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
China Sourcing for Small Businesses 