Por Terri Morgan

Factores de coste y otras variables: El precio bajo puede no ser de China.

A una compañía en los E.E.U.U. (déjenos los llaman la Acme Tool Company - no el nombre verdadero) a la fuente me entré en contacto con recientemente algunos útiles de la fino-tolerancia en China. Los contornos de este artículo brevemente que contrato y precisan algunas preguntas comunes que deban ser hechas. Cada compañía y cada situación es diferentes. Haciendo éstos y otras preguntas, usted puede determinar la mejor línea de conducta para su compañía o su cliente.

¿Qué usted desea comprar?

El ingeniero del plomo en la cumbre primero me entró en contacto con vía el email para investigar sobre mis servicios. Él estaba muy claro sobre sus necesidades. Él me envió especificaciones sucintas y la ingeniería que dibujaba para los útiles. La cumbre requirió un tipo particular de metal. También tenían tolerancias muy finas para los útiles. Era inmediatamente evidente que se ocupaban de las tecnologías muy finas del grado que requerirían trabajar a máquina especializado, de alta tecnología.

Primero, contesté al email para cerciorarme de que él era un comprador legítimo. Usted nunca sabe con el email. Él era legítimo y me dio toda la información de la compañía. Eran una compañía reputable con una buena historia. Tenían un surtidor existente. They wanted to see if they could reduce their costs by sourcing from China. I called the engineer to verify their requirements and inquire as to quantities. My initial reading of their requirements was correct. The main difficulty was that they only wanted 200 sets — per year.

How many?

Here is the first problem: Quantity. Acme only wanted to buy 200 sets per year. For most Chinese manufacturers, this is way too small a quantity to even consider. They are accustomed to high volume and large quantity, not small-quantity, high-value jobs. I told the client this small quantity would likely be a problem. The engineer told me the company wanted a long-term relationship with the supplier and once things were running smoothly, would issue a standing PO. That changed the situation a little. Long term relationships in any business are valuable, and in China, a long-term relationship is considered highly valuable. I agreed to make some inquiries.

您有关系吗？Nin you guanxi ma? (Do you have relationships/connections?)

Next, I contacted three of my sources in China. One was a general business contact. One was in a provincial leadership position with a business / trade group. One was in a national leadership position with a metals-related trade group. The first two were not familiar with the type of metal nor did they know of companies with the technology to meet the client specifications. The third gentleman immediately knew the metal and what was being asked. He requested a couple of days to contact several suppliers.

As many of the regular posters here will know, China has developed certain concentrations of trade areas throughout the country. This is similar to but not the same as the SEZs (Special Economic Zones) first created during the 1980’s. These concentration areas are groups of factories, mills, and suppliers which offer similar products. If you want toys, go to Guangzhou or Dongguan. For textiles, go to Shanghai, Hangzhou, Wuxi and the surrounding area. If you want stone or heavy machinery, go to Qingdao, Tianjin, Shenyang, or Harbin. It turns out that the area around Shanghai and Ningbo includes quite several tooling manufacturers.

Meantime, I called to let the engineer at Acme know I would have something for him in a few days. He surprised me by asking about delivery terms. Acme had given their current supplier a standing PO for delivery of 10-15 sets every month. He wanted to know if they could make the same arrangements with the Chinese supplier. I’d already strained my relationship with my source and potentially with the supplier by asking for a small quantity. No one was particularly happy with an order of only 200. If the order had been for 20,000 or 200,000 that would have been quite different. But now, the client wanted to cut that down to 10-15 per month and still expected to get a good price. I warned the client about the quantity problem, but agreed to ask. I also pointed out that he would have a bigger issue: Shipping.

What are the delivery costs?

The second problem was rather a large one: Shipping. For each shipment, the client would have to pay tariffs and shipping costs. Export duty, shipping, and import duty would have to be paid, not to mention the paperwork preparation and oversight needed for each shipment.

When do you need it?

The client had not considered delivery time could be 3-4 weeks or more, not including the production cycle. The finished tooling was small enough it could be sent air freight. With express air, in theory, it might physically require only 3-4 days from factory to the client’s dock. But the client had not considered that exit and entry customs inspections were both going to add time to transit.

What is the price for the goods?

Then, I received an email from my contact in China. He had found two suppliers willing to take the job. He told me it was a challenge finding someone due to the small quantity. Several suppliers were not interested. I reminded him that it was a high-tech project and that there were possibilities for more work in the future. He agreed and said he would help me with the next step: price negotiations.

Because I had arranged for him to contact the suppliers, he had been given a better starting price than I would have received had I contacted them myself and a much better price than the client would have received. Those who know will understand why I’ve qualified this as the starting price. Now we could start the negotiations.

Meantime, I had also contacted a trusted business associate in China. I needed someone who could go to the manufacturer’s location to meet with them. Why?

How will you ensure quality?

Here’s the third problem: Oversight. Without oversight, there’s no way to ensure you are going to get what you paid for. This is true anywhere, but especially in China and more so when starting a new relationship. The Chinese have a saying “the ruler is far away and the mountains are high.” In this case, it wouldn’t be mountains, it would be the Pacific Ocean.

The best way to get things started is to have someone go visit the supplier. This not only provides “face” for the supplier (literally and figuratively), it helps establish “guanxi.” Going forward, the supplier would know we had someone locally who was paying attention. I also wanted my guy to oversee the first order, make sure it met the client’s quality standards, and make sure the client was getting what they paid for. Otherwise, the client might pay for a full order plus all the fees and only be able to use 70% of the shipment. Based on how I found the supplier (through a trusted source), I had every reason to expect they would deliver first-quality. That said, a “trust and verify” strategy is always a good one.
 
A previous, unrelated project had shown me the need to verify. The supplier for that project (small electronics) had sent the PMO (Project Management Office) a set of samples — with a 30% reject ratio. For samples! Yikes! The same supplier had previously sent the US client an order with a 40% reject ratio and still tried to bill for the full quantity. I’m still not sure why the quality team at the PMO didn’t catch this. I suppose that was why I was there.

What is the underlying value proposition?

So, I went back to the client to let him know what I’d found. At first, he would not tell me the price he had been paying to his current supplier. I pressed him for more information and found out that his current supplier was local, seriously local. The supplier was just down the street from the client. He could drive over with the monthly order in about 15 minutes. If they needed a special order, the local guy could have it done and delivered in a few days. Why did he want to source from China? I wondered.

I pressed him again on price. He wanted a “deliver-to-the-door” price from me. I told him I would need to calculate the duties, shipping costs, and service fees. Those would have to be added to the price I would give him. I needed to make certain he understood the composition. Up to this point, Acme had only been paying for the tooling. If they were going to source from China, they would have to pay for shipping and handling plus export / import duties.

Is the total (price + costs) competitive?

Finally, I had checked the product price, weights, export duties, shipping costs, and import duties. I calculated the administrative costs and came up with a preliminary number. I knew this would not be the final number since there had not been any price negotiations. But at least, it would be a starting point. Surprise! It was also the ending point. When I gave the client the number, he was shocked. “We’ve been paying about half that,” he told me.

Here was the key problem: Price. I reminded the client that if he were buying a larger quantity, he could get a better price per set. I also reminded him that he was paying additional costs which he did not now have. I let him know that this was the starting price and that some negotiations with the supplier were possible, but there was not going to be much room to negotiate on shipping. Tariffs are fixed by the respective governments, there was nothing I could do about them.

In the final analysis, what’s the best business decision?

In the end, Acme decided to continue working with their local guy. It was a good business decision.

Where did Acme go awry?

1. They did not factor in the extra costs (export/import duties, shipping, administrative tasks).
2. They did not consider the extra time and effort (customs clearance, project management).
3. They did not make allowances for the total value proposition (service, location, response time)
4. They were not in need of the economies of scale which China can provide.

Terri Morgan, Wudang Research Association