Cost Reduction in China during Covid
As buyers return to their offices, their first task will inevitably be cost savings.
We look at four factors to provide short & long term success and avoid mistakes in purchasing.
1. Outsourcing Cost Reduction in China
Where is your product made – where are your competitors products made? This can be the start of aligning your cost reduction in china with those of your competitors. Whilst there can be many reasons why companies do not outsource during Covid, there is little doubt that there will be an ideal partner for you in China that can provide the critical cost and risk balance that you need. The key is to understand whether the pricing you are quoted is from a genuine and capable factory with a proven track record of supplying products of an equivalent standard and quality.
2. Supply Chain
Consider the length of the supply chain and whether focusing efforts on reducing this could produce cost saving benefits. Whilst the headline savings will look good based on CIF pricing from a factory, it is important to take into account the amount of work required to ensure there are no costly supply issues, as well as taking into account the importing cost (such as duty and local transport) as well as the indirect cost such as increased stock holding ce poste. Careful thought is needed into which factory is approached with first hand auditing unrealistic with international travel restrictions during Covid.
3. Sub-assembly or Assembly
If many of your components are already imported, is it an option to have them sub-assembled or completed in China? China is able to offer a vast range of options that will suit every need, and many of these companies will have the latest equipment and technology to support such a decision. With strained US relations and weak global demand, such companies will be ready and waiting for your interest, and will be much more flexible on pricing and terms of business.
Where you are confident in the long term demand for your product, it can pay to look at negotiating a stock-holding agreement with suppliers in China. This will allow you greater flexibility to keep UK stocks low and cash available during this difficult time, whilst maintain the option of fulfilling customers orders at short notice. Whilst there is a cost to the manufacturer, they may appreciate the long term support this offers them, and can allow them greater flexibility to make goods when it suits then to replenish stock levels. Air freight prices have returned to pre-Covid levels, and allows customers to receive products within a week should they get unexpected demand.
Whilst we would never recommend a knee jerk reaction to the economic downturn, a planned and considered strategy could provide lower costs and increased profit as the recovery emerges.
For more info on product manufacturing – call us on: 01225 460 388 or find out more by emailing firstname.lastname@example.org