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Procurement & Sourcing from China

With companies from all over the world looking to extend their supply chain to newer and more profitable markets, it becomes imperative for many of them to source from rapidly developing countries. At the very top of such fast developing countries is China. It has been clearly established in the past few years that the rewards of China sourcing are huge and manifold. The benefits include vastly improved cost structures, innovative and high value products made using innovative processes made possible by an increasingly modernized and diversified supply base.

China is high on the sourcing list of many countries because they have the unique advantage of low cost, but highly skilled labor pool. They are trained for supporting production and also in research and development. China has becoming the hub of sourcing for manufacturers and traders from all over the globe because of their:

  • Low-cost plant and equipments
  • Liberal national policies and local government incentives
  • Rapidly growing domestic market that can help suppliers based here achieve critical mass quickly
  • Highly developed group of complementary suppliers

Overcoming Challenges – And There Are Many

  • The challenges involved in the process are many but the key ones are overcoming the differences in cultural and business norms and methods and the lack of transparency in the country’s supply market. Hiring established and successful consultancy firms can help companies overcome these initial challenges and be prepared for the ones they will keep running into at every stage of their progress.
  • The pressing challenges that companies face in the later stages include the protection of intellectual property rights. Most businesses come unprepared to deal with this issue which can severely limit the potential range of products they can include in their China sourcing endeavor. With competition becoming intense in this domain, companies not explicitly addressing intellectual property issues face the risk of losing out to those who come prepared to deal with it.
  • This once again highlights the advantages of involving an experienced consultancy firm in your China sourcing plan. They can make the roadmap ahead crystal clear for you and prepare you for dealing with such unforeseen challenges well in advance

Developing Suppliers to Produce Standard-Specific Merchandize

Another challenge that most companies run into at this stage is that many potential Chinese suppliers require a certain degree of development for participating in western business processes and for meeting the quality standards of the West which may be high in most product categories than what the Chinese manufacturers have to offer. This puts an additional responsibility on the sourcing team as they have to take care of the critical area of supplier development.

Supplier development is often a cross-functional initiative involving multiple departments. Managing the complexity of cross-regional and cross-functional sourcing initiatives can be a lot for a new outpost organization in China to handle.

After companies have gone through these stages and developed momentum in their China sourcing arm of business, they now have to focus on full integration which involves integration of

  • Procurement
  • Suppliers into design
  • R and D into design
  • Global supply chains

For procurement integration, companies have to develop processes, systems and mechanisms for smooth and seamless functioning. Next, they have to leverage the capabilities of Chinese suppliers and even involve them in designing products right from the conceptualization stage in some cases. This has proved to be mutually beneficial to all parties involved and that’s why more Chinese suppliers are now willingly participating in the designing of specific products their clients want to sell.

Many companies are integrating their R & D center with sourcing to provide suppliers with the technical support needed for creating products specific to their needs. Challenges emerging from increasing volume of products sourced from China are being met by companies by integrating global supply chains. Third party logistics providers are being used to manage supply chains smoothly. Based on past experiences and the extensive research conducted in the area of China sourcing, the following best business practices are recommended by experts.

Define a Clean Sourcing Strategy:

The most successful China sourcing companies are those who have developed specific plans which spell out how sourcing targets will be achieved. They have a clear list of resources, contingency plans and expected sales and profit figures. Accountability is also clearly fixed.

Proper coordination is achieved by setting up dedicated management teams at both sending and receiving ends.

Developing Suppliers Network:

Many companies have floundered in their China sourcing initiative after tasting initial success, primarily because of the difficulty to keep pace with the growing demand for products because of limitations at the supplier’s end. Developing a network of reliable and qualified suppliers with the ability to deliver demand for more stocks at a short notice can help in dealing with the problem.

With time, there approach to China sourcing needs constant tweaking as the goalposts will be constantly be shifting and in many cases, moving away from you. To stay ahead in the race and achieve consistent success, companies have to reinvent themselves continuously. Using the services of an experienced, reputed and proven consultancy specializing in China sourcing is highly recommended.

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About GainEdge

GainEdge is an associate company of the parent organization AGS. We are into the business of helping companies transform their procurement operations to deliver substantial and real savings to the enterprises by enabling refinement in their supply chain practices - globally and translating their business needs into interactive development strategies.

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