I am about to place an order with a factory, after conducting extensive research (this site is a great resource!). Now I read about how factories raise their prices when you place a 2nd or 3rd order. I’m not sure if it will affect me, but (what if) do you have any advice what one does in such a situation? Or even better, how I can prevent it?
Since it is your first order with a new factory, I want to stress two things:
- Make sure you have audited them and they really can do all the things they promised they can do for you.
- Link your payments to performance. For example, 30% deposit and 70% AFTER you or your representative has inspected the product BEFORE the goods leave the factory and are shipped to you.
With that piece of advice out of the way, let me answer your question about negotiations. Unless you have large and steady orders or a deposit placed on future orders, it will be hard to fix a price now for future orders. So it is best to make sure you know what is the fair and current price for a given item in China at any given time. If your supplier tries to raise the price on the future order for a logical reason (raw material costs have gone up) or an emotional one (he just wants to make more money next time) it is almost useless to try to negotiate unless you know the real price that other factories are selling similar goods. Many buyers stop the Request For Quotation (RFQ) process when the first order is placed. But that can be a mistake. If you continue to do some basic RFQ (getting a quote now and again) and understand the pricing in China from a few different suppliers, you will have more leverage in the event your supplier tries to increase the price.
One other piece of advice. If the first order price is “too good to be true” then it may be a trap to get your initial order then charge more later after you are locked with this vendor. Very common in industries where changing suppliers is difficult. For example, in medical or toys, just to change the supplier requires a lot of paperwork. But if you did a good job with your first RFQ, you would know what is the average price in the market and who is low and who is too high.
In short, it is very hard to out negotiate suppliers, but it is possible to research market conditions and leverage that information to your benefit on current and future orders. Knowledge is power.
Wishing you successful China sourcing!
Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.
Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com)