Navigating the complexities of sourcing and supply chain management is a significant challenge for businesses. Charlotte Sweet from the Marketing department had a conversation with Fergal Dempsey, the Commercial Director of Exertis Supply Chain Services, to gain his insights on the difficulties companies encounter and the strategies for achieving success in global sourcing.
Could you please begin with an introduction to yourself and your position in the company?
I’m the commercial director for Exertis Supply Chain Services, managing the private label and own-brand business. I have 25 years’ experience in own brand sourcing from China and private label services into retail B2B and customers all over the world, including Europe, the US, and other territories.
I’ve been told that sourcing is a complex topic, what does your position entail?
We offer an end-to-end solution for our customers that delivers own brand or private label services where we handle all the back-office activities, allowing our customers to focus on front-end sales and channel management. We provide this service for multiple businesses throughout Europe and the US, delivering value add services for global brands, resellers and retailers.
What quality control measures should be implemented when working with Chinese manufacturers?
Quality and compliance for bringing a product into a territory are extremely important because, as the importer, you’re liable for all potential issues with that product within that territory in the eyes of the regulator. Having a strong and robust quality approach to your business and compliance is critical to your success to de-risk your business and to ensure that you meet the end customer quality and regulator compliance requirements. Many businesses, especially those with less experience, might rely on the factory to do their quality and compliance management for them, which can be a risky approach. Some businesses use third-party inspection agents close to the factory, but this can also come with risks as these agents may not have a vested interest in the product, or expertise in the technology that you are importing. The best option is to have your own people or those with a stake in the product on the ground doing quality inspections, this could be the importer of record or your own office in that territory. The quality plan depends on the product’s risk: for low-risk items, the plan might be less stringent, but for high-risk products like those with batteries or power, you need a high standard of inspection and testing. Your approach should focus on the risks to the consumer and to your business, ensuring robust testing for each batch. The plan’s specifics will depend on the product’s risk and your role as the importer of record.
What are the different shipping methods available for products coming from China and how do you choose the best option for your business?
Shipping and logistics depend on the product, your working capital, and the product’s size and value. If your product, for example a suitcase, is low in value but large, air freight isn’t viable due to high freight costs versus the value of the product. Such items should be shipped by sea, which is cheaper but slower. For high-value items such as mobile phones, air freight is more sensible, despite higher costs, because it frees up working capital faster. Your options typically include rail, sea, and air freight. Rail is rare, more expensive than sea, but faster. Sea is the cheapest but slowest, while air is the fastest and most expensive. Consider the product’s value, size, and your business’s cash flow needs when choosing the best shipping method, as tying your cash up in inventory should be avoided if at all possible.
What are some of the hidden costs associated with sourcing from China that new businesses might overlook?
Time is a critical but often overlooked currency. While money is the obvious currency, time is sometimes a more important currency. Delays during the sourcing, development, and shipping process can lead to lost sales revenue or missed opportunities if you are late to the market. If you’re slow in bringing a product to market, especially in fast-paced industries like tech, you risk losing out to competitors. Speed is crucial in tech, whereas in industries like medical devices, longer development times can be accepted and sometimes necessary, but consumer technology moves fast and businesses need to recognise this when developing their products.
How can businesses negotiate effectively with Chinese suppliers to get the best possible price?
Personal relationships are key to success in business, particularly in Asian cultures. People buy from people, and in Chinese culture, face-to-face relationships are of utmost importance. Building strong relationships with suppliers through in-person meetings, lunches, and discussions about your business strategy can result in better commercial solutions. Negotiating over email or video calls can lead to less competitive pricing as suppliers receive numerous similar requests. Face-to-face interactions help build trust and understanding, leading to more favourable negotiation outcomes. You can read more about this on our blog series from our Shenzhen GM, Roger Luo, here and here.
How can businesses ensure they are sourcing from ethical factories in China with good labour practices?
Ensuring ethical sourcing involves conducting thorough audits and deep dives into factory work practices. Regulators are increasingly scrutinising supply chains for forced labour and unethical practices. It’s up to the brand or importer to prove compliance, not the factory. In the near future, this will involve verifying practices down to the raw material sources, such as silicone mines. Businesses must either have a strong presence in the supply chain or work with reliable partners to validate ethical practices; this ensures compliance with international regulations and avoids severe penalties.
What are the biggest trends you see shaping the future of sourcing from China?
Brands and retailers should focus on selling and innovation, leveraging third parties for supply chain management. Many companies have invested in local offices to manage sourcing but find operational costs can be a high investment and expenditure. Using strong partners in the territory can help manage back-office activities efficiently, allowing businesses to concentrate on their core strengths. This trend towards outsourcing supply chain management to third parties helps reduce costs and risks and realise the costs of developing their products into an operation expenditure. The focus is shifting towards leveraging external expertise for end-to-end solutions, enabling brands to stay competitive and agile.
What advice do you have for businesses looking to build long-term successful relationships with Chinese suppliers?
Building relationships is key. Involve suppliers in your journey, rather than treating them as mere transaction points. Establishing strong partnerships, allowing suppliers to make money, and maintaining regular contact are crucial. Understanding that every business needs to be profitable ensures high-quality products and robust supply chains – a poor supplier or weak relationship can lead to poor product quality and compliance issues. Strategic, long-term partnerships and transparency are essential for success.
Exertis Supply Chain Services offers not only a wealth of experience, but also a wide range of services and a local China presence to businesses beginning their sourcing journey.
If you have further questions on this subject or other supply chain topics, don’t hesitate to contact us by using the contact button below!