Overcoming Changing Sourcing Costs

What do you need to consider before making the decision to change suppliers (especially if it is offshore)?

The Scenario :

You have identified the perfect product online and have told your existing supplier they are too expensive and to never call you again!  You place your order and find the cost quoted online has just doubled.

What do you do? To avoid to above scenario from happening with your business, consider all additional expenses outside of the original quote, especially if your product is currently sourced locally.

Additionally, follow these 5 tips to ensure you have a realistic initial quote.

1. Get your specification absolutely correct so the supplier quotes for what you want
2. Get multiple quotations from different manufacturers
3. Work with manufacturers rather than agents
4. Always allow some “slippage” in the total cost - around 10%

Global sourcing can be very cost effective for your business, if you approach it intelligently. However, the process can be time consuming. Moreover, fostering a relationship with suppliers overseas costs not only money, but also time and energy. Most likely a lower priced, higher quality manufacturer does exist, but make sure you don’t jump ship on a current relationship solely because the grass appears greener on the other side.

 If you would like help assessing your supplier options, the professionals at Mawson Global can give you peace of mind. 

3 Steps to Avoid Recalled Products due to Packaging and Labelling Errors

The Scenario:

The product you imported has now been distributed all over Australia and Europe and you have found  it does not meet labelling laws and needs to be recalled – at your expense!

We’ve all seen it happen before, a product gets recalled, not because it is faulty or subpar, but because a business overlooked the importance of following all rules and regulations for labelling and packaging. The question remains, how can you ensure your new product is not recalled because you overlooked a labelling requirement in another country?

Follow these three steps to ensure your business does not have an expensive product recall.

1. Find consultants in your country or the countries you do business in to draft the labels and help you understand all the requirements for import
2. Use third party inspection agents to check labels prior to shipment
3. Use a customs broker to find out what paperwork you need to import the product

Over preparing and double checking is the first step to saving time and money in the long run. You do not need to be the expert on each rule and regulation your business will face, but it is important to hire someone who is an expert.

What other precautions can you share to make sure a labelling mistake does not lead to an expensive recall?

Can you take the risk out of moving exchange rates?

The short answer is yes... at a cost!

If you are considering importing because of a few cents variation in the exchange rate make sure you have considered the full effect on your business model.  

Many people consider the most obvious risk.

You took advantage of a favourable exchange rate and bought a container of product at a great price in Asia.  However in the time between placing the order and making your payment to the supplier the exchange rate has moved again. Now when the product arrives at your warehouse it has cost you as much as product from your regular supplier.  And to make matters worse, the quality of the product you bought is sub standard!

There are finance tools you can use to avoid some of these problems but make sure you consider the other risks of buying because of exchange rate variation!

The most common problem comes from the disruption it causes in your supply chain.  If you are not building a business based on the consistent quality of your products this may not be an issue for you.  However if quality is important switching between suppliers in various countries at short notice to gain a few dollars is usually not worth it.  You will create serious risks to your product quality.

There are two main reasons for this:

1. When a supplier knows you have only placed an order today because of a small change in the exchange rate and tomorrow you will be buying elsewhere their incentive to get the quality perfect is low.  Everyone wants to build long term business not fill a single order!
2. The other risk is that as you see a variation in the exchange rate that makes a certain county cheaper you are under immediate time pressure to place and pay for an order before the currency moves again.  This does not give you the time you need to properly research your supply options.  Without this research the risk of choosing a poor quality or unprofessional supplier is much greater.

We would recommend only moving sourcing or production offshore if your research shows a significant advantage regardless of a 10 cent negative move in the exchange rate.

The best way to avoid this risk is to do your research before you consider the exchange rate.  Then once you have identified the suppliers you want to work with and there is a positive move in the exchange rate you can increase your orders to this supplier.  Many of our clients at Mawson Global use our own teams in Asia to complete this research for them so they can be confident the change of suppliers won’t negatively affect their business.

Once you have identified the suppliers that have this advantage you can look at the options to “fix” the exchange rate.  Your bank or financial institution will have tools available which allow you for a small cost to buy the currency you need to pay for your order at today’s exchange rate.  This is a great option if you are spending large amounts over a long period as you can get the items into your budget and know exactly how much you need to pay for them in several months time.

How to Evaluate Suppliers

Every company should have expectations that their suppliers will be honest, socially conscious, lawful and proceed with strong safety measures.

Firstly, suppliers should strive to minimize the total cost of their products and services, so your company can offer the greatest value to your customers. Remember value is not just about product cost so make sure you evaluate the other costs of the relationship. Additionally, suppliers should be able to provide a stable supply stream and respond quickly to any problems or inquiries that may arise. Suppliers that can support your company’s local, regional and global efforts are best. And finally, a work environment where suppliers keep the health and safety of customers and employees in mind is critical.

If you are presented with list of a few hundred potential suppliers, begin your evaluation by narrowing that list down to five suppliers at most. Make an effort to keep the key factors mentioned above in mind. Next, contact each of these suppliers and perform a set of checks you see are important. The feedback you get from this interview should help you to further narrow your potential list of suppliers from five to two or three, having done so by considering both the pricing and non-price factors.

After narrowing your list, confirm the legitimacy of those two or three suppliers. You should verify:

• that the supplier has loyal customers.  All the certificates and promises in the world mean nothing if the supplier cannot give you satisfied clients for you to contact!
• that the supplier has a strong control system and that they have quality experience in production so they’re able to supply your company with what they say they will.
• that the supplier is financially stable and has a good reputation. Professional service providers are available for your company to use in order to conduct these verification factors at relatively reasonable prices. Professional services are great if your company does not have the resources in place in-house that are necessary to assess suppliers.

Lastly, negotiate pricing and then move into the actual production process.

Once you have chosen the appropriate supplier, begin to establish an on-going relationship. Perhaps you can consider not requiring advanced payments once you have a strong business relationship set-up with a supplier, or be open to renegotiating conditions down the road if there is fair reason to do so with your chosen supplier. 

Dealing with Production Problems in China

Have you ever dealt with production problems, sub-standard goods or an unacceptable delay? Perhaps even a project that came to a full stop without warning. Follow these tips to help overcome production problems with your Chinese suppliers.

Keep a representative or local third party inspector on site in the factory. This is the only way you really know what is going on. You need someone who protects your interests on site. Mawson Global’s on the ground team will make sure our client’s needs are understood and acted on by supplier management.

Monitor progress closely. Shaking hands typically is not enough to ensure production will move along at a satisfying pace. More importantly, if you notice a factory is not moving in the right direction for even a few days, contact them immediately and try to understand why.

Complete a quality assurance check prior to any shipment. Even if you have a small order, any set back during production may have resulted in rushed production. Overall, not doing a final inspection prior to shipping will be more expensive than getting a third party to ensure that the products fit your quality guidelines.

Most of the production issues arise from selecting the wrong supply partner.  Make sure you are as important to the supplier as they are to you!  You can do this by selecting someone who is a similar size to your company, by making the time to personally visit the factory and by involving the supplier in your long term plans.

Mawson Global helps clients by developing and implementing strategies that remove the risk of sub-standard quality and that form lasting relationships with suppliers to ensure projects are completed on time at the right cost.