How To Drive Your Chinese Suppliers To Improve Reliability

Choosing Chinese suppliers to manufacture your goods is often a cost-driven choice that makes a lot of sense, and one importers make even after taking into account the worrying tales about China scams waiting to trip up the unwary.

While it may be impossible to guarantee that every potential Chinese supplier is 100% reliable, are there ways importers can protect themselves and build a long-term mutually beneficial relationship with suppliers there?

What does a good supplier look like in China?

A good supplier provides you with much more than just a low price. They’re also a part of what it takes to keep growing your business successfully, so you should be looking for the following:

  • Acceptable price (the lowest prices may be clawed back in other ways!)
  • Flexibility on MOQs (this is especially important for startups and inventors who are unlikely to be able to cope with huge MOQs
  • Good quality on a consistent basis
  • On-time shipping (often related to lead times)
  • They’re a stable business (so are not likely to disappear without warning)
  • Located in a suitable area of China (while the government may encourage factories to move away from major cities and even into the West of China, this extra distance can hurt you in freight costs and delivery times)
  • A good relationship with you (this may be manifested in their willingness to help or take responsibility if things do go wrong)

While this may sound too good to be true, there are a number of measures you can take to find a good, reliable Chinese supplier for your products.

 

Start with proper due diligence

If you address the kinds of concerns that could lead to you working with unreliable Chinese suppliers at the start of the relationship, then this improves your chances of having a supplier you can rely on in the long-term.

Therefore, visiting the factory is important before you start dealing with a new supplier in China. Believing what their website says implicitly, or indeed, what you see on Alibaba or other online sourcing sites is a dangerous game.
You should seek to answer these, and more, questions:

  • Are the products you can see even real? They could just be images taken from elsewhere.
  • Is the company’s business license legitimate? This can show that they’re a real manufacturer and suggest that they are a stable operation.
  • Is their factory (if they even have one) actually capable of producing your goods and meeting your requirements?

If you don’t conduct due diligence on Chinese suppliers by checking their background and auditing their factory, the best-case scenario is that you end up with a capable supplier, but, more likely, is that you’re dealing with a trading company who isn’t even the actual manufacturer of your products or, worse, a supplier who’s actually a poor fit and can’t do a good job at all.

Read more > Here’s how Sofeast provide due diligence on suppliers and how our factory audits work

 

Create a watertight manufacturing contract

Your manufacturing contract is an important line of defense against problems caused by suppliers. Even if a supplier has proven to be suitable after you’ve taken time to check them over, it doesn’t mean that the relationship will be smooth sailing from then onwards.

Your contract should include:

  • China NDA or more comprehensive China NNN agreement – protects your IP or trade secrets.
  • Product Development Agreement (PDA) – this prevents the Chinese ‘partner’ claiming that your IP is now their own, as they had a large role in developing the product for you (only required if developing product/s with your supplier).
  • Manufacturing Agreement (MA) – defines very clearly how your relationship and cooperation as client and supplier will work.

Each of the above elements is key (IP protection’s importance speaks for itself), but if we look at the supplier relationship from the standpoint of reliability once you’re working together then the clauses laid out in the MA will really help set some ground rules.

For instance, you may agree on penalties for late delivery or different performance KPIs, acceptable business practices, and the expected level of quality, to name but a few. This should give your supplier the impetus they need to work hard to remain reliable.

Read more > See in far more detail How to create a valid manufacturing contract in China

 

6 tips that can spur supplier reliability once you’re working together

If you’ve found a good supplier and signed a manufacturing contract designed to encourage reliability, what else can you do to assure that your new Chinese supplier reaches your expectations? Here are a few tips from this post over on QualityInspection.org:

  1. Accompany the factory at the beginning of the relationship, to explain clearly to them what is and is not acceptable (this is related to clauses that will be in your manufacturing contract). A local project manager can do this on your behalf if you’re not able to be in China to take control of this.
  2. Keep monitoring production quality, make sure to get written and signed records, and do not lower your standards for any reason (if possible). Even if you have found a reliable supplier, conducting regular product inspections is still a good way to keep them on track. For the very best suppliers, you may also look at helping them to become able to self-inspect, too.
  3. Regularly cut the worst-performing suppliers: those that can’t (or won’t) be reliable enough, and those that are growing too fast.
  4. Give regular business to the best factories and walk your talk. Make sure you are not seen as a bad customer. Chinese suppliers can have a suspicious outlook that new foreign customers will come in, request low pricing giving them very little margin, and then just disappear after the order has shipped. As the customer, you need to take steps to show them that you are reliable, too!
  5. Tolerate that the best factories get a reasonable premium on their prices: you will make it back easily on lower costs (better quality, fewer delays, faster responses, etc. all reduce your costs and help you please your customers).
    As mentioned earlier, pushing hard to lower costs isn’t a good strategy as who knows what tricks a dirt-cheap supplier might get up to provide the lowest costs on the market? Using incorrect or dangerous materials in production, switching out part of your shipment for something that’s not acceptable? The list can go on, and it is not worth the risk for a few extra dollars.
  6. Keep an eye on the market price. Don’t switch suppliers for a few pennies, but keep them in competition with at least another factory to avoid unreasonable quotations and keep them honest.

 

How do you assure that your suppliers in China stay reliable?

There are many things you can do, but here are some effective approaches:

  • Don’t threaten them to cut the relationship when relatively minor issues appear. If they know it’s on your mind and you might pull the cord at any time, they won’t see you as a long-term customer.
  • Keep them honest. Make sure they know you keep an eye on what they are doing. Inspect their quality, audit them from time to time, and so on. And don’t be apologetic about it — that’s a sign that you are a professional company and you safeguard the interest of your customers, your investors, your employees, etc.
  • Visit them face to face regularly. At least once a year. If they only hear about you when there is a problem, they won’t feel there is a personal relationship, and they won’t feel they have to go the extra mile for you.
  • Give them feedback. Track their performance, and review it with them quarterly or at least annually. We suggest what KPIs you can track in this video.
  • Ask how you can help them. For example, giving them longer forecasts (even if they are not 100% confirmed) might help them plan their capacity, and in turn, it means you will suffer fewer delays.

 

Extra resources

You might also like these blog posts:

 


 

If you’d like to explore the topic of finding and especially vetting a manufacturer in more detail, then you’ll love this free eBook: “How To Find A Manufacturer In China: 10 Verification Steps.”

In it, we share the 10 verification steps we developed to help you find the right manufacturer.

It covers:

  • Background checks
  • Manufacturing capabilities
  • Quality system auditing
  • Engineering resources
  • Pricing, negotiation, & contracts
  • …and much, much more

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