What to do when a vendor raises costs ( cont)

To continue the story of my client who had emailed me about the sudden rise in cost and MOQ from her vendor in Liaoning. When I told my client that she had done everything she could have done with this vendor, in terms of visiting them, starting out with a small order and then QC’ing the order before it left China, I added that the only thing she might not have done was to send the vendor a strong message that sudden and steep price hikes would not be tolerated. To this she replied:

“We actually DID have the conversation about cost hikes on our visit. It came about by accident. We were at the market and I was surprised at the cost of the stretch velvet, which was higher than what we pay in the south – I told Mary I was surprised that they could give us such a good price with the cost of velvet that high. And she flat out said that her boss said to give us a good price to get our business, so I brought that to a grinding halt and we discussed this. I told them that we did not operate that way. We expected the correct price at the outset etc etc. Bob and I further discussed it with them in a formal meeting.”

After I received this reply, I spent a few hours on some other China sourcing blogs just to see what other people who work in China and encounter this problem advise. But, I did not find anything beyond what I advised and what my client did. In other words there is really nothing you can do to prevent these sudden cost hikes. Nevertheless, I would qualify my advice to my client and say that you never want to appear desperate to a vendor or give them the impression that they, the vendor, are everything you have been looking for. You should always leave them with the feeling that you would like to do business with them but that you have plenty of other options. I am not sure my client did this or not.

Thinking more about this issue over the weekend, another thought occurred to me, namely that it is SOP in China for vendors, when asked, to tell you which companies they have manufactured for. The vendor in Liaoning listed companies from all over the world, including some global names, on the questionnaire that I submitted to them at the time I was reaching out to factories. So assuming you have gone to China and audited a factory and everything checks out the last step in the process might be to ask your vendor who their other customers are and ask them to prove to you that they have had longstanding relationships with some of these companies. They should be able to provide this to you in the form of invoices. I have never in fact tried this but it might be a way to see if a vendor is a good long-term prospect. After all if an overseas company has been a customer of Vendor X for 3 or 4 years it tells you that Vendor X probably does not have a lot of unreasonable cost hikes. However, I would only try this if I was on site at the vendor’s office, and was more or less prepared to give them an order. I would think then that they would be willing to pull out some invoices right there to demonstrate to their customer that they were a reliable vendor.

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