rural vendor – Mr. Ma lived close to the factory, five hours from the nearest city – would be able to send three children to good universities spoke volumes about Mr. Ma’s work ethic and values. Of course, you are not going to select a vendor just because he sends his son or daughter to a good university, but how he/she runs his/her family can be a clue as to how he/she runs his/her business.

These, then, are some of the little things that can help you to evaluate a vendor.

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Evaluating a potential supplier – a tip

I had an email from a company yesterday detailing some of their problems in China. They have burned through three factories as follows:

Factory # 1 Good factory but bad management
Factory # 2 A rotten egg
Factory # 3 Internal communication problems so that QC issues are not passed on from management to workers.

This third scenario I have seen all too often in China. In China today factories that have traditionally been engaged in light industry ( esp high volume & low-cost handicraft product ) are actively looking for new ways to make money, the margins on their existing products being minimal. The owners of these factories are extremely entrepreneurial and it is not uncommon to meet someone who has three or four businesses going simultaneously. Unfortunately, this means that they often do not give your orders the priority you want them to, and in some cases ( what I suspect happened with the company above ) neglect to train the workers on your quality standards. They are simply too busy. Take “Mr. Huang”, for example. A company I was working for once had contracted Mr Huang to make baskets for them. But Mr. Huang was also making Christmas ornaments, picture frames and Chinese medicine. In fact, every time we visited his factory the first place he would take us would be to the section of the factory where he and his father had stored hundreds upon hundreds of medicinal roots. Mr. Huang was always trying to get us to invest in his new Chinese medicine venture, which he seemed generally excited about. I think baskets were the last thing on his mind, which was unfortunate for us because they were the first thing on our mind. We had a big order from an important customer.

A good lesson to be learned from this is that when evaluating a supplier, make sure to visit their showroom ( most factories have one). If there is a variety of product this means the owner is likely involved in several projects at the same time. Ask him about his other products and try to gauge his interest. If he shows more interest in a line of product other than your own he will probably be that way when production time comes.

How to handle a problem supplier

I don’t know if I have ever worked for a company where there has not been a problem supplier. The supplier who is always shipping late, whose quality is inconsistent, whose communication is slow and erratic. Having a good product with a bad supplier can be an extremely aggravating experience. The question often comes up: how do you handle problem suppliers?

I like to answer this question by telling people that the best way to handle a problem supplier is to avoid them altogether. To do this one needs to evaluate a vendor as thoroughly as possible before deciding whether or not to do business with them. Factory visits and audits are extremely helpful in forming a general first impression of a vendor and their capabilities. However, you have to keep in mind that just because a factory is clean and seems well-organized does not mean it will be the best partner for you. I once worked with a factory that had state of the art machinery, a very clean facility, some very solid workers, but the management was bad. Emails went unanswered for days, problems were not resolved, and the relationship between the factory and the company I was working for was terminated after one year. I have also been to rural factories with rudimentary facilities but the management and communication was so good that problems were resolved quickly and to the satisfaction of all parties. In short, you cannot base your decision solely on your evaluation of a vendor’s facility. More important, perhaps, is your vendors responsiveness and willingness to work together with you.

I have found that one of the best ways to tell if a prospective supplier is going to be a good long-term partner for you is to email them several times – perhaps about samples you want to order – and see how prompt and informative their responses are. What I always tell people is this : If it is frustrating communicating with a supplier when you are just requesting samples, imagine how hard it will be when you get to production. I have generally found that suppliers who are not in the habit of returning emails in a timely manner generally do not make good long-term partners. It is sometimes impossible to solve problems with them, the result being that they deliver to you product which you cannot pass on to your customer. Those suppliers, on the other hand, who make it a priority to answer your questions can prove to be very reliable and much easier to work with when and if problems arise.

If your current supplier is not a good communicator, then you really need to begin to look for a new supplier. There are of course exceptions to this rule, but they are rare.

The Canton Fair

The Fall Canton Fair ( known in China as the 广交会or Guang Jiao Hui) concluded recently. There were over 23, 000 exhibitors this year. Against the backdrop of the continuing row between the US and China over the Yuan, many vendors this year were taking only short term orders ( delivery within 6 months) fearful that long term orders based on an undervalued yuan would hurt their bottom line. And many small to medium sized exhibitors were expressing concern that the appreciation of the Yuan would soon put them out of business. Knowing the Chinese fondness for hyperbole as I do, I suspect that most of these companies will not go out of business but will simply have to streamline their operations. Still when you look at the seasonal manufacturing business in Guangdong and the impact the Global Economic Crises had there on small and medium sized businesses you wonder. As more than 70 % of the exhibitors at the Canton Fair are small and medium sized businesses, I shudder to think what would happen to the Fair were many of these people, in fact, put out of business? One of the great trade fairs of the world would shrink drastically in size.

The Canton Fair is an amazing experience. You can spend a day walking around and talking to what you think is every decorative ceramics vendor in China, only to discover that you missed another 200 vendors in the building across the street. The scale brings to mind Woodstock. Only the Canton Fair is about ten times as large.

But the real bargains are to be found at all the auxiliary fairs that spring up around the Canton Fair, usually seven or eight of them in Guangdong at the time of the Canton Fair, like the Jinhan Fair or the CAC Fair. These fairs are where you find some real gems, rural vendors with exquisite craftsmanship who simply lack the sales and marketing to make a name for their product. These fairs may in fact grow in size as many vendors decide they can no longer afford the hefty entrance fee to exhibit at the Canton Fair. Or these fairs may die out altogether. Let’s hope not.

Christmas Trees: made in China or Vietnam ?

When I lived in Shanghai I had a friend from Taiwan, Mr Wang .  Mr. Wang owned a factory that made Christmas lights. It was a fairly large factory by China standards and every summer Mr Wang’s business was thriving – getting ready for the annual flood of Christmas orders from Taiwan and the UK. I always think about Mr. Wang around this time of year.  I wonder how he is doing now, because the toy and seasonal gift industries in China have been heavily impacted from external events – the Global Economic Crisis – and internal pressures: rising wages and higher production costs. Of more than 6000 toy and seasonal gift companies in the Pearl River Delta region (where over 80 % of the World’s toys are manufactured, to the tune of $ 1 billion in annual sales) over 3000 business have shut down during the past two years. There is widespread worker dissatisfaction with wages because of successful high–profile walkouts at neighboring Japanese automotive factories resulting in steep wage increases – and this is taking its toll on the manufacturers in the reason. Although most manufacturers can only withstand slight wage increases ( 5-10 %) workers expect much more because they have heard that workers in other industries have had their wages doubled in many instances. In China, rumors spread like brush fires especially among workers who often do not have access to computers and cannot verify the information they are fed. And much of the work force is simply illiterate.

I have visited many factories over the years and I always make a point to talk to workers. They often have interesting stories to tell, they can sometimes tell you things about how the factory is run that the manager himself would not tell you, and, most importantly, they are making your products. If nothing else I just like to make sure they are following the specs and thank them for their efforts, something they always appreciate.  I have noticed in recent years, however, that there is more grumbling than usual about wages. As cities grow and the cost of living rises, workers who are used to making $10.00 day – a standard wage in most rural factories – find that they can no longer afford basic staples.  It is a given nowadays that if you visit a factory and talk to one of the workers you will almost certainly hear a gripe about wages.

The result is that many of these factories – owned by Taiwan and Hong Kong manufactures – are relocating their operations to Vietnam where wages and production costs are still relatively low. Still, as more companies leave, I think this represents a good opportunity for the American buyer in China. China after all has many advantages that Vietnam does not, namely a large number of skilled workers (China, for example, employs more workers in the apparel industry than Vietnam employs in all of its industries). And the costs of inland transportation in China – from factory to port –are much cheaper than they are in Vietnam.

It is also good to remember that many inland provinces in China are as yet underdeveloped. When we read about labor unrest or shutdowns of factories due to high production costs, these are invariably stories from special investment zones or relatively developed coastal provinces like Guangdong, Hainan and Zhejiang. However, much of China remains untapped. Travel to a city like Fuyang, in Anhui province and you will feel like you are back in Shanghai circa 1982. The contrasts are stark. But cities like Fuyang, where wages and production costs are still low, where there is a large labor pool ( Fuyang’s population is almost 9 million) are the future of China and represent a significant opportunity to the buyer. Who knows Fuyang may one day replace Dong Guang as  the artificial Christmas tree capital of the world.