Buy in China Factory Direct
Finding a supplier and getting a quote is easy thanks to free websites like www.GlobalSources.com. Because it is so easy to go direct, smaller and smaller buyers are trying their luck at a factory direct relationship. CSIC is dedicated to providing the resources to help buyers succeed in creating and maintain a smooth China supply chain. But in reality, some buyers are just too small to go factory direct.
Price vs. Cost
Going direct and avoiding your local importer, middleman or local distributor does get you a good unit price, but that unit price doesn’t include a host of new project expenses that will affect the costs of getting your product to market.
Going direct to China on your own also means you need to be ready to cover the costs of things like samples, multiple China trips, product safety testing, international shipping, auditing, inspections, due diligence and so on.
If you are thinking about China sourcing but don’t have a few 1000 USD to cover things like a trip to China or due diligence and product inspections, then the harsh reality is that you probably shouldn’t be buying direct from China.
Typical costs associated with going factory direct
In his blog post China expert Renaud Anjoran outlines the bare minimum steps that must be followed, if you want to launch production in China and avoid the major pitfalls.
I have taken the liberty of putting in to his list an estimate of the costs involved of each step.
- Visit a factory (and write its address down), or get it audited by a third-party inspection firm. 3000 USD for trip to China, inclusive of an audit by professionals.
- If you have serious doubts about your supplier’s relationship with this factory, pay for a background check (CBI Consulting is a good choice) on your supplier’s company. You might discover that you are dealing with a middleman. 1000 USD
- Get a written confirmation that 100% of production will take place there. Free
- Keep a pre-production sample that you approved, and write your requirements about the products, their labeling, and their packaging. Be as precise as possible. Do not forget tests that simulate your product’s intended use. 500 USD to create and send samples.
- Tell the supplier that production might be inspected at different times, and that they will pay for re-inspection(s) if an inspection fails. Write it on your purchase order. Free
- The factory might be tempted to use substandard (and cheaper) components. This can be checked just before production is launched. If you cannot go there yourself, send a third-party inspector. 300 USD to send a 3rd party.
- Inspect the products again a few days before they leave the factory, preferably when 80%+ or the order quantity is packed. This way you can count them and you can draw samples at random. 300 USD to send a 3rd party.
- If you notice quality issues, communicate about the corrective actions to follow. Then check quality again.
- Do not pay in full until you are sure the products are fine. For a first order with a new supplier, keep the total amount low. Free
- Anticipate a few weeks of delays. Do not rush production, ever. Free
“5K to play”
Quick estimate for the bare minimum steps above is just under 5000 USD. This number grows substantially if you have multiple trips or need to do product safety testing.
As Renuad explains “buyers who follow the above steps will reduce their sourcing risks by more than 90% but it will cost some money.”
How do you put a million USD in your pocket when gambling in Las Vegas? Start with two million!
If you are a small buyer worried about losing money on a China sourcing project, and if you don’t have the budget to cover the basics, then perhaps, just like Vegas, the best idea is not to play.
Wishing you successful China Sourcing!
Author, “The Essential Reference Guide to China Sourcing” (www.chinasourcinginfo.org/book/)
China Operations Director, PassageMaker Sourcing Solutions (PSSchina.com) assembly & inspection services to develop supply chains while protecting IP and ensuring quality