How to deal with rising costs when sourcing overseas

I was reading another sourcing blog this morning and author, Mr. A. whom I know and respect, was talking about how to deal with rising costs from your suppliers in China, what every importer grapples with sooner or later.   His solutions were as follows ( with my response in in italics) :

  • Sell a product with higher margins

Disagree. I don’t think one can just switch products like this.  I would say most small companies or start ups have unique products that they have spent time developing (the reason they have gone into business in the first place). They are married to their designs and they simply cannot jettison them.

  • Smart product design

Somewhat agree.  This is the importance of working with a good supplier.  A good supplier will help you to look at and improve your product to hit target costs. But at the same time this is easier said than done because some product changes result in less than expected cost savings. And unless you have significant order QTYs you are probably not going to see substantial savings.

  • Remove excessive packaging

Disagree. Packaging is so important and unfortunately can be a major cost. In fact, I would prefer to err on the side of having more packaging than not enough packaging which can lead to damages in transit.

  • Produce in other countries

Disagree. I have talked to many companies who produce in other countries.  Apparently countries like Vietnam, Mexico, Indonesia are no better than China.  And in many cases e.g. Mexico they are worse.

  • Pay your suppliers in their own currency

Disagree.  This involves more hassle than it is probably worth and many vendors want the USD. I would add that the costs of setting up a foreign bank account, what you need to do in order to pay vendors in their own currency, will probably offset any savings you will get.

If Mr. A, whom as I said I respect, cannot come up with a good solution about how to deal with rising costs in China and in other countries, then there probably are no solutions.

But # 1 on the above list got me to thinking.  If you can’t change your product, and I really don’t think you can, maybe you can change your customers.  In other words, let’s say instead of trying to sell at  Wal-Mart, you simply focused on selling on your own website and on Amazon Marketplace, for example. This is known as multi-channel eCommerce selling. Of course your orders would be smaller but your margins would be  greater.  And you would not have to be overly concerned about rising costs, shipping deadlines, inspections etc etc.  In fact, I think your only concern would be meeting MOQs.

A case in point. I visited a local company last week.  They  were established 15 years ago and seem to be doing quite well.  They do mostly online sales ( a children’s product)  and have several hundred independent brick and mortar accounts nationwide.  I got the feeling from my visit that business is good and the owners of the company are already planning years ahead for their brand.  And as I was heading back to the car I  thought back to a discussion I had with one of my former clients last month who told me that after years of targeting big box retailers, where he has sold with some success, he was going to scale down and focus more on sales from his own website.  He told me he has burned out with Wal-Mart where sales in some stores are great and in other stores not so great.  And not only does one have to tackle fickle consumer demand but they also face compliance guidelines, delayed payouts, chargebacks and  imperious buyers.  I have worked on many of these big-box programs and they are a headache. Pure and simple.

However, the icing on the cake is a blog post from a former retail buyer that I came across yesterday.  She says that accepting an order from a big box retailer can actually be a strike against you with that same retailer.   If you are considering doing orders a big retailer then read this first.A Buyer’s perspective

Kitchen Anhui FE

 

 

 

 

If you want to do business in China, you need to spend money. Period

Last month someone emailed me asking me if I could help her source a promotional product in China.  This lady runs a small non-profit here in the SF Bay Area.  She said she had contacted some vendors and agents on alibaba but, having never done business overseas, was nervous about moving forward with them.  I told her I could help her and quoted my fee, which is not substantial.  She seemed to waiver and then told me that the Chinese  agents had quoted her a lower fee.  I generally don’t advise using Chinese sourcing companies for reasons I have written about here, and I told her so.  After a couple weeks of going back and forth and answering her questions as best I could I finally decided to give her the name of very reputable French sourcing company in China, for I had come to the realization that she was very reluctant to spend money on this project.   The French company charges less than the Chinese company and although they are staffed with locals they are owned and managed by a French national with many years’ experience in China. They have a good reputation, are responsive and I think their sourcing fee is very reasonable, although things can get expensive, in terms of the costs associated with follow up,  once they locate a factory for you.

About a month passed and the lady emailed me telling me she had had some discussions with the French company and was “weighing her options.”  She asked me to advise her.  I told her that with her QTYs and target costs, neither of which is substantial, she is going to need all the help she can get in finding a vendor in China who is willing to take her order.  And if she is serious about doing this she needs to see that she will have to invest some money. In spite of the seductively low costs one sees advertised on B2B sites like alibaba and Global Sourcing, sourcing  overseas requires serious investment and demands a serious, long-term commitment.  In other words if you want to source in China, but are not willing to spend the time and money to do so, my advice is simple:  forget it.

DSCF0132

3-D printing: An alternative to expensive prototyping.

I was talking with my friend Hank yesterday.  Hank is an old friend from my “China days.”  We lived in the same Guest House at Jiaotong University in Shanghai way back in the day.  Hank, like I, has a lot of China manufacturing experience, although for the last ten years or so he has been working in a role completely unrelated to China, as a Senior Manager at a well-known Silicon Valley co.  We were discussing sourcing in China and I mentioned to Hank the high, often prohibitive, cost of molds for plastic injection molded products.  These molds can easily run into the tens of thousands of dollars.  And, believe me, the high cost of a mold has stalled many a promising product launch.

Hank mentioned 3-D printing which is a new technology for making prototypes and which is much cheaper than the old technologies. 3-D printing is also known as Additive Manufacturing, Desktop Manufacturing, Rapid Manufacturing, Rapid Prototyping  etc etc. The best way to think about this is as follows;  In traditional prototyping when you make a metal or plastic part you cut that part from bar stock or plates. You are basically subtracting a part from the whole and for this reason traditional prototyping is also known as Subtractive Manufacturing. Another term you often hear is machining. A good analogy for traditional prototyping is chiseling a statue, which is labor intensive and expensive.

With 3-D printing, on the other hand, you are developing a product from nothing. After your computer makes a 3-D rendering of your design you send this design to your printer as you would a normal document.  Instead of ink, however, a 3-D printer contains glues, powders, resins, molten plastics etc etc and these are fashioned via a nozzle into a prototype according to the CAD design. Materials are then cooled to harden. This is why 3-D printing is also known as Additive Manufacturing.  In fact the term “printing” can be a little confusing because nothing really is being printed, but is being built instead.   I like to call it “Organic Prototyping.”  And whereas a good analogy to subtractive manufacturing is chiseling, a good analogy for additive manufacturing is baking a cake, where you pour successive layers of batter into a mold and then harden the whole in the oven.

Some vendors in China have 3-D printing capabilities but as 3-D printing is more suited to prototyping samples and very small production runs, I think the technology has only limited application in China right now.  Injection molding is still the way to go for big production runs.

Hank sent me a link to a company in New York that specializes in 3-D design.  I am pasting that link here as it might be helpful to inventors who have a great idea but lack the resources to get expensive prototypes  or molds made in China. 3-d molding company .But ask your vendors in China as well if they have these capabilities. As I said, some do and some don’t.

IMG_1583

 

How to source apparel in China: The Basics

I don’t take on a lot of apparel projects even though I get inquires from small apparel companies a few times a month.  The reason is that I don’t have a lot of experience with apparel and it is outside my comfort zone. A few years ago I somewhat reluctantly agreed to do an apparel inspection in China for a company I know.  I found it very challenging simply because I did not have a lot of experience in garment sewing, which is very different and far more complex than home textiles sewing, where I do have a lot of experience. In fact I spent a few years in Home Textiles production in China and in that time I learned how difficult textile production can be, from achieving the right colors on fabrics to the intricacies of CMT ( Cut, Manufacture and Trim).  But even my experience in home textiles did not prepare me for the severity of inspecting a 30,000 pc apparel order in China. Just the notion of stitch geometry or the myriad handling strategies when sewing a garment depending on the shape of the fabric is enough to scare one off.

Yet, even though I don’t generally take on apparel products I do know some basic things you need to consider when you are sourcing apparel in China.  And these are the things so few people include when they approach me with a project request:  Accordingly here they are:

  • Pantones for all fabrics, logos etc. Pantone books are very expensive but if you are sourcing apparel overseas having a Pantone book is indispensible.  And the best Panton book ( and there are many) are those with multiple pantone chips of the same color – so you can send a vendor one pantone and have extras for yourself.   Do not think your project will go well if you don’t provide your vendor with a specific pantone.
  • Sizing in CM, find a sizing chart online showing differences between US/European and Chinese. Don’t just assume that your vendor knows US sizing charts because they have manufactured for US customers before. You would be surprised at the stories I hear e.g. medium sized garments coming in from China that fit like XS here in the US.
  • What kind of fabric you need. Be very specific here.  Type of fabric e.g. if cotton what kind of cotton. Is it Gingham, Flannelette, Pima etc etc  ; Weight. Usually measured as the weight per one meter of fabric/weave  g. plain, satin, twill etc etc  etc.  It is not to be expected that you will know all this info off the top of your head but you need to know it. The best way is to go down to your local fabric store and ask them to tell you what the fabric is. And then go to another fabric store to double check the info you have been given.
  • Detailed patterns done on CAD. Check with the vendor to see which format they need CAD in. There are several formats.
  • Components (if applicable) buttons, zippers etc. Specify these as best you can. The more info you give your vendor, the cheaper your cost will likely be. Not only does it project to the vendor your knowledge of your own product but it decreases the likelihood that they will source a more expensive component for you than you actually need.
  • Labeling requirements. These are important and will impact cost. You need to include all fonts.
  • Testing requirements. Never to be overlooked with any product and essential for any apparel product being imported from China.

Be prepared to have to meet MOQs per design/color and even size.  The reason is that the factories that sew your garments are are ordering fabric from 3rd party suppliers.  The CMT factories do not make their own fabric and therefore they face MOQs as well from their own fabric suppliers. I see so many people who have a new apparel line and they want to have as many SKUS as possible because it makes their line more attractive. But they don’t understand where factories in China get their own fabric and that  there are very stiff MOQs for fabric.   So you have to always think the fewer SKUs the better. At least when you are starting out.

Finally, make sure you have plenty of fabric on-hand so you can send prospective vendors fabric swatches. There is no substitute for providing the vendor with an actual sample of the exact type of fabric you want to work with.  And, once again, the fabric store is the best place to go.

IMG_1506

Podcast: How to source in China

I was the guest on a Podcast recently.  The program is hosted by Indie Brands a popular website for independent start ups.  There is a lot of useful information here for small businesses, whether sourcing in China or not.  Enjoy

Indie Brands Podcast Feb 2016