Supply Chain Management in China
Readers of my blog often write in to ask for introductions to sourcing agents and consultants who can help to find and manage vendors. Here are the four options if you are looking for sourcing support.
Option one: Engage a Large Sourcing Agency (www.PSSchina.com for example). They focus on medium-large clients and charge a retainer + small performance-based commission for sourcing services.
Option two: Hire a Small Sourcing Agency (www.SourcingServiceCenter.com can make introductions) which focuses on small to medium sized clients. They also work on a commission basis.
Note on fee structure
The large agencies work on a smaller commission than the small agencies because the orders from the customers they represent are large. Larger the order- smaller the commission.
When the orders are small, the costs can be prohibitive to engage the large agents, because the large agents have minimum service fees in place. Some small buyers still go with the large agency and pay the minimum service fees because they want the same level of professional service that the big buyers gets, even if the order is small.
While the small agents are willing to work on smaller orders, some of them may charge a set up fee (which usually is less than 1000 USD). This is reasonable because there is a lot of work for the agent to get the right suppliers lined up, and if the order is cancelled by the buyer for no fault of the agent, the agent doesn’t make any commission. So the upfront fee makes it safe for the agent to do the upfront work on small orders.
As a rule of thumb, when orders are over a few 100,000 USD per year, most clients gravitate to the larger agents. But if the order size is less than 5000 USD per year, even the small sourcing agencies may not be interested. That leaves the following options:
Option three: Hire an advisor
A third option is to engage freelance sourcing advisers (westerners living in China) to walk you thru the key steps. Type 3 is a good fit when the client is willing to do the “heavy lifting” of project management, but wants a seasoned China adviser to offer advice and counsel throughout the project. The freelancers I know, make themselves available for a phone call at a set time each week, but they don’t get involved in actually managing the vendors for you. They charge a few 100 USD per month. I have a few of them in my network and www.SourcingServiceCenter.com is happy to make the introductions.
Option four: DIY
On one hand, external costs are reduced because a sourcing agency or adviser is not engaged, but internal cost may increase because you need to spend your own time managing the supply chain. Plus the risk of having a problem on the China side increases dramatically if you don’t have expertise in-house.
If for economic reasons you are forced into option 4, then consider the following resources to get yourself up to speed on the opportunities and challenges facing a China supply chain:
- I wrote the “The Essential Reference Guide to China Sourcing” specifically for buyers who want to roll up their sleeves and set up a China-direct sourcing program. The 300 page book is available at the link above for 58 USD and on Amazon. Consider buying the book even if you engage a sourcing agency, because it can’t hurt to have a deeper understanding of China sourcing dangers and best practices.
- www.ChinaSourcingAcademy.com offers online courses that range in price from a free to a few 1000 USD. The comprehensive course covers all aspects of sourcing and supply chain management relevant to those wishing to import from China.
One last tip, before engaging a supplier, make sure they are not listed at www.SupplierBlackList.com!
Wishing you successful China Sourcing!