All companies in the business of selling products want to do so in the most profitable way. For many of them, buying directly from China provides the best value as well as a lasting competitive edge.
What does it mean to buy direct from China?
To buy direct means to go straight to the source and have no intermediaries in between.
This might seem simple, but the truth is, many companies think they are buying directly from Chinese manufacturers when they are not.
What is better, buying direct or indirect?
It depends on what they are buying: if a company is buying large volumes of customized, branded product, they should buy direct. If they are buying off-the-shelf products, especially in lower quantities, they should consider indirect buying.
Buying from China: What are the main concerns?
All importers are confronted by 5 main concerns: Price; the quality of the product; the MOQs (Minimum Order Quantities); the payment terms and the delivery delay.
The main differences between direct and indirect buying are as follows:
Indirect Buying from China: Going through third parties
Buying directly from a China-based intermediary is not the same as buying direct from the source. It means dealing with intermediaries instead of establishing direct rapport with the manufacturer. The prices are higher, but this is justified by the additional services the intermediaries provide to the importer.
- Trading companies tend to be product specialists (i.e., a specific industry or product category) who buy in bulk off-the-shelf products. They are responsible for the quality of the product and can offer low MOQs. They require upfront payment and deliver quickly.
- Distributors are category specialists; they also buy in bulk off-the-shelf products, but they tend to buy a broader range and they re-sell these products from US warehouses. They guarantee the quality of their product, they offer very low MOQs, and they accept payment terms.
- Online: The Internet has made buying from China possible at retail level. Platforms like Alibaba and AliExpress offer a vast range of products at a minimal MOQ (1 piece). They usually require upfront payment and delivery is often via the Post Office in 4-6 weeks. But this indirect buying is not a reliable platform even for low volume importers, instead, it targets most companies’ customers.
Direct Buying: Going Straight to the source
Direct from a China Supplier or Manufacturer: Buying straight from the source delivers the lowest pricing and the greatest control over your supply chain, in the short- and long-term.
But, to do so, importers must be well organized. To ensure good results, they should have good management, systems, and procedures in place. Typically, direct buyers either have their own sourcing offices in China or they have on-site, third-party representatives, or sourcing agents to liaise directly with the factory and control the process.
Buying direct from China: What is the downside?
Simply put, if a company buys direct from a manufacturer, any manufacturer, even one in the USA, they need to know what they are doing, and understand their product inside out. But direct buying from China has additional challenges:
- Communication can be challenging because of language and cultural issues
- Quality must be closely monitored – because once goods are received, there will be little recourse
- Deliveries can take a long time
- Payment is usually up front, which can cause cash flow issues
Who is best suited to buy direct from China?
With advancements in technology, any company can buy direct from China. But those companies that have the right kind of product (Customization and volume); that are best prepared and have the know-how and structure to deal directly with Chinese manufacturers are best suited to take advantage of that opportunity.
Why Buy Directly from China – instead of somewhere else?
Most businesses source from China because they are looking to maximize their profit margins and/or compete with other companies with quality products at a competitive price. China remains the most reliable, low-cost source for many (but not all) consumer and industrial products.
CPG has explored many alternative sourcing options for our clients in recent years. In nearly all cases, going outside of China has not provided the same cost/benefit ratio due to lower productivity and efficiency, higher raw material costs (often still sourced from China), and many other factors. See our blog Offshoring or Local Manufacturing: Key Factors to Consider for more information.
What Products Are Best Sourced Direct from China?
Ideally, to buy direct from China, the product should meet the following criteria:
- It must be customized, not off the shelf
- It must have a sufficient volume to justify the MOQ
- It must have a sufficiently long shelf life to justify the delay in manufacturing and shipping
What factors help to improve my direct buying from China?
There are many factors that affect how companies buy from China. And they could make or break their sourcing program. All of them have to do with structure, good processes, reliable people and attention to detail:
- The Right People: The supply chain will never stop evolving but will always remain all about people. The ability to communicate, connect with and monitor the factory is essential.
- Sourcing skills:
- Pricing: The ability to negotiate optimal pricing is crucial in creating a sustainable and repeatable sourcing process. This means securing the best first cost per unit and establishing the final cost at the warehouse.
- Proper documentation: Order placement processes should ensure buying conditions and payment terms are clear and understood and that the product and quality needs are documented in as much detail as possible. To do this, buyers must have a purchase order or contract signed by both manufacturer and buyer.
- Quality: A quality assurance program with clear systems, procedures, and personnel. One poor quality shipment can wreak havoc on any business. To ensure product conformity, the purchase order must also have:
- A clear Product Specification Sheet (PSS) that lists all product details, to include materials, color, components, etc.
- Clear Inspection Specification Sheet (ISS) that details how the product should function, how quality tests should be performed and how the product should respond to testing
- A minimum amount of quality inspections as specified by the ISS.
- Delivery: All products must arrive in time, every time.
- Reliability and predictability: Establish a credible timeline and method for product delivery and ensure the supplier sticks to it.
- Speed to market: Sometimes speed is essential, make sure expectations can be met. The shorter the timeline, the harder the challenge: buyers will need top people and more resources to deliver products on a tight timetable.
To learn more about the sourcing timeline, see Sourcing from China: How Long Does It Take?
To see how CPG could add value to you and your business, Contact Us.