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.

Never let your guard down when you manufacture in China

There was an article in the Shanghai English Language paper recently about defective products being sold in Shanghai stores.  Apparently about 40% of the apparel sold in Shanghai area dept stores reveals defects, everything from excessive formaldehyde to misleading labels. A sweater, for example, was described as 100% wool but it turned out to have only about 20%  wool content. The same old China song and dance in other words.  Still I was a bit surprised to read this kind of story because over the years the quality of product made in China has gotten much better as overseas importers have imposed stricter requirements on their Chinese suppliers and as a growing and more affluent Chinese middle class has come to demand higher quality from domestic vendors.  The story illustrates however that the Made in China brand is still plagued by the quality problems that have been associated with Chinese products over the last 30 years.  In other words you can never take your guard down when you manufacture in China.   You still have to test your products at regular intervals and make sure your vendor knows your standards and is maintaining quality and safety standards.   Here is the link to the article

Shanghai Defective Goods

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.

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 2^nd or 3^rd 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.” 

 

 

 

 

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.

 

 

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 3^rd 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.

Do not always focus on Lead Time when you source in China

I visited a small company yesterday and the president of the company asked me at one point how to shorten lead times from China. It was a good question though I am not sure lead time should be of the utmost concern to him since his company sells high end audio equipment probably ordered in low QTYs. I told him I thought the best way to cut lead times was to make sure you were organized, to keep mistakes in design to a minimum and to make sure you maintained good communication with your vendor so that delivery dates were adhered to or the customer was notified immediately when they changed. In other words, the goal should not be to cut lead time but to get the product delivered when you need it. The more I thought about this answer the more I liked it, for over the years I have seen more mistakes happen when people tried to rush orders, thinking about reducing lead time, the end result being that product shipped late and the lead time was in fact lengthened, not shortened.

This is not to say that lead time should never be a concern for importers. For some high-volume, short life-cycle consumer goods, or seasonal goods, lead time is very important because if you don’t ship product ASAP you risk losing market share to your competitor. With orders of this nature the discussions with the vendor are always centered on cutting production time and getting product out of China as quickly as possible. But once again there has to be a point where you need to accept the fact that vendors have limitations as well in terms of what they can do and how fast they can do it. If you fail to recognize a vendors limitations then you risk having them make mistakes in production that will result in a slower delivery time as they have to repair or redo defective units.

In the end if you are focused on cutting lead times it is probably better to look at the shipping end than the production end. There are “fast boats” and “slow boats” and you can cut your shipping time by as much as 2 weeks if you pick the right carrier. If you have a good shipping agent you still should be able to cut significant lead time off your delivery. But then again you will pay more for this service and that adds more unit cost to your product. You simply have to ask yourself if it is worth it.

In the end, I always tell people to live by these rules if they want to get their product out of China quickly.

1.) Know when you need your order and communicate this clearly to the vendor,
2.) Give your vendor the order early and work with their production schedule, not yours.
3.) Make sure your design is finished. Nothing slows down orders more than changes in design.
4.) Follow up 2-3 times a week when an order is in production.
5.) Do not assume anything.

In China sourcing something is always lost in translation

Today a vendor sent me pics of a sample they had been working for me. When I forwarded them to my client she pointed out that the vendor failed to grasp one concept of the product and how it is used. I explained to her that this is perfectly normal and to be expected because it sometimes it just takes time for vendors to come to an understanding about a product they are being asked to make. The reason is that American products are different from those sold in China in many cases vendors are seeing a product for a first time. When they do they look at a new product they see it with the eyes of a Chinese consumer and not the end American consumer. When I used to work with basket vendors in China making gift baskets for the US market I ran into this problem all the time. A case in point: Chinese consumers favor glossy finishes on baskets while American consumers traditionally liked more matte finishes. The result was that we tended to get more baskets with glossy than with matte finishes. Even if the vendor understood our requirement some of his/her workers might not have. I would add that sometimes, if not often, Vendors in an effort to please their customers take liberties with design, changes they think enhance a product but changes which of course are not acceptable to importers with very specific product guidelines.

The best way to circumvent little surprises like this is to gradually educate your vendor about your product and standards and to check production at every step of the way to make sure they are getting it right. Put problem areas in red on your spec sheets and make sure vendors pay close attention to them. And never accuse your vendor of negligence if you get back a product that is not to your liking. Chances are the flaw is in the design or communication and you have to keep in mind that you are relying on your vendor to help you build your business.

Don’t overlook product labelling requirements

There was a very interesting story last month about Target’s foray into Canada. It seems that someone, somewhere in Target’s supply chain got the UPC # wrong the result being that Target’s shipment of Barbie dolls to Canada was bottlenecked and created a major problem for Target’s entire operation in Canada. The moral of the story, check your labeling and packaging specs carefully.

But it is uncanny how often I get emails from people who have products for which they do not know the labeling or packaging requirements. For example, I had a project last year for a lady who was making a children’s garment accessory in China which she was selling online. She sent me some samples and I saw there was no care label on the product. I asked her about this and this was her reply:

“We have the country of origin on our box packaging above the UPC codes. Are you saying they need to be on the bags as well? I know we don’t have anything printed on the bags. I’ll have to look into that. “

I told her that yes, if it is a textile product, which it was, it needs to be labeled. I sent her the link to the US ITA ( International Trade Association) homepage where it is written as follows:

The U.S. Customs and Border Protection (CBP) and the Federal Trade Commission (FTC) enforce labeling laws and acts in the United States. In general, textile and apparel products sold in the United States must be labeled with the following information: the fiber content, the country of origin, the manufacturer or dealer identity, and the care instructions.
She looked at the USITA site and came back to me and said as follows:

‘It looks like we will need to add a tag to the bag that states country of origin. Perhaps up at the top, like shirts are?’

So always make sure that you know your labeling requirements before giving a product to a vendor. And a good tip is this. Proof your labels, tags, UPC codes several times and when you are done have a few other people proof them so you can be sure they are correct.

Don’t pay someone $500.00 to do a spec sheet for you. Do it yourself.

The other day I was looking at the website of a China sourcing company. This is a western managed company with an office in Shanghai and they offer the full range of China sourcing services, product development and design, sourcing, QC, logistics etc etc. But I was surprised to see that they charge over $500.00 just to do a specifications sheet for a customer. That is a shocking amount of money for something that is really pretty easy to put together. Making a spec sheet may take you a couple of hours, between taking and downloading photos, and in some cases photo-shopping them, and then getting all the product details in order. But it is not all tedious and in some ways can be a lot of fun. I personally enjoy making spec sheets.

Every good spec sheet should have the following info:

Product description including your company’s model or SKU
Product dimensions
Material content
Pantones ( to indicate product colors if applicable)
Label specifications
Packaging specifications
Testing requirements (if any)
Price (if quoted)
Target Cost (if seeking a quote)
Order QTY
Order QTYs in increments of 1000 or 5000 ( if seeking a quote)
Special Instructions ( there are always some)

A good spec sheet will include photos of the product from every angle possible, including perspective shots and ALL product dimensions should be indicated. Regarding material content you should be as specific as possible. For example instead of just indicating your product is made out of cotton you might need to indicate “cotton jersey” and then give the weight because cotton jersey comes in many weights (oz per linear yard) and vendors need this info to quote for you. When doing a spec sheet always work under the principal that no detail is too insignificant to be included.

A helpful tip is this: request that your vendor do a spec sheet as well once they have your product in hand.. They may include details that you have overlooked. Or they may not have included details/instructions that are important.