Top 5 Pitfalls for Buying Direct – Due Diligence
It has never been easier to find suppliers through the internet – so why not get the greatest financial benefit by dealing direct with factories in China?
In this blog we look at 5 common pitfalls;
You know, of course, that you like to know who you’re dealing with in any business decision. Working abroad makes it even more critical to have transparency in your supplier relationship. It’s difficult to guarantee who you’re dealing with over an ’email’ exchange – it could be a factory or an individual claiming to be one – but how do you know? It’s easy to feel that perceptively you have found your supplier solution but have you found a great supply option and a great price? Are they really all they are cracked up to be?
Placing work with a company or individual – i.e not dealing directly with a factory, means that they will have the ability to move production to any factory of their choice at a time of their choosing. This often happens when values of orders increase. Customers can then be left perplexed as to why the quality has become inferior.
Focus on price alone
There are few reasons to buy from China if not for a price benefit – but selecting your supplier on price alone ignores the risk that you are taking, and it is crucial to understand why a company is able to offer you a significantly better price than others?
How sustainable is the price offered, and have they taken into account all of your design requirements?
Whilst upfront costs might be acceptable, what is the long term impact on your business if the supplier is unreliable or subsequently increases their prices? Don’t expect a service as standard – there might be virtually none, and they might be cheap for that very reason.
Trying to deal with factories without visiting gives you little to no idea of who you are dealing with – their professionalism, their ethics, their ability – you need to visit, you need to audit. You know your industry, and it crucial you check how a supplier measures up to the certificates that they hold (or claim to), and that you can see the standard of their general production.
Auditing at the moment is clearly a challenge with very limited international travel because of Coronavirus.
Whilst it is relatively straight forward to send out an enquiry – do you have the ability and knowledge to manage the future communication, both from a language and cultural perspective? If you are making decisions that your business relies on, are you confident that one of your employees won’t mess up everything for you?
Chinese believe in making friends first, and doing business later – this is probably very different from your perspective, and when you add managing that relationship to develop ‘guanxi’ do you have the resource with this experience.
A fancy website or a good communicator should never be taken as a sign of a well run factory and one that provides its workforce with a safe environment. Whilst Chinese authorities have become increasingly tough on employers, buyers need to be aware of the Modern Day Slavery Act 2015, and their responsibility to not only conform, but prove that steps have been taken to ensure they are not in breech – companies with a turnover in excess of £36m will need, by obligation, to prove Transparency in Supply Chain Provisions.
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