Establishing if your vendor is trustworthy

I had a discussion the other day with a consumer goods company which I found very interesting. This is an established company, a leader in its field, that makes packaging for some of the biggest retailers in the world.  The person I spoke with told me his company’s process for evaluating vendors in China, specifically how they decide who might be trustworthy and who not.  When they source new vendors in China they tell the vendor that they have a order from a large retail chain, one that the vendor has likely heard of e.g. Wal-Mart, IKEA et al.  They intentionally drop the name of the customer on the vendor. They then wait to see if the vendor contacts the customer directly. If the vendor contacts the customer, that tells the company that this is not a trustworthy vendor.  If the vendor does not contact the company, they then believe they are OK going forward with this vendor.

If you are a big company this is probably a good way to knock out a few unscrupulous vendors when you are sourcing a new vendor.  The strategy has worked for the company I talked to.  They have several vendors who they have been working well together with for years, and many more whom they have eliminated because the vendor approached the retail customer directly.

But if you are a small company is this a good way to select vendors ?  I think it all depends on your relationship with your retail customer.  If you have a solid relationship with your buyer then you can try this. Your customers have come to expect quality from you and it would be unlikely that they would seek to go direct to the factory in China, even if cost savings were substantial. The fact is that your retail buyers are paying you for the convenience of getting product made in China for them.  They have no interest in dealing directly with China vendors and resolving all the problems that usually come with a China order e.g. QC issues, cost increases, late delivery etc etc.  In fact, the company I talked to the other day told me as much.  He said that the number one reason companies pay him to source their products in China is that they have a much better chance of holding a US company accountable in case something goes wrong.  Makes sense as any kind of legal action in China is time-consuming and costly.

At the same time, if you are doing orders with a large retail chain but have not yet established yourself with the buyer(s) then I would not try this for the simple reason that if the retailer already has an overseas sourcing agent they might use your contact and place the order directly with the factory. Although I don’t think it happens often, I have worked in companies where it has happened.  And this is why most product development companies and wholesalers are very protective of their information.

In the end though, you have to remember that there really is simply no way to know which vendors are trustworthy and which are not. Just because a vendor does not contact a customer whose name you have dropped does not mean they will not act dishonorably later on.  Because of this when you source in China the bottom line should always be whether or not a vendor is helping you build your business.  As long as they are doing nothing illegal and your business is growing it should not bother you if they are sometimes dishonorable in their dealings with you.  A case in point, I used to work in an office of an American company in China. The owner of the company told me he knew some of the local employees were on the take with the factories.  But since he saw these employees as knowledgeable, hard-working and productive, and the business continued to grow, he simply chose to look the other way.  I think that was the smart thing to do.

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