China Smog

We’ve been helping our clients source from China for years, but recent developments leave some uncertainties surrounding China as a first choice for sourcing manufactured goods.

The obvious first issue that has us reworking calculations for our clients is fuel prices. They are a significant part of shipping costs – regardless of the mode of transportation. Longer routes are clearly more susceptible to significant price increases. Transportation costs in some cases must be factored in twice – once for moving raw material to the factory and a second time for shipping the manufactured product to your loading dock or customer. When we advise clients about strategic purchasing decisions we ask them to look all the way back through their supply chain, just so they can assess factors such as that.

A second issue coming from Chinese sourcing is risk – not just from the longer travel times or distances from China — but the potential for disruptions coming from disclosures of unsafe goods or manufacturing practices. Major companies that should have done better due diligence have been burned.

Even with these cautions, China still has a tremendous attraction for buyers. The difference in the cost of labor is still striking, and in many kinds of manufacturing Chinese technology is state-of-the-art. But like good investors who review their portfolios every quarter, purchasers ought to review their cost and risk calculations whenever there are significant changes in their supply chain. That is certainly the case right now.

If your firm is considering sourcing in China, it is essential that you look for a partner with resources on the ground in Asia and the United States to help manage the relationships and risks. The cost of a trusted representative in China is likely to have a quick payoff in several key areas:

·      Understanding the protocols of Chinese business

·      Inspecting manufacturing sites

·      Ensuring that your supplier meets your social responsibility and ethics compliance requirements

·      Providing technical and logistics support to assure that your specifications are understood, met and delivered to your location without incident

·      Monitoring market conditions to make sure changes such as those we are seeing now continued to be factored into your sourcing decisions.

Many businesses rely on trading companies to represent them overseas, however, considering what’s at stake, a sourcing agent with a broad reach and on-the-ground resources looking after your interests is generally a better bet.  The cost of bringing in a qualified partner may offset some savings in year one, but it’s money well spent to deliver long term results.

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