Avoid the Middleman! INVEST in Your QC!!

Friday, July 6, 2007 10:57
Posted in category From the Factory Floor

This evening, I ran into this youtube post called avoid the middleman, and while it is really about developing an Ebay store, I think that graphics aside there are some takeaways here.

[youtube width=”425″ height=”335″]http://www.youtube.com/watch?v=dt8gLfCgkYo&mode=related&search=[/youtube]

In watching this 3 minute clip, the primary emphasis on removing the middleman is because you as a distributor can save time and money, and neither of these should come as any surprise.

Not only true for the Ebay model, this is also true for the China sourcing model, and it is something that I have seen a lot more of in the last 18 months as a number of firms who were using trading company relationships in the U.S, Taiwan, and H.K. have begun taking out the middleman.

In the race to the bottom, this is only natural. However, in the last few weeks we have come to understand that there is now a more important reason for removing the middlemen and going straight to China: safety and control.

It may seem a little counterintuitive at this point to say that the closer a company gets, that there is an increase in safety and control.. after all, the U.S. press is filled with headlines of Chinese products that are unsafe or of poor quality..

However, in the case of one category we have been working in for the last 2 years (construction tools), we have had many discussions about how the reach of Chinese goods in the market.. and how they are perceive.. and for the majority of buyers, the news is not good for the Chinese as many of the guys on the site just do not like Chinese products.. and here is why.

the are traded through multiple layers.

In the case of one retailer, 75% of al their U.S. Stock is bought through a Midwest city, and that office has a relationship in HK, and that company has a relationship in Shanghai, and that company is the one buying the goods in a Southern Chinese factory (actually one of our suppliers).

So… without knowing who the actual manufacturer is, the retail store in the States is forced to trust their supplier.. who trusts their supplier.. who trusts there supplier.. who manages the factory.

This is less than ideal.

Of course, for years these trading companies have served an important role: They served as a portal for dozens of products, they would hold stock, and they offered terms… but the goods were expensive by the time they reached the market as there were so many layers of traders in the middle of the equation.

So.. naturally, the last 18 months there has been a push to source direct from China, and fortunately for many there were tools like Alibaba and Global Sources, regular trade shows, and of course there have even been sales agents roaming the country on behalf of the Chinese manufacturers.

Money was saved… but as many buyers found out, without the layers of trading companies in the middle there was no one left to quality control the goods anymore… and so these buyers ended up buying products Made in the U.S.A.

So, why is all this relevant.. why is this important?

Well, the difference between my client and his competitors is that he invested in a quality management system (namely us) to identify, qualify, and manage the suppliers.

When off shoring, it is critical that one understands that maintaining quality in China can be done, but it is not a given. That part of the savings must be spent in creating a more robust quality control that will ensure the quality of goods.

It is an INVESTMENT. Not an expense.

My client in this case made the investment, and his competitors did not. the overall failure rates (yes, we have problems too) are less than a half percent, and his savings are well… significant enough for him to continue ordering. However, his competitors are still paying too much, and for a number of products where they could be making 10%.. they are losing.

China is still an place where once can reduce costs, and knocking out some of the middlemen when going to China is well advised, but in doing so one must be prepared to INVEST in their quality management system.

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One Response to “Avoid the Middleman! INVEST in Your QC!!”

  1. University Update - YouTube - Avoid the Middleman! INVEST in Your QC!! says:

    July 6th, 2007 at 11:54 am

    […] Link to Article youtube Avoid the Middleman! INVEST in Your QC!! » Posted at All Roads Lead to […]