Adding Suppliers in China to Your Supply Chain

Sourcing products from China for your Amazon retail business involves many critical decisions. You can succeed if your supplier is able to give you high quality products consistently for profitable price points.

Third-party sellers on Amazon sold close to 60 percent of online merchandise in 2019 while the value of goods sold online amounted to $200 billion. It is well known that close to 70 percent of Amazon sellers source from China. While sellers depend on factories in China to manufacture and supply them with products that are proven profitable, the ongoing health crisis stemming from the Pandemic has posed many challenges.

One of the concerns that many Amazon sellers have when it comes to finding suppliers in China for their Amazon selling business is whether the manufacturing activity and exports have recovered in China after the production decline during the peak of the Pandemic.

Recovery in manufacturing

Recent trends indicate that China’s manufacturing activity started to climb in June of 2020, signaling a gradual recovery after the slump created due to coronavirus.

As per the data that was put out by the NBS (National Bureau of Statistics), there was a rise in purchasing managers’ index in June to 50.9. Figures above 50 are indicative of improving conditions in manufacturing activity. While companies and factories have resumed production, medium-sized companies and larger companies have improved and garnered more orders as compared to smaller firms.

More positive news came in October of 2020, with data indicating growth in imports and exports in China in recent months which is a clear sign of a recovering economy. While imports increased in September by 13.2 percent, the exports witnessed strong gains as a growing number of trading partners eased coronavirus restrictions which further boosted the economy.

Although the process has been gradual, it is clear from these figures that manufacturing is showing all the signs of a rapid recovery and is set to be back on track to pre-COVID levels in the very near future.

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Here are some of the factors to keep in mind when adding suppliers in China to your supply chain:

Know the supplier as well as it’s supply chain in China

Knowing which factories or suppliers you are dealing with and understanding the production run with each factory enables you to make informed, strategic decisions. It is important to begin with a vendor analysis before sourcing any product from China for an Amazon selling business.

Ensure that it is a manufacturer and not a reseller or trading company that you are dealing with. Many resellers pose as manufacturers on marketplaces and it can be confusing to identify between a sourcing agent, trading company, manufacturer or a wholesaler.

Working with the manufacturer directly helps you maximize your profit margins as you can cut out the middlemen. Many manufacturers have their own network of suppliers as well, who can manufacture different parts or components. When looking into the quality standards and reliability of the manufacturer, it is important to know if there is any method the supplier follows to ensure the quality of the sub-suppliers or contractors.

Attending import-export and international trade fairs such as Canton Fair is one of the recommended ways to meet the suppliers in person, establish a rapport and verify their authenticity. Many suppliers begin their search on Alibaba and other marketplaces. However, all suppliers who have received the ‘Gold supplier’ tag on Alibaba are not necessarily genuine or high quality.  The gold supplier status is given to suppliers who pay the premium membership fee on Alibaba.

Other than Alibaba, you can also explore other marketplaces such as:

• 1688.com which is Alibaba’s Chinese language version which mostly has traders and not the manufacturers. As it is available only in Mandarin, you will need the services of a China sourcing agent to communicate.
• Globalsources.com is a company based in Hong-Kong and a leading B2B marketplace with 30 offices spread across China. The suppliers’ list on this platform is very well vetted.
• Made-in-china.com is where you can find some of the latest China products and has an easy user interface.
• Tradekey.com  is an international Electronic Marketplace with 9 million distributors and consumers across over 240 countries.
• AsianProducts.com and DHGate.com are the other marketplaces to explore. DHGate.com has a secure payment system where they pass payments only when the buyer confirms that they received the goods which makes transactions safe.

A China sourcing agent can help with all the leg work that is required to identify the right suppliers in China, establish a rapport, negotiate prices and communicate your requirements. They can also visit the supplier’s factory, inspect the process and obtain samples for your evaluation.

These agents also handle shipment and logistics while working out a back up plan in case something goes wrong in the process. This will help you avoid costly mistakes, delays and scams when sourcing from China.

Logistics and shipment

Taking shortcuts with the China supply chain can backfire in many ways and has a major impact on your profits. One of the most expensive shortcut mistakes is to not have appropriate checks and balances for quality control. Quality control inspections are not only mandatory but must occur before the shipment leaves from the China factory and before you pay up the dues on the shipment.

Another mistake that many Amazon sellers make is to entrust the shipping entirely to the China supplier, believing it to be the fastest and simplest way to handle shipment.

Some Amazon sellers prefer to ship directly to Amazon FBA (Fulfilled by Amazon)  from China. Fulfillment by Amazon is a service that Amazon offers for sellers to store their products in the ecommerce giant’s fulfillment centers where Amazon packs and ships the products to customers.

Shipping to Amazon FBA from China can translate to quicker transit times for the product to reach Amazon’s warehouse, which in turn means that you can start selling faster on Amazon. You can also save the costs of middlemen in this method. However, the challenges are that the products will have to be shipped to different warehouses and duties and freight charges have to be paid. The products also have to meet the packaging and labelling standards set by Amazon.

The other way of shipping products is to use a middleman who then forwards the shipment to Amazon warehouses. Using third party logistics has its own advantages such as products can be shipped in a consolidated form to one location while you can also inspect them to ensure their quality. The main disadvantages of using middlemen are that you need to pay the third party to handle the shipment while the transit times are also longer.

Mode of shipment

When you want to source products from China, a major consideration relates to the mode of shipment. Ocean shipping is typically preferred for large shipments and air freight is suitable when time is the top priority.

Apart from time, there are also cost considerations linked to different modes of shipment. Air freight from China can cost you sixteen times more than what sea freight costs according to data from the World Bank. The cost, however, depends on the volume of consignment as well as the weight. When smaller volumes are involved, it may be a better idea to ship through air freight. In addition to cost and time, you need to also look into the type of product that you need to ship. If it is a fragile product or is vulnerable to damage from weather changes such as humidity or temperature, ocean freight may not be the right choice.

The other shipment terms and documents that you need to be familiar with for adding a supplier in China to your supply chain include:

• FCL or ‘full container load’ which refers to 45, 40 or 20 foot full containers. Although not common,ten foot containers are also available. A FCL may be the best choice if the consignment measures 18 cubic metres.
• LCL denotes ‘less than a container load’ and is preferred when the order is not big enough to fill the full container. This type of consignment is consolidated with other shipments and shipped in a mixed container. If your products are between 2 to 3 cubic meters, it meets the minimum requirements for LCL.
• FTL denotes full truck load’,while LTL refers to ‘less than a truck load’ and are typically used in domestic delivery.

Documents related to international logistics

• Proforma invoice is the quote that includes description of items to be shipped, details of seller and buyer, price of items, the currency, and HS code which is an accepted system that border control and customs use to classify shipments. The invoice will also include delivery details and its cost.
• Commercial invoice: Commercial invoices are official versions of proforma invoices and are required at customs.
• Packing list is a document that has the list of goods being shipped, their gross and net weights, package dimensions and other special instructions. Freight forwarders use packing lists to make the bill of lading while customs officials use the list to get the location of packed items that they wish to examine.
• Certificate of origin is required to identify where the goods being shipped originated in.
• Bill of entry is a document that declares the quantity, type and value of shipped goods and is examined by authorities at customs.
• Bill of lading is a contract between the transportation company and the shipper for the shipment of goods while it also doubles as a receipt that the carrier issues after receiving the goods.

Optimizing communication all across the supply chain

Communication breakdown can be one of the major pain points when it comes to adding a China supplier to your supply chain.  The most common communication modes related to sourcing from China are excel spreadsheets and email. While these disjointed methods can work to a limited extent, they can also easily break down when there are complex orders, technical specifications or other details.

Chinese suppliers do not typically communicate freely when it comes to business relationships due to fear, lack of trust or because stating their opinion strongly and giving feedback is not integral to Chinese culture. Guanxi is an integral aspect of business relationships in China and refers to having personal trust and a strong relationship with someone, and can involve moral obligations and the exchanging of favours.

Although the aspect of Guanxi may not come into play at all times, it is regarded by experienced businesses who regularly do business in China as an element that gives them a distinct competitive advantage. Guanxi is needed to build and develop relationships with suppliers in China before doing any business.

The people who do business in China themselves spend a considerable amount of time in getting to know the supplier or contractor before doing any deals. Once the connection is established through Guanxi and the individuals are deemed to be trustworthy, the process of a business transaction is smoother. The China supplier treats customers differently based on how strong the Guanxi is between them. When the relationship is good, the supplier favors the client and the client often gets better deals and benefits than those that have not established Guanxi.

Apart from the challenge of establishing Guanxi with your China supplier, you also have to navigate the language differences. Many Amazon sellers and businesses who look to source from China use technical terminology including phrases, descriptions and words that cannot be translated easily into Chinese. This makes it difficult to have a clear communication with the manufacturer in China. Communication is also typically inhibited from the side of the Chinese manufacturer either due to the limited English knowledge or their inherent cultural norm of not freely giving opinions, information and feedback.

When you add the freight forwarder into the mix, the communication barriers become even more complex.

When your goal is to achieve better workflow management, optimize your product quality and minimize miscommunication or delays in communication, working with an experienced China sourcing agent is a smart decision.

The sourcing agent can handle all the steps involved in adding a China supplier to your supply chain - from identifying the right manufacturer, handling shipment, negotiating the prices, communicating technical specifications and building Guanxi.  This means that you do not need to hire or work with multiple agencies such as freight forwarders, middlemen, third party audits or translators to source products from China. The experienced China sourcing agent provides end-to-end solutions to optimize your supply chain when sourcing from China.

Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.

For more on China sourcing visit our website or write to us at info@sourcingallies.com.