China Sourcing: Are Small Factories Reliable?

In the past, we have had plenty of experience with companies that are just getting their start with sourcing from China. Either they are moving part of their supply chain there, or they are creating a new supply chain from scratch. One thing that most new China importers have in common is that they start small.

This means that they either move one SKU at a time to new China suppliers, or that they try to source new SKUs there. Either way, the number of products and quantities usually start small. And that makes sense. Keeping a program small helps to mitigate risk and evaluate the capabilities and quality of the suppliers you have chosen.

However, there is a downside too.  Larger, more established factories are hesitant to work with companies that have low order quantities. They are not enthusiastic. Your order can easily be pushed to the back of the line or given low priority over companies that are ordering full containers at a time.  And this means the level of sourcing difficulty is higher and lessons learned are not always on point.

At this early stage, rather than straining to get things done with larger suppliers, we would recommend working with smaller factories. But can they be reliable? We have found that this is a question that is best answered, not by your supplier, but by you. Ultimately, the question is not whether or not your suppliers are reliable. The question is whether or not you have the processes and procedures to make them so.

The issue is a GWC issue.  Does the factory Get it? Want it? And are they Capable of it?  And that is up to you to determine.  Usually they are enthusiastic and want your order, it is the other 2 issues that need verification.

When it comes down to reliability and accountability, your own supply chain management systems play an important role. There are a few things you must focus on to ensure a reliable business relationship. They are:

• Be specific: When providing your product specifications to your supplier, be as specific and clear as possible. Making assumptions that your supplier understands all the details without clear explanations and verifications on your part may cause problems later.
• Ask for samples: Always ask for samples (if your product allows). Even if the factory will not provide them for free – a few extra dollars for a sample now could save you thousands of dollars later.
• Inspections: Let the factory know that you will inspect every shipment and how you are going to do it. Perform regular and systematic inspections based on pre-set Address functionality as well as appearance and packaging. Perform these inspections during production if necessary and certainly pre-shipment.

In the end, the main risk with small factories is financial.  Do they have the heft to support your program?  Now, and if it grows? Do they have the management systems in place to give you a “money-back-guarantee” if needed? If not, you will need to structure the financial part of your ordering process accordingly.

From our experience, we have learned that larger factories and smaller factories can be unreliable or reliable alike. What makes the difference is your clear understanding of their strengths and weaknesses and how these fit with your own program.  With that knowledge, you can make them accountable as well as performing.

What steps do you take to determine a suppliers’ reliability? How do you hold them accountable? Share your thoughts with us in the comments below.