Cost should not be the most important factor in vendor selection

I had a conversation on the phone last night with the client  who sent me to Zhejiang recently to check on her production. She just arrived at the FTY yesterday with a colleague and told me that the problems I had outlined in my report are exactly as they found.  She is at the crossroads whether to accept the order late or just cancel it altogether.  Either way, this order of seasonal product will result in significant lost sales for her company.

The lesson to be learned here is that it is not always a good idea to partner with the FTY that gives you the lowest price, what had been one of the main selling points for this particular FTY.  Equally important factors are quality, timely delivery and communication ( in all fairness to my customer, the vendor’s communication had been pretty good and this was one reason she had decided to give them some business ).  Of course, you can never be sure of a vendor’s reliability until you have done some orders with them, but a rigorous sample order or small pilot order – time permitting – should at least give you an indication of what they are like to work with and whether they can deliver a quality product to you without significant hiccups in a short time.  In fact, I would say the best business decision is to select a supplier who can do this even if their prices are higher than the competition. My reasoning is simple:  if you can’t get quality product to your customers on time it doesn’t matter how cheap it is;  you will lose sales.

This is what I have advised another customer of mine who is grappling with price increases from her vendor. The prices the vendor is quoting her are high and becoming higher with each order she puts in; for her latest order the vendor’s prices are double the quotations I received from other vendors for the same product. Yet my customer admits that her current vendor always makes good on their delivery dates and replaces defective product at no cost to her. Overall quality of the product is good. For this reason, I have advised her to accentuate the positive with her current vendor – good lead time and quality – and at the same time to begin ASAP developing a couple of back up suppliers. The idea is to find a few vendors who are 85-90% as competent as her current supplier in lead time and quality but who are significantly cheaper and to gradually move production to the new vendors so that the current high-priced vendor at some point assumes a back-up role.

One has to remember constantly that doing business in China is as much about strategy as it is about price. The best strategy is to evaluate a relationship with a potential vendor from all angles:  cost; quality; lead time and communication/customer service.  If you are solely focused on low cost, aka “the China price”  then you risk losing sales and, more importantly, your customers.

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