Are You Leaving Money On the Table? Part 4 – Your Own China Sourcing Office
August 23, 2016
OK, so we covered Trading Companies and China sourcing Agents in previous blogs, but why hire outsiders? Why not manage the China sourcing process with your own employees, your own team? In this blog, I am shifting my focus on the Pros and Cons of having your own China Sourcing Office.
How about your own China Sourcing Office?
A China Sourcing Office is an overseas extension of your home office focused on advancing your company’s objectives and protecting your interests. In that sense, your China sourcing team is as good as you want it to be. This means that:
- Product specialist: They are, or could become highly specialized in your products as well as in your methods, requirements and approaches. Some companies hire specialized product engineers as part of their China sourcing operation.
- Relationship with the factories: They maintain an arms-length relationship with the factories based on professional respect and supported by a detailed knowledge of the factories’ competitors. Based on your requirements they will do detailed due diligence on factories and will perform audits from time to time.
- Warehouses & Logistics: They can rent warehouses if needed, arrange for shipment consolidation of merchandise from different factories as per your needs, or schedule regular shipments just-in-time as you may require.
- Accountability: Your China team is accountable to you in the same way as your USA team is.
- How they make money: Sourcing offices are usually cost centers, meaning a budgeted, predictable overhead linked to a specific performance and justified by an internal commission. It is the employees that are motivated by making money, and their income is usually linked to their performance.
The benefits of having your own office include:
- It is the highest level of sourcing support since they work for you, only for you and do the work that you require. Their objectives and activities are integrated with your home operations management system and objectives.
- Having your own professional sourcing team enables you to systematically do what can be difficult to require from third parties, such as:
- Locating and comparing factories for products
- Auditing and pre-qualifying factories
- Developing prototypes
- Securing samples from multiple sources
- Negotiating prices
- Assuring Quality from top to bottom
- Planning and supporting China trips
- Supporting your client’s visits
- Price and Payment terms: They help negotiate all aspects of the buying contracts, including pricing and MOQ (Minimum Order Quantities) and payment terms.
- Design and new ideas: Depending on your requirements, they can make major contributions to design and ideas. Some companies locate part of their design team in their China office.
- Sample development: They execute your requirements using your systems and procedures.
- Prototyping: They can be very good at developing prototypes for new products and will tap into local resources to do so.
- Logistics: They follow up with factories and transport companies and monitor all logistics elements to ensure prompt delivery.
- Quality assurance: They execute your plans and requirements and act as your eyes and ears on site.
- Processes, procedures and training: They execute your processes and procedures and your employees will be trained as per your requirements.
The downside of a China Sourcing Office includes:
- Fixed overhead: Your China Sourcing office costs have to be paid even if your sourcing business volume is less than expected.
- Management Burden: Excellence is about leadership and management. It takes effort to manage a separate office. Even more so if that separate office is on the other side of the world in a different culture and using a different language.
The types of companies that like to have a sourcing office are:
- Large Importers, those who buy at least $10m per year.
- Large Buying groups
- Large Retailers
The types of companies that generally don’t want a sourcing office are:
- Wholesalers and distributors: They usually do not have the required China sourcing management know-how
- Small importers
Do you have your own sourcing office? What is it like?
And if not, why not? What are your main reasons for not having a sourcing office?
Thank you for reading. I hope this blog was fun as well as enlightening. I would love to hear your feedback, questions, comments and concerns.
At China Performance Group, our mission is to create wealth for our clients. To learn more about optimizing your China Sourcing operations, contact us here.
Stay tuned for part 5, the finale of this blog series entitled, “Let’s look at the whole picture: How much does sourcing support really cost you?” In that blog, I will review and compare the three options, Trading Companies, China Agents and Your Own Office on the basis of operational costs.
By Guerschom Francois
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