Using an overseas 3PL to cut your international shipping costs

A couple former clients of mine have come to me recently asking me to help them find a 3PL, or Third Party Logistics, warehouse overseas. One of the clients is looking for a 3PL warehouse in China close to where they manufacture their product.  They have a lot of clients in Asia and are looking to cut their shipping costs. Currently all their product is shipped to the US and then they ship it out again to countries in Asia. So finding a warehouse in China that will ship their product directly for them is important.  The other client is looking for a contract warehouse in Europe.  They have been using one in the UK but that warehouse is closing so they are looking for another.  The interesting thing about this client is that their 3PL provider in the UK charges a percentage of sales and actually has an incentive to help my client drive sales.  This is a bit unusual as most 3PL providers charge based on volume and labor. But in reaching out to some 3PLs in Europe I did find a few who said they might be willing to work with this arrangement as well.

Needless to say, if your international customer base is growing enlisting the aid of a good 3PL can save you a lot in overhead and shipping.  However, you need to make sure you pick the right provider otherwise you risk an interruption in your supply chain.  If your 3PL suddenly goes out of business then you face a major problem with your customers, what has happened with my client whose UK 3PL has suddenly decided to close.  So longevity is a key here and you only want to pick a 3PL that has an established track record.  You also should ask for references.  Most 3PLs will be happy to pass these along.  And as you do when you look for a prospective supplier in China, there are a couple things to keep in mind:

  • Only approach 3PLs that service companies the size of your own. A large 3PL is probably not going to be interested in your business anyway.
  • Attach much importance to communication when evaluating 3PL providers.IMG_0064
Advertisements

Check your orders before they leave China NOT after

I have had a lot of requests lately from people asking me to help them source in China, everything from kids clothing to electronic toys.  I do not take on just any product and usually if I am not interested in a project then I just point the person to a sourcing company in China who might be able to help them.   And the other day this was the case with a person who came to me asking me to help them source some smoking paraphernalia in China.  Not only am I opposed to smoking but I know nothing about it and for this reason I was not interested in accepting the project.  But the guy seemed nice enough and judging by the drawings he sent to me he is far along in his product development and is very serious about taking his product to market. So I gave him the name of my contact in China but I also gave him some parting advice. That advice was simply to inspect his orders BEFORE they left China.  This is the advice I give everyone but it occurred to me in that instant, when I was just thinking about one piece of useful advice I could offer someone who was about to start sourcing in China, that, yes, checking your orders before they ship from China is the only way you can guarantee that your vendor is delivering to you what you have paid for.  If you inspect an order in China and you don’t like what you see you can ask the vendor to redo the order or you can just walk away.   The most you stand to lose is your 30% deposit.  The analogy I always use when explaining this to people is the shoe analogy.  When you buy a pair of shoes the last thing you do at the register, before the sale is rung up and you take the shoes home, is to open the box to make sure the two shoes in the box are the same size, and that you have one left shoe and one right shoe.  And this is exactly what you have to do when you have an order shipping from China:  Verify.

The one caveat is that small companies or start ups operating on a budget do not have 5K to spend on a one week trip to China to inspect an order.  Or they may not see it as good business sense to spend 5K to go inspect an order, the value of which may be less than the cost of the trip to China itself. This is understandable until you figure that if that order goes badly then you will not only lose your investment but may lose customers and your business as well, assuming you have taken orders that you will not be able to fulfill.  I have one on and off client who got a bad order from China and four years later he is still selling off the defective product after repairing everything himself, piece by piece. I imagine it has also cost him a little money to warehouse the product, one container’s worth, in that time.  And this is what I mean when I tell people to take the broad view and to always see China sourcing as a long term strategy.  You may operate on razor thin margins at first or may even lose money but if this helps you get quality product to your customers and build your business it is probably worth it.

DSCF0133

Using mock-up prototypes when approaching new vendors

I had an email from a former client this past week.  She is the founder of a company that makes a popular line of kids bags and she is looking for new factories in China.  She had a strategy question for me as follows:

“I am sending samples for pricing from a factory that came highly recommended and of course they are asking how many SKUs etc. I have not actually revealed my brand as yet because I don’t want them to base their pricing by looking at our website prices. Do you think that this is wise? Or should I send them our catalog so they can see all of our SKUs and then give them target pricing ? Which do you think is a better strategy? “

This is a good question and I replied to her as follows:

“It is always a fine line to tread between being paranoid about things and being careful.  

I personally never recommend revealing your brand until it is absolutely necessary and I usually advise people to have mock ups without branding to submit to prospective vendors.  But if you feel they may know who you are already since you have been communicating with them or because you came recommended from someone else who has used them, then it is probably not a good idea to try to conceal who you are. 

But this leads me to a good point and that is that I think it is a good idea to have some mock ups made up from your current vendor so that in the future you can approach prospective vendors without revealing your company and retail pricing.   First costs from new vendors are important because those costs serve as the basis for your first few orders.  If they are high to begin with then when your vendor starts raising costs on your 2nd or 3rd orders ( as often happens) you may be priced out of doing business with them quickly.    If on the other hand you can negotiate a low first cost to begin with then even when the cost goes up you may still be able to hit your margins while you fulfill orders and look for a new vendor.  Making sure your vendor does not know your retail pricing goes a long way in keeping your first costs low. And mock-ups will help you achieve this.” 

IMG_1498

 

 

 

 

What should you budget for a first-time order from China ?

A woman emailed me recently asking me if I could help her with sourcing.  She has just started a company selling fashion accessories. In our email correspondence I sensed that she may not have given the business the thought that she needed to, in terms of how much it costs to get up and going with a China order, for there are hidden costs that people often ignore focusing only on the seductively low first costs that they see on alibaba or other popular sourcing websites.   Accordingly, here is what I think it would cost to get a first order from China.

Sample development.  You have to assume you will go through a couple of rounds of samples with a few vendors before deciding on a final vendor.  There will be sample charges and express courier fees ( you cannot send samples via regular air mail because they often get lost) .  Assuming you have a product that does not require a special mold, you are probably looking at $ 200-300.00 per vendor for sample charges and courier fees.  So figure $1000.00 just to get some good samples from a few prospective vendors.  If you have molds figure a few thousand dollars just to get samples from one vendor.

Testing:  If you sell any PCG (Packaged Consumer Goods) then you will most probably need some kind of testing for your product as per CPSIA ( Consumer Protection Safety Insurance Act).  Figure $500.00- 1000.00 for product testing.

Consultant:  If you are sourcing a product overseas it behooves you to retain a consultant or sourcing agent to help you get started.  Sourcing agents or consultants charge anywhere from $300.00 to 5K for a sourcing project.  So figure $500.00-1000.00 for a reasonably priced consultant/agent.

First Purchase Order:  Depending on the unit cost and MOQ ( Minimum Order Requirement) figure $3000-5000.00 for a first order.  Of course I am just throwing this number out there but a good rule of thumb is that China vendors are not really interested in orders under 5K.

Inspection:  To have an order inspected in China costs about $300.00 per day, not including expenses. But inspection is the only way you can make sure you are getting the quality you have paid for. Figure $1000.00 to have an order inspected.

Shipping:  Vendors quote you FOB which means they only deliver the goods to the port It is up to you to arrange shipping. You will need to use a shipping agent because the documentation is far too complicated to do on your own.  Figure $1000.00 to ship a small order from China going LCL.

When you add all this up you are looking at an initial investment, on the conservative side, of close to 10 K, just to get a first order out of China.  If you have a design oriented product for which the vendor will have to create special molds then figure 15-20K for that first order. And this does not include what it costs you to set up your website, establish your company, obtain product insurance and copyright your designs. That right there may cost you and additional 10 K.

IMG_8225

 

 

Toy testing requirements for US importers – an overview

I had an email from a Chinese testing lab the other day that outlines all the testing requirements for Toys sold in the US. I thought it was a pretty good summary of where you need to be as far as product testing goes depending on your product and so I thought I would post it here this week (edited and posted below).  Just an FYI, under the Consumer Product Safety Improvement Act of 2008 all toys sold in the US must comply with certain product safety regulations. The section of the Act that covers toys is known as ASTM F963. ( American Society for Testing and Materials) If you are reaching out to Chinese manufacturers with a toy design make sure you know the testing requirements for your product and pass these on to your prospective supplier.

After reading the list below to see where your product falls, you should  spend some time on the ASTM website ASTM website to read more about the safety standards and see what you need to do to get your product in compliance.  Testing labs in China also know the standards ( since they are the ones testing the products) but it is  a good idea to make 100% sure you know as much as they do and that you neither overlook something you need to test for nor have superfluous and costly tests done.

Here is the overview:
ASTM F 963-11 Requirements
When you certify in a written Children’s Product Certificate that a product meets ASTM F 963-11, you must include the specific sections to which you are certifying compliance.

Also, toys may be subject to regulations enacted under the Federal Hazardous Substances Act (FHSA), such as requirements for small parts, pacifiers, rattles, etc., many of which are cited below. Check the list of products requiring third-party testing and regulated products to ensure that you are in compliance with all applicable regulations. Yes indicates the product must undergo testing; No means testing is not required.

Group 1: Sections Applicable to Most Toys

As mentioned above, the following requirements must be met for most toys. All toy manufacturers should review these sections to ensure that their products are in compliance.

Section Title Requires Testing at a CPSC-Accepted Laboratory

4.3.5.1 Heavy Elements: Paint and Similar Surface Coating Materials Yes
4.3.5.2 Heavy Elements: Substrate Materials (Note: Many toys intended for children under 6 and all toys intended to be mouthed or contact food and drink are subject to this requirement. See the standard for more.) Yes
4.3.6.3 Cleanliness of Liquids, Pastes, Putties, Gels, and Powders Yes
(Except for cosmetics and tests on formulations used to prevent microbial degradation.)
4.6 Small Objects  Yes
(Except no third party testing is required for labeling and/or instructional literature requirements)
4.7 Accessible Edges Yes
(Except no third party testing is required for labeling and/or instructional literature requirements)
4.9 Accessible Points Yes
(Except no third party testing is required for labeling and/or instructional literature requirements)
5 (Entire Section) Safety Labeling Requirements No
6 (Entire Section) Instructional Literature No
7 (Entire Section) Producer’s Markings No

Group 2: Sections Applicable to Specific Types of Toys 

The following set of requirements is for specific types of toys or toys with specific attributes. All toy manufacturers should review these sections to ensure that their products are in compliance.
Section Title Requires Testing at a CPSC-Accepted Laboratory
4.1 Material Quality No
4.2 Flammability Excluded by CPSIA No
4.4 Electrical/Thermal Energy** Electrical Toys. See 16 CFR 1505.
Yes, to 16 CFR 1505
4.5 Sound-Producing Toys Acoustic Toys Yes
4.8 Projections Sharp Points Yes
4.10 Wires & Rods Sharp Points Yes
4.11 Nails & Fasteners Sharp Points Yes
4.12 Plastic Film Yes
4.13 Folding Mechanisms & Hinges Enclosed/Hinged Toys Yes
4.14 Cords & Elastics in Toys Corded/Elastic toys Yes
4.15 Stability & Overload Requirements Ride-On Toys and Toy Seats Yes
4.16 Confined Spaces Enclosed/Hinged Toys Yes
4.17 Wheels, Tires, & Axles Yes
4.18 Holes, Clearance, & Accessibility of Mechanisms Enclosed/Hinged Toys Yes
4.19 Simulated Protective Devices Yes
4.20 Pacifiers Yes
4.21 Projectile Toys Projectiles Yes
4.22 Teethers & Teething Toys Yes
4.23 Rattles Yes
4.24 Squeeze Toys Non-Rigid Toys Yes
4.25 Battery-Operated Toys Yes
4.26 Toys Intended to Be Attached to a Crib or Playpen Infant toys Yes
4.27 Toy Chests (ASTM F 963-07e1) Enclosed/Hinged Toys Yes
4.27 Stuffed & Bean Bag-Type Toys Non-Rigid Toys Yes
4.28 Stroller and Carriage Toys Labeling requirements only No
4.30 Toy Gun Marking Projectiles Yes
4.31 Balloons No. Label in accordance with 16 CFR 1500.19 and 16 CFR 1500.20.
4.32 Certain toys with Nearly Spherical Ends* Spherical toys Yes
4.33 Marbles Spherical toys. No. Label in accordance with 16 CFR 1500.19 and 16 CFR 1500.20.
4.34 Balls Spherical toys. No. Label in accordance with 16 CFR 1500.19 and 16 CFR 1500.20.
4.35 Pom Poms Non-Rigid Toys Yes
4.36 Hemispherical-Shaped Objects Spherical toys Yes
4.37 Yo-Yo Elastic Tether Toys Corded/Elastic toys Yes
4.38 Magnets Magnets Yes
4.39 Jaw Entrapment in Handles and Steering Wheels Yes

Other Requirements
Section Title
4.29 Art Materials (16 CFR 1500.14(b)(8))
Yes, to 15 USC 1278a(Total Lead Content).
4.3.7 Stuffing Materials Yes. Stuffed toys with all new stuffing must meet 4.1, no testing at CPSC-accepted laboratory required to this section.

IMG_6684

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

 

 

 

 

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

 

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

Interview with a Chinese woman entrepreneur

Given the rise of women entrepreneurship in China in recent years – over 50% of all new businesses on taobao, China’s main e-commerce platform are started by women – I thought it would be interesting to interview a friend of mine who is one of these entrepreneurs.  Ms. Fu first got her start in the basket business about 15 years ago and now runs a successful trading company in Shenzhen.  After over a decade of exporting Chinese products globally, she is just starting to import products from overseas into China, one indication that China’s economic model is changing.

EAC:   How did you get started in Business?

Ms. FuI was interested in doing business from an early age.  It seemed natural to start a company on my own.

EACWhy did you decide to start with baskets?

Ms. FuI always liked baskets, maybe because I grew up in an area where there was a lot of basket production, in South China. But I thought that would be a good place to start. Now, however, the basket business has slowed down considerably and it is very hard to sell baskets to US buyers now. So I am looking to get into other businesses, including importing products from the US into China.

EAC:  Did you have a lot of problems at first because you are a woman ? 

Ms. Fu:   No. There is a  famous saying in Chinese, that women are the half of the sky. Quite honestly I did not feel any major barriers as a woman trying to start her first company.

EAC:  Do you feel any discrimination now when you try to do business given your success as a woman entrepreneur ?  I mean do you sense that some men might be envious or skeptical of your success ?

Ms. FuNo. I know there is discrimination against women in China but I have not really experienced this.

EAC:  Do you feel that business world in China is still dominated by men ?  Or are there quite a lot of female entrepreneurs such as yourself doing business in China nowadays ?

 

Ms. Fu: Not just in China, but women all over the world are becoming more and more independent. And of course, more and more women would like to set up their own companies. Although many companies are still run by men, in China and in the US. I think this is changing.

EAC:  Do you feel there are any advantages to being a female entrepreneur in China now ?

Ms. Fu: Not really. China is pretty open these days and Government policies tend to reflect a certain equality. Any advantages may be peculiar to a certain company.

 

EAC:   What are the main obstacles you face now as you try to grow your business ?

Ms. Fu: The main obstacle is balancing work and family life. And I have to think about other opportunities if one of my businesses is not going well. I am constantly thinking what to do next.

 

EAC  How is the state of China’s economy nowadays?  Is business slowing down or are things pretty much as normal ?

Ms. Fu Life in China just gets better and better.  There are just so many more opportunities now than there used to be. And much of the world looks to China now for opportunity.

IMG_8661

 

 

Worried about making that first trip to China ? Relax !

I was thinking today about the conversation I had the other day with the NYC lady who, at the end of this month, is headed off to China for the first time.  She certainly sounded nervous, knowing no Chinese as she does and feeling very panicky at the mere thought of getting lost over there, even though she will be staying in a reputable hotel and has already arranged her SIM card on arrival in China. I re-assured her as best I could.  Guangzhou, after all, is a very modern city and boasts a very modern, user-friendly subway that would be the envy of most cities around the world.  In addition Chinese people are very hospitable and one really does not have to worry about getting lost in a big Chinese city.  There are always people who will help you and signs in English are everywhere. Let me put it this way: you are safer knowing no Chinese and getting lost in a major Chinese city than you are getting lost on your own turf, that is in a major American city.  So she really has nothing to worry about, other than perhaps getting ripped off by an unscrupulous taxi driver.  Even that though can be avoided by taking taxis stationed at the hotel where she is staying and having the hotel doorman quote the cab driver on the fare.

But I thought back to my first trip to China.  Now that was scary. It was 1988, just ten years into Deng’s reforms.  I flew over on a Canadian Airlines flight from SFO to Beijing.  I remember the flight because NBC correspondent Keith Miller was on the same flight, flying coach, as well as the Canadian Olympic Basketball team.  The plane landed in Beijing on a warm July evening.  There was an enormous crowd of people at the gate coming out of Customs and not all of them were smiling.  There were very few foreigners in China then and anti-American, anti-Western sentiment was palpable.  To say I felt uncomfortable would be an understatement. My Chinese teacher in NYC had arranged for me to stay with her husband at their apt in Beijing but I had no idea what he looked like and all I had was a name and address. In those days most people in China did not have private telephones but used a communal phone so if for some reason we did not hook up I had no idea what I would do. Fortunately, after several minutes scanning the faces in the crowd (they were as curious to me as I was to them)  I spotted my name on a piece of cardboard in a sea of arms and I knew that must be my contact.  Needless to say I was very relieved.

Over the next few days going around Beijing I saw perhaps one or two foreigners, and that is all. Although a lot of people smiled at me, not everyone did, and on one occasion we were refused service in a restaurant because I was American.  My host was embarrassed by this but in those days that was par for the course in China.  It was not an easy place to be and I was very careful not to get lost. Nowadays when I go to China, I feel like I am home.  Imagine that !

But I kind of chuckle when people come to me nowadays and tell me they are nervous because they are going to China for the first time.  Believe, me, you have nothing to worry about !

IMG_7966

.