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.

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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.” 

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If you want to source in China, be prepared to take risks

A friend of mine reached out to me recently asking me to help him apply for China patents for a new product.  Apparently someone had approached him because he used to work for a FORTUNE 500 company in China and wanted to enlist his expertise. So my friend came to me, thinking IP protection was the place to start.  I told him what I tell a lot of people, namely if you are going to be paranoid about losing your IP in China then you shouldn’t be doing business over there in the first place. It is simply one of the endemic risks of doing business there, much as mosquitoes are one of the endemic risks when you go camping.

My friend left China in 1997 and since his return to the US he has worked in Silicon Valley, doing non China-related stuff.  I think he has forgotten that when you do business in China you cannot expect Western principles of transparency, accountability and integrity to apply there, because they often do not.  In other words, just because you apply for and are granted a China patent does not mean that you will be home-free to manufacture your product in China without problems.  Someone will always come up with something similar to your product and exploit a loophole in the Chinese patent application (which is a complicated and time consuming process)  and there would be little you could do about it,  short of costly international litigation.  Are you going to be able or willing to do this?  If you are a small business with a limited budget the answer is no.

I gave my friend the advice which I always give to others, namely to focus on securing IP in the country where you will be selling your product so as to protect your own market.  If you have registered trademark and patent here in the US no one can sell your product but you.  If you want to take your designs to China then don’t be overly concerned about IP and take refuge in the fact that unscrupulous individuals in China who are bent on appropriating someone else’s IP are usually focused on bigger companies where the payoff is much larger.  When you grow that is the time to start worrying about IP and taking the necessary steps in China to protect yourself such as Trademark protection.

I have written a lot on this subject.  Here are some other posts you will find useful.

China’s Great Leap Forward with IP

Trademarks in China

Some advice on IP protection in China

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.

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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

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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.

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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.

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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

Is there any way around MOQs ? Unfortunately not.

One issue that small companies and start ups grapple with all the time when they source overseas is MOQ (Minimum Order Quantity).  I don’t think a week goes by when I don’t get an inquiry from a small company that wants to source a product in China but in very small QTYs, in many cases just a few hundred units. For example, a few weeks back a London based women’s apparel start-up emailed me.  They have 20 designs and want to order between 100-200 pcs per design.  They want good quality and a low cost.  I told them that I saw this as a very challenging project and I suggested that the only way to do this would be to reduce the number of designs and increase the order QTY per design. Only in that way could they think of meeting the fabric MOQs that vendors in China would likely be facing were they to take this order.  Like many small companies that hold steadfast to their designs, this company said they didn’t want to eliminate any designs and that was the last I heard from them.  I imagine they are back on alibaba looking for suppliers.

Although there are suppliers in China that will accept small orders, these are generally not reputable suppliers and if you do place an order with a vendor like this you might just be throwing away your money. The vendor makes a small profit and sends you an order you cannot sell.  I have seen it happen many times.

Just out of curiosity I went online to see how other sourcing consultants handle the issue of MOQ. In other words is there any way around MOQ ?   Some of the advice I saw is as follows:  limit product customization; negotiate a lower MOQ; pay a higher unit cost; streamline material usage; focus on buying from small suppliers etc etc. Let’s look at these strategies:

  • Simplifying product design. Conceivably, the only way this would get you around an MOQ would be if you were simplifying design to cut unit cost so you could order more of a product to meet an MOQ.  It sounds good in theory but I have never in fact seen a company do this.  Companies that change a design do so to lower costs, not to increase their costs.  I would add that modifications to a product design, unless major, usually result in very insignificant cost reductions.  But, as I said, I have never heard of a company doing this.
  • Negotiate a lower MOQ. I think this only works with vendors with whom you have had a longstanding relationship. They want to maintain the relationship and therefore will sometimes waive MOQ requirements.  This happens all the time. On the other hand, if you negotiate a lower MOQ with with a first time vendor, they will just seek to cut costs in your production and you may end up with goods you can’t sell.  I always advise companies not to get into protracted negotiations with first time suppliers because it just sends the relationship in the wrong direction from the get-go.  But OK if you are trying to get around an MOQ with a longstanding vendor.  It never hurts to ask.
  • Pay a higher unit cost. What you will have to do if you want to order less than the MOQ. If you have target costs this may make your project untenable. It also locks you into a higher price as your orders get bigger. Yet this is what many companies have to do to get around MOQ.
  • Streamline material usage: Not realistic unless you have a product you can do this with. Most small companies don’t.
  • Buy from small suppliers. Small suppliers are usually not reputable suppliers.  If you have any kind of strict design requirements, you will not have success with small suppliers who simply do not have the expertise to handle challenging designs/orders.

In fact, the only thing I advise small companies to do when they are inquiring with a China vendor about MOQ is NOT to ask the vendor first what their MOQ is but instead to give the vendor 3 QTYs to quote on, one for the minimum they think they can order and then in increments accordingly. For example if I wanted to make a wooden picture frame in China I might reach out to vendors and tell them that I am interested in QTYs of 1000/2500/5000 and ask them to quote on each QTY accordingly.  If the vendor really wants my business, they will quote me on my terms and will not mention their own MOQ, even though they may in fact have one.  I think this is really the only way to get around MOQ. But even this strategy has its limits because many vendors will just come back to you and tell you that they have an MOQ.

In short, this is why overseas sourcing is so challenging, because no matter how cheap the unit price is, you are not going to get that unit price unless you order a far bigger QTY of product than you might be able to sell.

 

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How to pick a China Sourcing company

I had an email from a South African company last week. They were reaching out to me to help them source self-balancing electric scooters, those cool scooters you see when you walk down the street in any major American city nowadays.  It just so happened that the company emailed another sourcing company at the same time and as they failed to bcc the email recipients, I could see the other company. Out of curiosity I looked at their webpage and saw that this is a Chinese sourcing company based in China.  As is so typical with China based sourcing companies, this company promises that the importing process will be cheap, fast and reliable, that is as long as you use their service. The website is full of information but when you read much of it you realize it does not say much.  For example there is a tab on “how to import furniture from China.”  It looks promising but when you click on the tab the gist of the lengthy text is that if you want to import furniture you need to find a good supplier.  And that’s all. There is nothing about the myriad of problems associated with sourcing furniture in China e.g. a factory’s drying facilities, the quality of hardware and lacquers, fumigation certificates  etc etc, a few of the things that come to mind when I think about importing furniture from China. Much of the text is cast in ungrammatical language and when they advise you to watch out for scams they spell it “scums.”  They say they have 6000 suppliers in their data base.  It looks good but how many of these suppliers are active suppliers of theirs they do not say.  I suspect very few. This is the kind of China sourcing company that often comes up when you do an online search.  But it is not the kind of company I would advise someone to use.

The kind of company I would recommend using is a sourcing company that spells out clearly the risks of sourcing from China.  Such a company I came across a couple of weeks ago.  They are located in the Midwest and the owner is a Chinese lady who has been helping US companies source industrial products in China for 20 years now.  There is a tab on the website of this company labelled “essential China advice” and it pretty much spells out the obstacles that one encounters when sourcing in China.  I read through it and I think it is excellent in terms of the advice it offers e.g. anticipate mistakes before they happen so you will be in a better position to deal with them when they do happen, if in fact you cannot circumvent them with adequate foresight; Do not make assumptions about your China partners and/or China orders but be on top of everything at all times; Don’t be in the habit of taking big risks; Play by the rules in China. And much more advice along these lines.  After reading this I come away thinking, wow, doing business in China is costly, challenging and there is no guarantee of success, what I knew all along, but what so many people do not know when they contact China based sourcing company and are told the process is easy. Here is the link to the company Good US based China sourcing company

In short when you are looking for a China sourcing company, don’t go with the people who tell you it will be easy. Go with the person who tells you it will be difficult and that you will need to stay the course, no matter how difficult.  And that you may not always succeed.  Go with the person who tells you that you will sometimes need to show up in China to meet the people who are making your product and helping you grow your business, and not those who tell  you that you don’t need to go to China and that they will manage everything for you.  In other words, when looking for someone to help you with you China sourcing use your common sense.

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