Sourcing Strategy Mistakes

Businesses from all over the world are flocking to China. Because of the many benefits to source products from China, most businesses see value in meeting their sourcing needs from China. Scalability, low cost, and convenience make China a great place for companies to explore and source products.

Buying from China has more benefits than you might think. If you want to have a successful sourcing strategy with a Chinese supplier, you have to learn certain skills. Not every deal you make with a Chinese supplier will be good for you. You could make mistakes when sourcing from China that could cost you a lot. There are several sourcing issues you might run into with your Chinese supplier, including lack of communication, delays, and product quality issues. Your sourcing strategy might have started out with a cost-saving goal. However, some mistakes could cost your business a lot more in the long run.

Fortunately, there’s some good news. These mistakes can be avoided with a little guidance. Taking this approach will help you maximize your sourcing strategy and create a mutually beneficial business relationship. To avoid the biggest mistakes when sourcing from China, you have to know what they are. Here’s what you need to know.

Poor sourcing strategy and planning

If you want your sourcing from China to be successful, you need to plan it right. Managing supplies and money with foreign liaisons can be tricky without a well-defined sourcing strategy. By sourcing efficiently, you’ll achieve your goals and have a road map to follow.

A good plan will ensure you have clarity on price, functionality, and product quality. It’s also important to make sure your orders get delivered on time. Finding the right suppliers can be done online, at trade shows, or even on social media, but you have to verify them first.

It’s also important to plan out your sourcing methods, whether it will be direct purchases or commissions. Quality management is necessary and you need to make sure you get insurance to protect yourself in case any issues arise.

Failing to audit the supplier

Before you sign a contract with a supplier in China, you need to audit their factory. If you’re not able to do it yourself, you can hire a third party auditor or visit the Chinese factory. There are a bunch of reasons why you should visit in person. It’s a great way to develop and maintain long term business relationships with your supplier because you’ll be able to build a relationship with them more personally.

In person visits will also give you a better idea of a company’s working conditions, quality control practices, and other key aspects. However, third party auditors can take care of this if you can’t make it in person.

To create supplier standards for your business, you need a checklist of what you expect. It must include:

Expectations for quality
Production capacity based on current and future needs
Capabilities in technology

Creating supplier standards will give you a clearer idea so that you can meet these standards more easily.

Not ordering product samples

Not all suppliers can produce products that meet your every specification. Your specifications and requirements may have been clear, but that doesn’t mean the supplier has read them all. If you communicate your specifications, you can’t assume that the supplier will follow them in good faith. Before signing an agreement with a Chinese supplier, you should order product samples to inspect. Make sure the samples you order are accurate. If the quality is acceptable but you require certain revisions, make it clear at the beginning. However, if the quality is bad or a full batch of samples is faulty, you’ll want to avoid that supplier.

The supplier might give you a “golden sample” which represents the best product that meets your specs. To win your business, they do this. They might even have done this at another facility to impress you. To make sure you get products that meet your specs, you can hire a sourcing agent who will inspect products to ensure products meet your specifications.

Failure to draft a manufacturing contract

In order to protect yourself in the future if issues arise and to make the specifics of the business relationship clear, it’s good to have a written agreement. It must include as much detail as possible about:

The parties involved
Payment terms
Quality management, logistics, price, and sample terms
A clear definition of desired product quality, satisfaction, and timely delivery
Liability for contract breaches
Dispute resolution
Choice of law
Attorney fees
Arbitration clause

Don’t just use the same template as before. Even though many clauses are the same, cross-border negotiations require special care. Check the written contract with an attorney and find out what it means. Additionally, Chinese law may have some issues you need to be aware of. Before you sign anything, make sure you understand the legal nuances.

In case of issues, an airtight sourcing contract will protect you and your Chinese supplier from loopholes.

Failing to perform due diligence on suppliers

If you want to avoid getting scammed, make sure you check out potential Chinese suppliers. Check online reviews from previous customers to see if there were any problems. Also, check out the supplier’s website to see what they have to offer, but follow that up with a phone call.

You should also check the supplier’s registration and certification, especially if they’re not already on a B2B platform. Look at the Chinese business license of the supplier to find out:

Name of the company
Address of the company
Registered capital
Legal representative
Official company information

Make sure the supplier is registered locally with the Chinese Administration for Industry and Commerce (AIC) or visit the local office.

Poor cost forecasting

If you get a quote from a Chinese supplier, you may already feel like you’re on top of the world. Don’t get ahead of yourself. There may be several hidden costs that you aren’t factoring into your product cost. When you forecast your costs, don’t just look at the unit cost. Think about the landed cost as well. By doing this, you’ll have a better idea how much you’ll end up paying your Chinese supplier.

Lack of protection from quality issues and payments

Since your China sourcing strategy is international, you need to make sure you protect yourself and your money in case there are problems. This is where a written contract comes in handy. Make sure you use a safe payment method so you can get your money back if a dispute arises. When it comes to China sourcing, escrow services or bank lines of credit are best.

Also, your contract should define the quality you want. In addition to ordering samples, you could also place a probationary order with a supplier. Protecting yourself with insurance is essential for any business. As an alternative, keep other options around in case your current supplier doesn’t work out.

Poor communication of needs

The language barrier and cultural differences can make it hard to translate your needs. It’s easy to assume the Chinese supplier understands your requirements, but China’s culture of “not losing face” can play a big role in not asking for clarifications. It could lead to miscommunication and cost you money.

Make sure all specs are written down and reviewed with your supplier. Encourage them to ask if they’re unsure and to get clarifications when they need it. A Mandarin Chinese speaker on the team will help build better communication.

Now that you know what mistakes to avoid when sourcing from China, you’ll be more careful when planning your sourcing strategy with a supplier. You can avoid getting into a bad deal by following these steps. By doing this, you’ll avoid nightmare deals and can instead take advantage of all the benefits of sourcing from China.

Once you get it right, the possibilities are endless. Then you won’t have to deal with foreign suppliers and can grow your business on your own terms. Putting a little effort and understanding into it will help you avoid these mistakes and setbacks.