How Sourcing Products from China Affects Your Cash Flow

A large percentage of businesses around the globe admit that importing products from low-cost markets like China translates to a lot of saving in their production costs. This allows them to improve their bottom line and remain competitive.

China is currently the leading manufacturing hub in the world. It began small, making most of the products available in most dollar stores in many countries. With time, China refined its expertise in the manufacturing sector, and today, a large number of the best brands around the world are manufactured in China.

Today, factories in china produce a variety of products including automobile parts, electronics, clothing, recreational and sports products.

If you are a small scale business looking to start sourcing products from China, it may not be obvious to you how the whole process works or how it can impact your firm’s bottom line. Here is a guide on how to source products from China and the impacts it has on your company’s finances.

Lowers Production Costs

For entrepreneurs or business owners, a product whose production you may be looking to have done elsewhere is either part of the company’s inventory and you are searching for the most cost effective way to sell or, your firm has just developed a new product that you would like to produce at an economical cost.

Sourcing from China lowers manufacturing costs because it involves large volumes - buying in large quantities lowers component cost. Although you could have your products manufacturers locally, having them manufactured in China brings with it a number of advantages. For one, labor as well as overhead costs reduce, which allows factories in China to produce your components at economical rates.

Additionally, factories in China have proven they can produce in large volumes. Factories as well as region in China have been set up to ease the manufacturing process, allowing things to move from point to point seamlessly. Raw materials reach factories on time, while products move from factories to ports within schedule. This has improve the efficiency of the supply chain, lowering manufacturing costs.

Lastly, it’s true that manufacturing costs have gone up in China over the last few years, meaning it’s a slightly more expensive to manufacture now in China, but rates are much higher elsewhere. So, it still makes sense to source products from China. Plus, China has the capacity to meet quality standards that customers expect. Unfortunately, the same cannot be said about other manufacturing zones such as Cambodia or Vietnam as they don’t have the expertise or experience to meet such standards.

Does it make economic sense to manufacture every product in a low cost region?

No, it doesn’t. Not every product should be manufactured in a region halfway across the globe. You should only source or manufacture in a low cost region those products that suite your business model.

As an entrepreneur, you need to be careful about what you source from China if you wish to get the most out of doing so.

The best way to start off is by assessing your entire inventory. The components that you outsource must be those that have a long shelf life and a large dollar value enough to make a difference in your bottom line. To capitalize on outsourcing, choose those components that are fast moving, particularly those that will not be obsolete within a short time.

Product volumes make sense if you want your sourcing to be successful. The reason is that nearly all factories in China operate under a minimum order quantity (MOQ) scheme. In other words, each factory has a minimum number of units that you can order. Otherwise, it would not make economic sense for the factories if businesses make lower orders.

However, the MOQ can change based on the complexity of the products you wish to source. Complex order have a lower MOQ. So, each business needs to choose the right product to source because not only do large volumes translate to lower rates, but because sourcing from a low cost region like China can take plenty of effort and time off your hands, and you want to be sure that the product meets your quality standards.

But, this should not be misunderstood to mean that you need to reconsider you decision to source from China because the whole process can seem complicated. Sourcing products from China is very profitable when you do it correctly.

Minimize Risks and Cut Costs by Engaging a Sourcing Agent

If you have no contacts in China, finding a manufacturer in the country can be a tough task. Actually, most businesses that are familiar with the whole process often advice others to view China as being made up of a number of regions.

This is an important point to remember because each region in China specializes in a particular product line. Electronics mainly come from Guangdong, textiles are manufactured in Jiangsu and Zhejiang, while metal products are manufactured in Guangdong, Zhejiang, Shandong and Jiangsu.

To capitalize on profits, you need to find a way to cut down on costs as much as possible, and using a sourcing agent will help you achieve that. This is where sourcing specialists come in.

Sourcing agents are specialists or firms that manage the sourcing process on behalf of businesses outside China. Their role includes identifying suppliers, requesting and assessing product estimates, negotiating product costs and reviewing product designs. Sourcing agents also perform functions like design review, sample production, overseeing production and quality standards, packaging and preparing consignments for delivery.

Here’s how they can help you cut costs when you source products from China.

As a business, managing costs associated with your supply chain helps you cut costs and maintain reasonable margins. Maintain good margins translates to profits for the business.

The best way to cut cost as you source goods from low cost regions is by working with a cost-conscious suppliers and sourcing agents. Here is how sourcing agents can help you source products from China at a cheaper rate.

Sourcing agents link businesses with the cheapest product manufacturers

With the help of a sourcing agent, your business will have access to a range of affordable manufacturers based in China. Additionally, because the agents are domiciled in China, they understand the requirements for one to do business in the country efficiently and they know the local culture very well.

Furthermore, a sourcing agent will negotiate the best price for the goods you wish to source from China because they know agents and factories apart from those listed on Chinese e-commerce websites like Alibaba.

Minimize the need for you to go to China frequently

Based on the expert input of various sourcing specialist, during the sourcing process, the business needs to organize at least one visit to China in order to verify that the shortlisted suppliers are the people they claim to be; and they have the capacity to produce the volumes you are looking for. Based on the nature of your products, you could set up an office in China to ease your sourcing process.

While larger firms may have the resources to pull this off, smaller ones with a limited budget and a small team to work with have stretch themselves thin to handle such projects. But with sourcing agents, who already have teams and the right resources in China, you can cut down costs significantly.

For a small fixed fee, which you will include in the overall cost of production, the specialists will be your resource in China, your representative in the factories, taking care of your business interest on your behalf.

That way, you will be able to cut costs associated with running errands like identifying suitable suppliers, running background checks or commissioning samples before products are shipped to your location.

Sourcing agents know when and how to place orders

If you choose to source products from China, you can easily save a lot of money by working with an agent like Bliss Sourcing. They are conversant with business practices and the Chinese culture, so they will be able to help you kick start your sourcing project.

On the other hand, without the assistance of a sourcing agent, it will take you a long time to settle in and get good to your country. As an example, it would take a business a long time to find the right supplier.

Plus, Sourcing agents have immense local knowledge, which comes in handy when you want to start sourcing good right away. For instance, Bliss Sourcing understand that a customer should not place an order right before a major holiday. That way, they help you minimize losses.

No need for a translator

The biggest challenge that business face when they start sourcing from China is language barrier. Because the customer and supplier speak different languages, striking up a deal will take quite a long time.

In addition, getting the right price for your products amidst the language barrier is significantly low. But, with Bliss Sourcing or your preferred agent working on your behalf, you are guaranteed a great deal in record time.

Not only is Chinese their main language, they also understand the strategies they need to engage suppliers in the country. So, you are assured of a great deal, with little to no miscommunication.