Case Study: How a Chemical Manufacturing Company Leveraged CPG And Saved $700k Annually

Managing the China supply chain has become more challenging than ever given recent global events, even if you have your own employees working in China. 

Background

One company, a chemical manufacturer, had two full-time sourcing employees in China. They were well paid, competent, well versed with the industry and its suppliers, and had been with the company for many years. But there was a concern about their efficiency and reliability; specifically, they believed they were not getting the best prices from their suppliers.

Looking first for validation, it commissioned CPG to conduct a short-term market research study: an anonymous supplier search and price benchmarking on some of their high-volume imports. With ten years of direct sourcing experience in China, they knew the China supply side very well, but they wanted an independent review. The search had to be anonymous because the buyer did not want the suppliers to know who they were, as this would skew the results.

The mission was clear: Find suppliers for specific products and include:

– A brief company profile for each supplier
– Their history with the product and their experience with exports
– Best quotes for Freight On Board (FOB) pricing (given the annual volume and current pricing reference) for each

It took two weeks to complete the study, and the results were as follows: 

– Many of the suppliers were known to the buyer, but several, surprisingly, were new to them. They were in provinces they had not previously explored.
– Pricing across the board was significantly lower than what they were currently paying–in some cases, as much as 90% lower.
– Annual savings with new pricing was over $700,000. 

Presented with this discovery, the company had some internal work to do, especially in confronting their existing China team with the data and the pricing discrepancy. 

Later, the company hired a CPG China team–inclusive of Sourcing Specialists and Quality Control (QC) engineers–to work alongside their two current employees. But, the two employees promptly resigned – and disappeared. Luckily, the loss of these employees had no negative impact on their sourcing program because of their collaboration with CPG. And, their new CPG sourcing team delivered: 

– Optimal costs with monthly benchmarking
– A real-time pulse on the Chinese market with a monthly market report
– Rigorous quality control standards, including on-site inspections
– Transparent supplier communication in English
– A US-based Client Success Manager for consultation and real-time access

Conclusion

After ten years of managing their imports from China internally, switching to CPG, for a fraction of the cost of their own employees, helped them to fully realize the tremendous value that China offers.

Lessons Learned

– The necessary process of checks and balances on internal staff is difficult, especially when you have a small team operating on the other side of the world, and travel is difficult or prohibited
– It pays to verify assumptions and periodically evaluate suppliers and prices

 

– By Chris Volz