The owner of a small company in Chicago called me this week. His company manufacturers a kitchen product and they have been in business for about 7 years. In that time they have gone from one employee to eight. They bring in 3-4 containers a month from China and they are showing up in a lot of major stores now including Pottery Barn and BBB. The owner, Randy, told me that he has some worries as his business begins to grow, his main concern being that he has no idea who in China is making his product, as an agent there in Chicago handles all of his orders. As he rather bluntly but succinctly put it to me, “if this guy gets hit by a bus tomorrow then my business is screwed.” He is correct there. The lack of transparency in your supply chain should be a big concern, and the bigger your volume the more you should worry. Randy told me his agent there in Chicago seems reluctant to divulge the name of the factory in China to him, something he is becoming more uncomfortable about. At the same time he has an offer from another Chicago-based agent to handle the business. This new agent is promising him NET 60 terms. The current agent requires a 25 % deposit and payment in full once orders have been received so this is another reason Randy is looking at alternatives now. He called me to ask what I thought he should do.
My advice to Randy was to suggest a trip to China with his current agent to look at his product, see the factory and maybe inspect an order. He has not been to China yet and it is time, after 7 years, that he went. I told him that he has every right to see where his product is being made and to meet the people who are making it. If his current agent balks at this suggestion then Randy should begin to look for a new agent ASAP or, better yet, consider finding a factory and going direct to China with his orders. He seemed to think this was a good idea. I emphasized that his current agent has helped him to build his business so he should appreciate that and give this agent a chance to work with him on making his supply chain more transparent and efficient. But Randy’s is a very reasonable concern and his agent should know this.
Regarding, the new agent who is offering Randy NET 60 terms, I told him I have never heard of anyone offering NET 60 out of China. Randy said he believed the agent had a relationship with the factory that allowed him to offer these terms. That is very possible because most agents in the US have close relationships with factories in China. In many cases the agent in the US is a relative of someone at the factory in China. Still it just seems too good to be true and I don’t think any factory in China is willing to take that risk. I mean the goods could sit in Randy’s warehouse for a month before he was asked to pay for them under a NET 60 arrangement. Anyway, I told Randy not to put much credence into this offer but it wouldn’t hurt to do a small order or two with this agent to see if he honored the terms and, more importantly, how quality held up.
Overall, Randy is thinking in the right direction. His business is changing and he sees the necessity to change the way he does business.