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Path: Sourcing News & Advice
>> Import from
China Advice >> Don't be suckered in by the
lowest price offer

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Don't be suckered in by the lowest price offer

Posted: September 26, 2014

by Adam Gilbourne

If you get unbelievably good pricing (relative
to all other suppliers & material costs) it’s normally a big red flag.

There are many reasons for “too good to be true”
low pricing.

– The supplier doesn’t understand your request.
So they have no idea how to quote properly.

– The supplier is lazy or sloppy and has made a
genuine mistake. This happens all the time and is frustrating.

– They’re trying to lure you in with a very low
price, with a plan to jack up the price later.

– They’re outright dishonest and will give you a
different product/material than the one specified.

Again and again we see importers choose
suppliers based on price. I believe this is because they’ve no other criteria to
evaluate suppliers.

Rarely have they visited the factory. Rarely
have they received accurate “apples to apples” comparisons from all suppliers –
to take into account different materials, packing and methods of producing the
goods (machine vs hand for example).

They don’t ask themselves – why is this price so
low? What are the likely issues? How can this factory produce this for less than
everyone else? 9 times out of 10 there’s a “negative” reason for ultra low
pricing.(The one time out of ten is usually because they are small, have low
overhead, make simple products and are keen for any new business. But these
factories need very careful management).

Just last week I had a client say to me: “I’ve
got a quotation half the price you just quoted me. Why would I use your
supplier?” When we examined the quotation, it was easy to work out that the
price was so low that it didn’t even cover the raw material cost.

This was a ridiculous quote. It wasn’t possible.
You cannot produce for less than the raw material price. A simple calculation
showed this, but our client didn’t realize.

Experienced Importers Are Not Immune
Either

Many experienced importers push things a step
further. They search everywhere for the lowest price quote. Once they get to the
cheapest price of all suppliers found, they “negotiate” the pricing even lower.
They think if they give clear specifications, lots of communication and confirm
all the small details it will work out OK.

But the factory has a few tricks up its sleeve.
They will say “yes!” to your price if pushed hard enough. But will then do
ANYTHING to bring the cost down.

Suppliers have a variety of methods to reduce
cost. From sub contracting production to small, unprofessional workshops – to
changing the materials in small, almost unnoticeable ways, to doing things by
hand – which should be made by machine.

Manufactures will always beat you at this game.
And if you catch them out in your quality control they will deny, obscure,
scream and begin complaining about your unreasonably high standards which are
“impossible” to meet.

Why is lowest price normally such an issue?

• Typically to get the lowest price, you have
found a less established manufacturer. They don’t have the infrastructure:
management, internal QC systems, production know-how, well trained staff etc to
get production right. Sometimes if carefully managed they are OK, but few people
can manage these guys on the ground.

• They’re not worried about their reputation or
long term business. They just need to get the next deal and get the cash in NOW.
Like a dodgy salesman, they will promise the world – with no expectation you
will return.

• They may not have a permanent work force.
Whenever they get an order, the local farmers literally stop picking rice for a
week and have a crack at making your order.

• They probably don’t have the best equipment
for the job. For example, they might not have a CNC machine to cut out wooden
parts, they instead do this by a worker (a rice picker) doing it by hand. You
really need to know exactly how they if this is their production method, because
it can cause huge issues later on.

• Being less established – they have fewer
processes in place to make the product correctly. And no internal QC system to
catch problems which inevitably occur during production.

If you keep
rejecting poor product they get annoyed. You’re making this order far more
difficult than they expected. You lose their co-operation and things generally
spiral downward from here.

Adam
Gilbourne is the founder of Easy Imex Ltd
and helps importers to source product & manage their supply chain in China.
He writes advice for importers on the Easy Imex blog. He lives full time in
Shanghai, China. You can contact him at [email-masked].

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