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| Factories feed off large volumes. Is your order paying the bills? |
As China, on the surface, is becoming more and more accessible, I can sense confusion among offshore buyers as to what quantity is worth pursuing, what quantity is worth taking offshore and what quantity is worth to bring to the beast that is the factory.
In some cases, it seems complete common sense is being thrown out the window. If the value of the order is only, for example, USD1,000 – USD2,500, do you really think that is worth contacting a business, across the globe, in a different time zone and different language, stirring them up to quote your project? If the value of the order is that small, how much margin can the factory possibly have on the job? Factories thrive on volume and repeat business. They have many workers that for the smaller-item industry can reach well into the hundreds. (Obviously there’s factory’s with thousands, but typically in the branded merchandise biz, you’re not dealing with those facilities).
The factory’s margin is directly connected to their motivation and performance.
Factory Motivation: The smaller the order, the lower the factory motivation. Especially if it’s a first-time order and the factory does not see much long-term business. If it’s obvious to the factory that you are only ordering the item once and the customer doesn’t usually deal in item “x”, then they don’t have much incentive to give it their all. In dealing offshore, the more you can deal in repeat items or repeat lines (different references but requiring the work from the same factory), the more you can establish long-term, cooperative supply relationships.
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| Customized Coco-Shell Jewelry |
Low Factory Motivation Leads to Poor Quality: All these reasons go hand-in-hand. If the factory is not motivated, they are not going to put their top efforts on to your project. They will not use the best workers, the best equipment, materials, etc… If they have to outsource a portion, say the print, they are going to go to a super-low-cost printer. When the order is that small, can you blame them?
Bridge Building: “Small jobs, should be fairly easy to establish with the factory and get rolling forward, no glitches, right?” Wrong….dead wrong. Sometimes the smaller jobs take more effort, more control, more inspiring, and more redoing first-tries to get it right. It’s all tied to motivation. You’re going to invest a lot of time in supplier communication and establishing the relationship. Consider the amount of time you’re going to spend. Is it worth doing this for a lower-volume (and possibly one-off) order?
Factories, for one reason or the other, will not turn down your business when they should. Don't hold the standard "If they were not going to do a good job, they should not have taken the job." That type of thinking doesn't hold water here and if you try to make sense out of it, you'll just go crazy. Many trade companies and factory accountant managers, who are working off of commission, normally "shoot first and ask questions later." They are not going to clearly think about the pros and cons of your potential order quantity versus their ability to be consistent in the production.
Just because the project may be worth it on your side in dollars and cents (or whatever your currency may be), it’s not always worth it on the China side. In your zeal for cost savings, you may end up sourcing, more than you bargained for.
Just because the project may be worth it on your side in dollars and cents (or whatever your currency may be), it’s not always worth it on the China side. In your zeal for cost savings, you may end up sourcing, more than you bargained for.
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Jacob, don't you have a minimum amount for product for an order? I mean what is the point to order 5 pieces from China? The shipping cost will be more than the cost of the items.
ReplyDeleteLike the story where Chinese companies are focusing more on the local market (a huge one) rather than exporting.
What would your take be on a minimum order from China?
John, great comments and questions. For each item, time period and factory a minimum quantity can vary. I keep an idea of at least USD5 – 6,000 or else urge the customer to attempt to do the order locally.
ReplyDeleteLeeds and I were just discussing one of the main reasons that a factory will accept an order that they don’t want and is too small to properly handle. We conclude it’s from the Confucianism philosophy. In Confucianism, being polite is the first rule and to Chinese a direct “no” or refusal is highly impolite.
Normally, when the overseas buyer brings the small quantity, the factory will attempt to be difficult or give reasons not to take the order. The overseas customer will keep pushing for finding solutions, cornering the supplier who will reluctantly take the order.
On the flip side, there are shady trade companies here who boldly promote small quantity, order handling ability. This is typically a ploy to rope in a customer. Most buyers don’t realize this until the quote changes upon contact or the order goes downhill in quality, delivery time fulfillment, etc…
Jacob, I always appreciate advice from an expert when they speak about the flip side of the coin. Economies of scale are important in every business, not just my favorite topic - Cloud Computing- but there is that tipping point that has to be achieved first. Thanks for recommending when Not to outsource overseas. :-)
ReplyDeleteIt's doesn't immediately feel good when a client, especially if it's a potential 1st-time customer contacts you for an inquiry and you've got to tell them their inquiry is too small. How do you say it? Professionally? Beat-around-the-bush? Or just bluntly state the fact? I think long-term when you professional advise customers on the danger-zones, they may respect you for that. Perhaps not immediately but overtime. We've ended up regretting taking smaller-qty jobs because they can come back to bite you in the posterior regions.
ReplyDeleteThanks for stopping bye, Monica, wishing I was there to enjoy the hot chocolate & sledding.