When Sourcing in China. Cash = Control

Wednesday, May 28, 2008 9:01
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It was about a year ago now that the first lead paint Barbies probably landed at Long Beach and began their un-QCed express lane to the Wal-Mart shelves… and since then, there has been a lot of debate about the role of brands in quanility control, and more than that, a lot of writing about how to control one’s supply base.

and it is hear that I will blend a few phrases that I have heard in my time on earth.. “cash is king”.. and “I’ll believe it when the money is in the bank”.. or “logistics is simply controlling frieght”..

Where these random cliches come together, is that I never consider a consulting deal closed until the money is in the bank, and that when sourcing in China I am only in the power position for as long as I control the money… and what amazes me is how many people forget these simple rules.

A while back I wrote a post about quality control I recieved an email from someone who had bought a container full of product that was crap.  It wasn’t to spec, he had fully paid out, and he wanted to know how to recover.  The problem was compounded by the fact that he had no other supplier ready in the wings, his current supplier knew that, and he feld stuck.

and he was… and there were two reasons for that.

1) He had not understood or planned for the risks associated with sourcing outside the U.S., and did not put in any fail safe measures

2) He assumed that his partner would get everything right, but failed to force his supplier to take on any risk – after all a 100% payment at shipment essentially is the best deal a manufacturer can get!

and here is what I told him

1) He needs to find a 2nd and 3rd supplier of goods as a backup

2) He should forget about returning the goods (the logistics of that alone was 6-8k USD with no indication the supplier would take it back)

3) He had to begin QCing the goods through either his own eyes, or trusted eyes

4) As long as his payment terms were as they were, his suppliers had no skin in the game and therefore there was no reason to believe this wouldn’t happen again.

For those who are sourcing in China, it really is important to understand that as long as you “owe” your supplier money, you are still in the position of power.  You can change an order size more easily, you can demand a 3rd party audit, and if the QC process shows a red flad you can return product much more easily.  Because until you are 100% paid up, the supplier at some level will be at a loss, and that is power.

In watching buyers in China for the last 5 years now, where I am often surprised is just how easily that is lost.  that the basic understanding of the power of money is lost on some who will structure their deal in such a way that they lose all ability to return items that are not up to spec.  That rather than quality control in China, and then have the ability to fix it on site, many will find themselves with a container full of junk that is unreturnable.

So, a couple quick lesson in global sourcing.  Make sure your goods are up to spec before they leave the country (because there is little you can do once they hit your dock), and never cash your supplier out until your final audit has been perform….

Make sure they have their skin in the game, and make sure you remain in a position of power.

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