Companies who buy from China direct have the potential of becoming cost leaders and easily gain market share.
But the decision to buy from China direct alone is not enough. If not done properly, not only you will not reduce your cost, but you will also lose control over your production quality and shipping schedule. In such a case, you will lose both your profits and your good reputation.
Buying from China direct means you do not go through several service providers, trading companies or agents. These companies exist and make profits not only because they know a few factories you don’t.
They exist and prosper because they bring value. They do a certain job that enables those who choose to work with them to outsource to China the production of their products, ship them to their home country and import and sell them. All this without dealing with all the details involved in sourcing, quality management, vendor management and each and every link of the supply chain.
We are not telling you this to discourage you. On the contrary. We are encouraging you to develop the skills and resources needed to do as much of this process by yourself so that you will maximize your profit.
One thing you must know before we start
The main two advantages of working with trading companies are:
A) In the beginning, everything is much easier and
B) In the event you didn’t place an order after all, they will not charge you for the work they did.
So if you are not sure if you will place an order at the end of the day (and assuming you are not working directly with factories), a good way to reduce your risk is to work with trading companies.
But when the day comes and you feel ready to break away and buy directly from your manufacturers, that is not possible (or at least ethical). You will have to find another factory, go with them through the same learning curve again, and this time, you will have no one on the ground to let you know when warning signs appear.
But there is another way.
The other way
Traders are buying and selling goods. But if you think about it, the main value they bring has nothing to do with producing the goods themselves. The main value they bring is really a service. What they really do is source manufacturers, control quality and coordinate between all the contractors that make it possible for your product to be manufactured, packed the way you want it, meet the specs you want it to meet and ship it to where you want it to be shipped.
It has more to do with understanding your requirements and communicating them to all the manufacturers and service providers then actually producing and moving the products from point A to point B.
If you are sure that at the end of the day you will place an order, you can look for service providers that will give you the same value but won’t lock you in a relationship with no time limit.
Think long term
A winning strategy is to go through learning curves as quickly as possible and bring all processes to autopilot mode – as much as possible.
Same goes for relationships with manufacturers.
It takes time to learn to work together. But if you did a good job choosing the right supplier, after a few rounds of production, your manufacturer will learn how you like things to be done, your good to be manufactured and your quality to be managed.
You will also learn. You will learn what are their strengths and weaknesses and how to communicate with them in a way that is clear and prevents mistakes.
At that point of time, you will wonder why was it so difficult at the beginning. You will also wonder, why do you need middlemen when everything works so well. This is the time when you should look into buying directly with no 3rd parties involved.
Again, if you did a good job selecting the right factory, you will be working with them for a long time.
The number of orders you will need help with, in the beginning, will be much smaller than the number of orders you won’t need help (or maybe need just a little help) with once you are out of the learning curve.