Challenges of Supply Chain Management in China for Importers
As the world’s factory, China has the most complete industrial chain, raw material supply and labor force in the world. Although the Chinese government has been encouraging industrial upgrading and industrial transformation in recent years, from low-profit labor-intensive and resource-intensive industries to more value-added, environment-friendly and technology-intensive industries, due to the low quality of China’s labor force, the large number of employed people, and the influence of various uncertain factors, the former industry is still the most important part of China’s manufacturing.
The supply chain, in fact, is a combination of various business practices and operations, i.e., the logistics chain from procurement to the arrival of the product in the hands of the consumer. From raw material to finished product, any product inevitably goes through several necessary steps, starting with the raw material supplier, passing through the manufacturer and logistics storage and transportation, and finally reaching the customer. The chain from raw materials to final customers is the beginning and end of the supply chain. The ability to create higher prices for a company’s supply chain management is largely determined by the flow of capital, knowledge, products, services, and information. Therefore, the competition between modern enterprises is gradually turning into a competition between supply chains.
China’s supply chain has become more and more sophisticated after decades of development, from raw materials to finished products, at the high and low ends, upstream, midstream and downstream. Although some brands have moved some of their production lines to Southeast Asian countries, OEM factories in countries and regions such as Vietnam, Cambodia and Myanmar still rely on China for raw materials. For example, about 60% of the raw materials used in Vietnamese sewing products come from China. In Uniqlo’s case, for example, a delay of about two weeks in the delivery of goods from its Chinese foundry could lead to a stock shortage in March. Moreover, some of the company’s new products have already been delayed. In factories in China, Vietnam and other ASEAN countries, UNIQLO must rely on China for 60% of its raw materials and auxiliary materials. However, it has to be said that there are many problems in the Chinese supply chain, including inexperienced management, fragmentation, unhealthy competition, lack of information sharing, and high risks associated with high inventories, which importers should be aware of.
How to manage and optimize the supply chain is also a subject that many scholars are studying, but this article mainly interprets this topic from the perspective of Chinese foreign trade practitioners, and I think it will be more meaningful. After all, business is not the accumulation of various data and theories, but the fruit grown in practice. But still, I’m very sorry, considering that some readers do not know much about supply chain management, so I wrote the above paragraphs. But if you are an importer from China, especially an executive, who is struggling with supply chain management, then I am confident that the following will be helpful and inspiring to your work.
For importers, cheapness and relatively good quality are important reasons why they choose to source goods from China. Managing and optimizing the Chinese supply chain is the most important thing for importers. No matter what country you are an importer in, there are challenges and difficulties in every aspect of supply chain management, the main ones being：
- Control of procurement costs and cash flow
- Selection of suppliers
- Plant Selection
- Shipping cycle control and market prediction
- Product quality control (factory quality awareness, quality control and third party inspection)
- Information (communication, no first-hand information, slow message delivery)
- Control of inventory
Each of these is not discrete; they are intertwined and interconnected like a creeper.
Selection of suppliers
Supplier selection is a fundamental task of sourcing, and through proper supplier selection it helps the company’s long-term strategy to reduce costs and maintain its competitive position. For a manufacturing importer, the cost of purchased materials, components, and services will account for the majority of the total product cost, while a trading company will be faced with a larger number of suppliers and a larger percentage of its total operating costs. Choosing the right supplier is the key to the sourcing process and makes it possible to reduce costs throughout the supply chain management. Sourcing is all about suppliers, and the competitiveness of a company is closely related to the productivity and quality of its suppliers. How to do a good job of supplier management is the key to a company’s ability to manage its procurement business. The primary quality of a good supplier is honesty, and the correct business philosophy is win-win cooperation.
It is best not to find several suppliers at the same time, in the fine not in many. (Except of course to do super and other importers of various categories of imports), although able to compare prices, but also indirectly increase the cost of communication, manpower, management. Many trading companies will exhibit at the Canton Fair or abroad, or some suppliers will visit customers overseas, which are good opportunities to meet with them. Not only can you get to know the factory you are working with better, but you can also get a general idea of the supplier’s mindset, attitude, and way of doing business from the way he talks and interacts with you.
By cooperating with a small number of excellent suppliers in depth and strategically over a long period of time and gradually cultivating suppliers, we can not only reduce procurement costs, but also obtain the lowest “total cost” products with lower prices, better quality and shorter delivery time. This not only improves customer satisfaction, but also increases sales and revenue, thus achieving a win-win situation for both buyers and sellers.
Factory Selection
For small and medium-sized importers or import wholesalers who are just starting out, finding their own factories can not only avoid suppliers making a price difference, but also make communication smoother and provide a better understanding of product quality, shipping and other details. However, there are too many factories in China, and a large part of them rely on traders to take orders. It is not easy for importers to find a target factory with the right price and quality that meets their expectations. As the downstream of the supply chain, the factory is the closest to the “entrance” of product quality, and its importance is obvious. Factors related to quality in a factory, however, are the following.
1.Personal characteristics of the factory owner
The owner’s understanding of the industry, and his determination to improve the product process and quality control. I have seen many factory owners over the years in the industry. The quality of the same kind of products from different factories can really be very different! It is not that there is much difference between the two sides in terms of hardware such as production machines. Some factory owners have multiple jobs, such as a toy factory and a jewelry store, and are unable to devote themselves to factory management. Some owners have strict quality requirements and recruit competent management personnel to help them manage their factories. The factory is clean and tidy, inspecting the factory five times a day, and good welfare for workers, workers are also hard-working, so that the quality of the products produced is naturally not bad.
2.Hardware
If the production equipment is good, the technical level is high, and the influence of people is small, the defect rate of the product will be greatly reduced. However, the price of products from such factories is generally not too low.
3.Worker proficiency
Although it is repetitive labor, there is a huge difference in quality between products made by novice workers and those made by highly skilled veterans. In a garment factory, for example, the proficiency of the turners determines the overall efficiency, and it is also necessary to have old workers leading new ones.
4.Treatment of workers
Good factories respect their workers and are willing to give them better benefits, which of course makes it easier to keep them. We visited a factory that makes cutlery, and the factory manager told us that their workers had moved into a new apartment with free electricity and water, which was a small amount of money for the factory, but a real benefit for the workers. By the way, I was very surprised to see that the factory also played music for the workers during work.
Procurement cost control
The process of production, transportation and finally reaching consumers is a process of value-added products, which always comes with costs. If the price is too high, the cost of the importer will increase; if the price is too low, the profit margin of the factory will be compressed, and only inferior raw materials can be used, or the buyer can only find cheaper factories, or even small workshops, and the quality cannot be guaranteed. There was a factory that cooperated with a bedding supplier before, so the orders were directly distributed to various small workshops to do the work, but the stitches were not strong and broke when they were ripped, and eventually they had to rework.
Control of delivery time and market forecasting
As an importer or an importer’s executive, the ability to control shipping times and to understand supply and demand, i.e., to anticipate the market, is also an important part of his or her ability. The control of shipping time is the ability to keep up with the sell-through in the target market or to ensure that the product is shipped to the wholesaler on the agreed upon time. Understanding supply and demand is the ability to control the popularity of a product, whether it will be a hot seller, and the quantity ordered. This is becoming more and more difficult as consumers diversify, personalize and differentiate their needs. Amazon’s constant adjustment of inventory rules over the past two years has also directly made it more difficult for Amazon China importers.
The shipping time should be precisely negotiated with the trading company or factory, and written into the contract. Keep track of progress through frequent communication, especially if changes or rework have been proposed. Put some pressure on the factory to avoid serious volume problems.
Product quality control
Product quality here includes, but is not limited to, the factory quality awareness and quality management mentioned above, but also includes second-party inspection by the supplier and third-party inspection companies that the importer works with on his own. The importer’s use of the supplier’s own inspection team is actually a very risky endeavor! The importer knows the logical and beneficial relationship between the importer and the factory better than anyone, and the relationship between the importer and the factory is more intimate than that of a husband and wife. The reason for this blindness is either ignorance of the third-party inspection company or a desire to save money.
But I still want to say, some money really can’t be saved! A third-party inspection company can greatly help an importer control risk by constraining the factory from the moment it selects raw materials. In a way, the third-party inspection company is the rope that holds the factory’s wild horse. On the other end of the rope is the importer. Plus, a good third-party inspection company has seen a lot of factories and traders, and there are some questions that a third-party inspection company will be better suited and more willing to answer than asking the supplier, who is, after all, only responsible for you. The benefits of using third-party inspections is something you can only talk about after experiencing a cost-effective service.
Access to information
With or without the supplier acting as a sounding board, communication between the factory and the importer is limited by language and time differences. These two factors determine that the main way of communication between the two sides is by mail, which greatly limits the efficiency of communication. Thirdly, the distance is not deep enough to understand each other, and the national policies and cultures of both sides are not well understood. In particular, importers of raw materials, labor and other cost market information in China lack channels to understand, while suppliers and factories are almost all sources of such information, which will affect the importer’s response speed. Third-party inspection companies can also be a good source of information. Third-party inspection companies know and are proficient in a wider variety of products than suppliers and factories, because they receive orders for a wide variety of products. A good inspection company will require inspectors who understand the workmanship and manufacturing of the product. For example, for a set of party decorations, our inspectors can immediately determine where the balloons are made, where the ribbons are made, and where the plastic shelves are purchased. As it turns out, the factory only produced the assembly instructions, and all other products and accessories were purchased outside. And could the importer have imagined that the decorative products he bought were produced and co-packed in this way?
Inventory
Too many orders or running out of stock can lead to a backlog of inventory. This can add significantly to costs, transportation, product costs, and warehousing, especially in seasonal industries such as apparel. The Chinese sports brand, LINING, lost 4.6 billion dollars in 2006 due to backlogged inventory. Of course, importing goods from China once is not a process that can be taken lightly, and keeping inventory levels under control can ensure a stable cash flow. This is where the aforementioned lead time control and market forecasting come into play, as well as the quality of the product, which is the root cause of inventory reduction and may even influence market trends, thus strengthening the importer’s market position.
CLI Inspection’s Comments And Summary
With the acceleration of global economic integration, the competitive environment and competition model of importers are changing dramatically, from the initial competition of product quality and product service to the competition of corporate culture, core technology and intangible brand value, and from the competition between single enterprises to the competition between supply chains. The market competition in the 21st century is the competition between enterprises and their supply chains, and importers can form their core competitiveness and strengthen their competitive advantages only if they stand at the height of supply chain management for production and management.
I hope that importers can start from each link in the supply chain, analyze the pros and cons, and choose the most suitable path for themselves, instead of always pursuing big suppliers or factories, to achieve high core competitiveness. Only in this way can we have the confidence to take the banner of China’s supply chain management and become the top leader in the industry.
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