Sourcing and Procurement-What’s the difference ?
Interchangeable words or unique, complementary activities that together can unlock superior business performance. As a smaller brand or business without a Procurement or buying team where do you start and do you need both ?
Sourcing and procurement are two related but distinct activities that are essential components of an overarching strategic supply chain management plan.
- Sourcingrefers to the process of identifying potential suppliers and selecting the best among them to provide goods or services to a company. It includes activities such as supplier identification, supplier evaluation, negotiation, and contracting.
- Procurementon the other hand, refers to the process of purchasing goods or services from a supplier. It includes activities such as ordering, invoicing, payment processing, and supplier management.
While sourcing and procurement are distinct activities, they are closely related and often overlap in practice. A strategic sourcing approach can help companies optimize their procurement activities by ensuring that they are working with the best suppliers and getting the best possible prices and terms. Procurement, in turn, is an important part of the sourcing process, as it involves executing contracts and managing supplier relationships to ensure that goods and services are delivered on time, at the right quality, and at the agreed-upon price.
Building a strong Sourcing Strategy and Executing the resultant Procurement Strategy can deliver a range of benefits
- Reducing costs
- Improving Quality
- Improving efficiency
- Managing Risk
- Ensuring Regulatory Compliance
- Speed up innovation
- Improve Customer Experience and Brand Reputation
So where do you start creating your Sourcing Strategy ?
The key to creating, delivering, and benefitting from a strong Sourcing Strategy is to work with a partner who shares and understands your commercial ambitions. In addition, they should have:
- Experience operating in the markets that could be of interest particularly China. Delivering established contacts and factory relationship networks
- Offices established in all product markets to ensure language, time zone and business operating styles are no barrier to delivery
- Experienced colleagues who can support your requirements whether they are for consumable or industrial products
Independent QA teams who can ensure your confidence in the delivery of your products both to specification and to time
At ET2C we have been working with our clients for over 21 years. Acting as our clients bridge to their Strategic Sourcing partners. Creating and delivering Strategic Sourcing plans, including independent on the ground QA.
Working with Start Ups and E-Commerce companies to accelerate their competitive advantage, delivering quality and compliance. We have over 250 colleagues based in seven countries to give you feet on the ground to ensure your Sourcing plans are delivered effectively.
If you have any questions or would like to explore how you could benefit from our experience please drop us a call at contact@et2cint.com
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Why do I need a Global Sourcing Strategy ?
Global Sourcing Strategy, Asia Sourcing or China Sourcing are terms that are constantly being talked about and searched for online. How do we define them and what are the benefits to your business or brand? Are they purely the remit of huge organisations or can smaller companies derive all the benefits to grow their business?
As a small business or brand start up competition can be tough and relentless. What can immediately help to build your competitive advantage is an effective Sourcing Strategy.The creation and delivery of which can rapidly deliver bottom line benefits as well as superior quality and compliance controls. Building your business profitably and protecting your brand reputation. The cornerstone of your long-term growth.The era of globalisation is still with us, despite the continual turmoil from the Pandemic and the War in Ukraine. Whilst the last few years have been difficult for many the opportunities to build your competitive advantage are still there and as strong as ever.Indeed, in many markets not sourcing from China or Asia and put you at a potential disadvantage.So what should you expect a Sourcing Strategy to deliver to your business?
- Cost savings: By sourcing goods and services from countries where skilled labour and materials costs are lower. Where factories have consistently invested in their capital equipment to ensure their innovation capabilities. Companies can reduce their costs and increase their competitiveness in the global marketplace.
- Access to new markets: Global sourcing can provide access to new markets and new suppliers, which can help companies diversify their supply chain and reduce their dependence on any one supplier or market.
- Increased efficiency: By leveraging the expertise and capabilities of suppliers around the world, companies can increase their efficiency and improve their supply chain performance.
- Improved quality and Compliance: Global sourcing can enable companies to access suppliers with specialised expertise and capabilities, which can help improve the quality and performance of their products.
- Enhanced innovation: Global sourcing can facilitate the transfer of knowledge and best practices between suppliers and companies, which can help foster innovation and drive product and process improvements.
- Risk mitigation: A global sourcing strategy can help companies mitigate supply chain risks by diversifying their supplier base and reducing their exposure to geopolitical, economic, and environmental risks in any one region.
Overall, a global sourcing strategy can help companies increase competitiveness, reduce costs, and improve supply chain performance. However, it also requires careful planning, management, and coordination to ensure that the benefits are realised and the risks are managed effectively.
Potentially the most important decision to make is not whether to build a Strategic Sourcing plan but who to partner with to take those first steps into a new market. Where time zones, languages, communication expectations and ways of doing business maybe very different.
At ET2C we have been working with our clients for over 21 years. Working as our clients bridge to their Strategic Sourcing partners. Creating and delivering Strategic Sourcing plans.
Working with Start Ups and E-Commerce companies to accelerate their competitive advantage, delivering quality and compliance. We have over 250 colleagues based in seven countries to give you feet on the ground to ensure your Sourcing plans are delivered effectively.
If you have any questions or would like to explore how you could benefit from our experience, please drop us a message at contact@et2cint.com and see how we could help you build your Global Sourcing Strategy and deliver increased competitive advantage.
Quality Control & Digitization
Quality control has always been an important part of any sourcing function. However, technology has evolved, and it is now possible to conduct inspections more efficiently and at the same time to collate data.
Overview
Quality control used to be the reserve of the ‘Policeman’; the ability to check in on factories on the basis that they were surely doing something incorrectly that would be detrimental to the quality output. As China opened up back in the early noughties, this was very much the case as offshore manufacturing (aside from Taiwan/Japan) was largely in its infancy. The anxious wait to check the QC report to see that the red coat was in fact both red and a coat. Of course, there are instances where this approach is still valid today and, in fact, recommended but often this is where the supplier relationship is fractured or there is a clear risk that needs to be addressed.
This approach has evolved over time. A collaboration is more apt to describe how quality control should sit between all stakeholders. It should be an open and fluid dialogue between the supplier and the buyer that is underpinned by trust. This means that where there are issues, they can be identified on the production line, allowing corrective measures to be implemented, rather than simply checking incorrect goods that are sitting waiting to be shipped. For example, identifying that one supplier has a high occurrence of loose threads allows this information to be relayed to the floor manager who can conduct additional training for the stitching workers. It also allows ‘quality’ to be part of an evolution of continuous improvement (in line with LEAN manufacturing principles or “Kaizen”).
Technology has a role to play as well. The ability to conduct inspections efficiently, with greater engagement between all stakeholders whilst collating data that gives direction on where any corrective measures should be focused is now possible.
Introducing Qarma
To help us continue to deliver our quality solutions to our clients, we have now partnered with Qarma going into 2022. Our aim is to empower our teams and suppliers to not just perform standardized and faster inspections via their Inspection App (the inspectors will conduct the inspections solely using their phones) but also to provide a more engaged and immersive quality experience.
Gone will be the two-dimensional quality control reports (and all the paper!), and in their place will ultimately be online reports and discussions. Rather than a static report, we are moving to a dynamic quality discussion to make sure that ‘quality’ continues to evolve. We are able to identify issues as early as possible and as close to the product as possible through real-time reporting and greater visibility.
Key Benefits
Some of the key benefits are set out below:
- GPS Location – Every quality report can come with an exact location for each inspection
- ‘Fresh’ Pictures – All photos are taken and registered through Qarma with a time and GPS stamp
- Barcode & QR scan – Inspectors can scan codes to start inspection and verify order
- Video Capture – A picture tells a thousand words; a video tells a million (and all high resolution).
- Image Annotation – Draw, write and enhance pictures with details
- Multi-Language – our inspectors can explain in their own local language, which can be instantly translated across 18 different languages
- Online Access – Clients can request online access and add comments and questions prior to finalizing the QC Report
- Data Collation – We will automatically collate all the Quality data for your factories so that we can identify any corrective measures that need to be implemented
Quality Control 20.22
The tool will be adopted across our sourcing jurisdictions into Q1 2022 so our clients will begin seeing changes to our quality reports and the information flow. We are excited about this journey, and we just wanted to give you a heads up of what is in store for the New Year. Should you have any questions, or want to collaborate with us on Quality going forward, please contact us at contact@et2cint.com
Sourcing Furniture from Turkey
Sourcing Furniture from Turkey is an alternate option for those companies currently purchasing from the more common Asian supply base.
Overview
Sourcing furniture from Turkey is an untapped opportunity for many businesses. Furniture plays a vital role in our lives as it essentially turns a house into a home giving us a space for comfort and relaxation. Varying in shapes and sizes, furniture takes up most spaces in our homes, helping us have a healthier and more organized lifestyle. These days, people tend to spend a lot of time and money to find furniture that adds charm, class, style, and function to their homes or offices, which leads to furniture becoming a huge sector; globally in dollar terms it was $547 Billion in 2020 and is and is expected to grow a further 44% by 2027 to $789 Billion.
When looking for overseas manufacturers of furniture, the two most common countries would be China and Vietnam. Both have the raw material and the labour pool to produce furniture across a wide range of styles and with different materials. It is no surprise, therefore, that they take the number one and two spots on the list of the largest furniture manufacturers/exporters globally (China and Vietnam respectively).
Covid has significantly disrupted both these Asian markets due to the related shortages of containers and the subsequent upward pressures on freight rates. This has been no more profoundly felt than in the furniture sector when buyers are often trying to cram as many bulky items as possible into containers. When you are only able to get 40 items in a container (compared with 10,000 pieces), the cost implications of the high freight costs will have a tangible impact on your landed price. The result is that buyers are scouring other markets for furniture opportunities particularly where there are freight savings from ‘near-sourcing’ countries.
Lucky Number 13
Casting one’s eye down the list of furniture manufacturers/exporters, Turkey makes the cut at 13th. Is sourcing furniture from Turkey a viable option for you? There are many reasons and we have set some of these out below:
1. Heritage
The Turks have been producing furniture for centuries. There are examples of furniture that date back to the Hittites in the Anatolian region. As with many ancient civilisations, the skills and workmanship were passed from generation to generation via family-owned workshops. These workshops, which are still active today, have been producing hand-carved furniture the same way for generations. This expertise was built upon in the dawn of industrialization as mid to large scale production capabilities were developed. These large-scale factories enabled automated mass production of standardized products with the majority of output destined for export.
2. Raw Material
Turkey has access to a range of raw materials that either grow domestically or are produced locally (such as steel etc). Particularly with regards to wood, there is a broad abundance of local wood that can be used in furniture production providing a range of different physical characteristics. The total land area of Turkey is more than 80 million hectares, with forests making up 27.2 percent (21,2 million hectares) of that. With 9,000 herbaceous and woody plant species, Turkey possesses one of the world’s most diverse floras. This gives the country easy access to many trees for roundwood production such as Calabrian pine, Crimean pine, Scots pine, beech, fir, spruce, cedar, and oak.
3. Established Industry
Turkey’s milling and wood manufacturing industry is qualified to supply wood products to overseas markets, especially those countries that do not have an advanced wood fabricating segment. Besides, Turkey is in a favourable position to provide semi-processed wooden items and furniture to the EU owing to its flexibility, comparatively lower labour costs and design capability.
4. Export Track Record
Turkey exports to over 170 countries and the biggest importers of Turkish furniture are Germany, Saudi Arabia, USA, France, UK, Israel, the Netherlands, Qatar, Romania, United Arab Emirates, the Czech Republic, Italy, and Azerbaijan. Moreover, many of the manufacturers have reinvested in their capabilities during the pandemic.
5. Not Asia
In order to build ‘flex’ into any supply chain it is important to identify suppliers in different markets. With Turkey sitting on the edge of Europe, it is perfectly positioned as a near sourcing option when it comes to furniture.
Summary
Supply chains and sourcing strategies have been largely turned on their head over the course of this Pandemic. Buyers are looking for other opportunities outside of the more traditional sourcing jurisdictions, like China. Sourcing furniture from Turkey will only enhance your sourcing strategy and breadth of the sourcing market. This is especially important if you are a European business.
As ET2C, we are well placed to provide you with the best furniture products Turkey has to offer. For all enquiries, please contact us at contact@et2cint.com.
Ethical Sourcing: A Conscious and Responsible Buying Approach
Ethical sourcing is increasingly important to a range of stakeholders. Whether the consumer, the retailer, the importer, the manufacturer or even the investors, ethical sourcing aligns with ESG principles and is part of a product’s ‘story’.
Ethical sourcing is a sustainable and responsible approach to supply chain management and sourcing. It is defined by the Chartered Institute of Purchasing & Supply (CIPS), as “the process of ensuring the products being sourced are obtained in a responsible and sustainable way, that the workers involved in making them are safe and treated fairly and that environmental and social impacts are taken into consideration during the sourcing process.”.
Why is Ethics Important in Sourcing and Procurement?
Over the past two decades, the consumer has become more aware of the impact a particular product has on the environment or the factory workers being used to produce it. This has driven additional visibility up supply chains to the point where some retailers even provide complete transparency of all their suppliers for their customers to check as they see fit. This is all part of ethical sourcing, and the ability to provide this level of information is just one example of the sourcing process respecting all ethical and environmental standards expected of retailers and brands.
At the same time, companies have taken on greater responsibility when it comes to ethics and how they source products. This requires a much greater understanding of which manufacturer a company decides to partner with, what their beliefs are and what their environmental footprint is like. Some companies are even certifying as a B-Corp – their purpose is to build a more inclusive and sustainable economy – which includes elements of ethical sourcing.
Ultimately, ethical sourcing will help remove abusive practices. There is no reason why slavery or child labour should be tolerated in this modern world. The more this can be enforced by the companies doing the sourcing, the less the commercial benefit for those profiteering from these abhorrent practices.
Therefore, it is paramount that buyers selecting and managing suppliers look out for signs of such activities in their supply chains.
The Ethical Trading Initiative (“ETI”) is internationally recognized as a ‘Base Code when it comes to labour practices. The ETI Base Code is structured on existing conventions of the International Labour Organisation, and has nine clauses that define ethical practices:
- Employment is freely chosen
- Freedom of association and the right of collective bargaining are respected
- Working conditions are safe and hygienic
- Child labour shall not be used
- Local living wages are paid at national legal standards
- Working hours are not excessive, complying with national law
- No discrimination is practiced
- Work performed must be based on a recognised employment relationship established through national law and practice
- No harsh or inhumane treatment is allowed
The Benefits of Ethical Sourcing
Commonly, companies often commit to ethical and sustainable practices for obvious reasons such as risk mitigation or improving brand image to grow sales. However, there are even more benefits for companies that opt for ethical sourcing and do it properly.
1. Employee Engagement
Many studies have shown that companies with solid Corporate Social Responsibility programs not only boost a strong public image but also engage more people from inside the organisation by enhancing higher employee morale and creating a culture of loyalty.
As a consequence, a reputation for sustainability and ethics often makes an organisation a more attractive proposition as a prospective employer than those who have less of a purpose.
2. Customer Satisfaction and Market Shares Increase
Now more than ever, customers expect companies to be more ethical and sustainable in their business practices and actively value brands that are doing so. A few companies have in fact increased their market share by committing to ethical sourcing practices (please note that it is important to genuinely commit to such practices rather than simply go through it as an exercise in ‘green-washing’).
Several ethically sourced products made from organic, renewable, or recycled materials have an extremely loyal customer base (AllBirds for example). Aligning your products and services with customers who value sustainable business practices can increase your company’s market share.
In fact, according to the data from the OpenText survey (September 2021), nine in ten global consumers want to buy products sourced in a responsible and sustainable way and 83% would pay more for goods that are ethically produced. Interestingly, consumer demand for ethically sourced products has increased during the global pandemic. The survey shows that nearly 20 per cent of the respondents said that this has only mattered to them within the last year, which indicates that the Covid pandemic, and some of the product shortages we have faced, has made consumers re-evaluate their stance on ethical sourcing.
3. Margin Growth
Although products that are sustainable and ethically sourced generally have a higher cost, there is evidence that ethical sourcing processes both can reduce costs over the long term and also support higher sales prices in store. In 2015, The World Economic Forum estimated that sustainable and ethical sourcing processes reduce supply chain costs from 9%-16%. In addition, they can increase revenue by up to 20% for responsible products, and increase brand value by 15%-30%.
Some examples are the use of energy-saving light sources, the improvement of insulation, the elimination of wasteful steps and processes within production, to name a few. Or, in addition, the use of environmentally friendly materials.
4. Brand Boost and Accountability Enhancement
One of the benefits of ethical sourcing is improving the reputation of the brands your business produces.
The reason behind the brand boost is that by adopting ethical processes, transparency and accountability become major components of your supply chain. As stated above, this can be compelling from a consumer perspective, but it is important that it is a genuine position to drive real benefits. A measure of this is how well employees engage in the companies’ beliefs.
5. Make a Difference
It sometimes just feels good to do good! At whatever level, positively impacting a manufacturer, a worker or an employee feels like the right thing to do. Make that difference!
Summary
At ET2C, we are already working with our clients on ethical sourcing and best practices when it comes to managing their supplier base. With a team on the ground, we make sure we provide the visibility required to our clients. For more information, please contact us at contact@et2cint.com.
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Multifunctional Furniture: The New Trend to Optimize your Space
Multifunctional Furniture has become an increasingly important trend as people look to maximize the use of space within their homes.
Overview
Multifunctional furniture has the ability to enhance our homes. The ‘winds are changing’ and more and more people are mindful of their living space and choosing functionality over size. With increased property prices and cities being overpopulated, optimizing your space seems to be the best solution for those who are conscious of their budget and space, and want the furniture to last longer. It is also part of the current surge in downsizing that is the driving force behind a range of creative and elegant furniture solutions.
Multifunctional Furniture is particularly useful when you need to decorate smaller apartments and living spaces or simply adapt a trendy and interesting solution to your space. It is also a good way to make a bold statement about your personality and enable your lifestyle with furniture that adapts to your way of life.
Multifunctional Furniture
What is Multifunctional Furniture and what are its advantages? The right piece of Furniture can:
- Help keep your belongings tidy;
- Optimize living space;
- Make the best use of small apartment; and
- Feature interesting and trendy design.
Multifunctional Furniture can be a part of any room’s interior, including the kitchen, bedroom, study, kids bedroom, Living room and even terrace or balcony.
Below are a couple of ideas for different living zones and spaces.
1. Furniture for Kids’ Room
Having their ‘own corner’ is extremely important for children of all ages. And regardless of how big or small the room is, everyone realizes that a child should have as much space as possible to play in, learn and discover. Below are some great solutions for Children of all ages.
- Childbed with storage unit;
Drawers under the bed and wall shelves can help to organize clothes, toys and books. This design will grow together with a child and will be a great fit in the room of a toddler right through to a teenager.
- Childbed with slide and playground;
Nothing presents a better example of combining functionality and fun when it comes to young children. The bed can be combined with a slide, ladder, exercise wall or even treehouse.
- Craft paper folding bench
This unique and sustainable collapsible design allows up to 10 people to be seated. When folded together, it can be stored under the table or used as a side table. A perfect piece of furniture for an unexpected children party. And it is also available as a stool option.
- Nesting Children’s Furniture
The nesting children’s furniture looks like a gradient side table when stacked together neatly. When pulled apart, they form two sets of desks for different age groups. Each desk component is equipped with storage compartments as well.
2. Space-saving Pet Furniture
Over the past year, lots of office workers spent significantly more time at home due to the Pandemic with extended lockdowns and working hours’ adjustments. For many of them, this meant spending more time with their pets. Below are some of the solutions that allow furniture to be shared with your pets:
- Rocking-2-gether chair
This chair is a combination of a rocking chair and a pet house. A great spot for relaxing on the chair along with a furry friend absorbing some afternoon sun.
- Cat litter box/planter
Some litter boxes are designed to look like a house plant to cleverly become part of the home décor. With a two-piece bottom and a cut-out, a cat can easily take care of its business. The Litter box can also be hidden inside the side table or storage unit.
- Cat hammock
It is easy to share a table for a morning coffee or late evening snack together with your cat by fixing a cozy hammock right under the coffee table. It can also be placed on any chair or even inside the ottoman to get an extra secure spot for your pet.
- Bookshelf Window Perch
For those small pets, a Bookshelf with step pads and perch will easily blend into the study or living room’s décor. Storage units can be used to declutter your home, and give a pet some exercise as well as help with fighting anxiety and boredom by giving free access to the window when an owner is not around.
3. Table solutions
- Table-mirror transformer
A table is an essential part of any space, that allows you to dine, do some office work, practice a hobby or to just read the paper. A table that serves as a mirror when on the wall, and as a dining table or work surface when down is a great example of Multifunctional Furniture.
- Foldable dining table
From a slim side table to a full dining table in a couple of minutes – these multi-use furniture pieces can seat up the whole family when fully unfolded.
- Extendable kitchen trolley
Handy for storing extra dishes, using as a breakfast bar or adding a bit more workspace when preparing meals. This trolley can be easily moved away when not required allowing more mobility in the kitchen.
- Stacking table
Stacking units come apart easily to be used as separate coffee tables. When put back together it can be used as a book/storage shelf.
Multifunctional Furniture – Develop Your Concept
We at ET2C work with a range of factories from China, Vietnam, India and Turkey in order to support and develop new Multifunctional Furniture concepts. Aluminium, steel, wood and even cardboard can be a material for inspiration. Reach out if you are looking for some unique pieces of furniture that can help to optimize home space and organically fit into all kinds of homes. For more information, please contact us at contact@et2cint.com.
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COP26: a Focus on Decarbonization & Supply Chains
COP26 presented an opportunity for World Leaders, the business community and other stakeholders to come together and agree tangible outputs to attempt to reverse climate change.
Overview
COP26 brought a melee of Politicians, CEOs, UN Ambassadors, Environmentalists and protesters together in the Scottish city of Glasgow to discuss how we can possibly reverse the damage already done to our planet. With an immediate purpose of moving towards carbon neutrality (“net zero”) by the middle of the century, countries were tasked to present ambitious targets for reducing emissions. And this all with the aim of keeping the 1.5 degrees rise in global temperatures within reach. This would only be possible with a broad commitment to accelerate the phase-out of coal burning, dramatically reduce deforestation, speed up the transition into electric vehicles and encourage investment in renewables.
At the outset, amidst a palpable wave of optimism, the pledges and commitments came thick and fast as the event opened with World leaders attending and setting out their aspirations. Even with some noticeable absentees, there did appear to be a road map to making a real difference. But as the curtain came down on the event, there was the inevitable watering-down in the language of some of the agreements leaving some activists pointing to a lack of enforcement or mandatory provisions being included. So after all the talking, what were the wins and losses of COP26?
There were some clear ‘wins’ albeit not as clear cut as some people would have liked. The rhetoric during the event was heavily laden with the need for ‘now’ and ‘protecting future generations. It will have to be seen if there is now sufficient momentum and financial clout to make a tangible difference to the climate precipice that we all find ourselves on.
COP26 & Supply Chains
Globalisation has led to greater connectivity across the world, which has, in turn, lead to greater movement of people and goods across oceans and through the air. For supply chains, containerization enabled goods to move across oceans with greater ease and subsequently in greater volumes. All this has resulted in a significant carbon footprint. The fact is that 62% of carbon output is related to supply chains. And with 80% of goods being transported across maritime routes on container ships, there is a clear need for the shipping industry to move to carbon neutrality as part of this broader target of a net-zero by the middle of the century.
As companies involved in sourcing, producing and the movement of products across borders, what does this all mean for our own businesses? There is no one solution and the answer is layered with complexity. Perhaps the simplest solution is to stop doing anything that has a carbon impact, which is not particularly practical and would not have a positive economic input. The challenge is that there is a reliance on the ‘collective.’ A company that is shipping from Asia relies on the carbon output of the factory and, even more relevant, the shipper and various modes of transport to get the goods to and from the Ports. These are not aspects that one can directly control.
The Collective
This though is the point. There needs to be a collective. As COP26 set out to achieve, Governments need to be investing in the technology for clean energy alongside incentives for private investment in renewables that make commercial sense for the future. There needs to be a genuine ‘Green Economy’ that works for all nations.
So, what can we do together to make this happen? Even though these may be small initiatives, the more companies that adopt them, the greater the impact and the more the landscape shifts in the right direction.
1. Product
Where possible, identify products that have a lower carbon footprint in terms of their use and the materials that they are made with.
2. Manufacturing
Think about your suppliers’ own carbon footprint and understand what that carbon output may be so that you can contribute to carbon offset schemes (tree planting etc.).
3. Green Shipping
Look to consolidate containers where you can maximize the space available. Also, engage with your carriers around their plans for ‘clean cargo technology.’ Hydrogen will power container ships of the future, which will have zero carbon output.
4. Go Electric
Where possible use electric vehicles within your supply chain, whether that is a provider or your own fleet.
5. Cut Travel
Covid has already halted widespread corporate travel, but as we emerge from this Pandemic it will be important to only travel when necessary. Look at alternative ways of managing overseas suppliers, whether via technology or local partners on the ground.
Summary
The UN general secretary has issued a red alert for Humanity. The need for action is now, and we all have a part to play. As the President of COP26 said in his closing remarks:
“We can now say with credibility that we have kept 1.5 degrees alive. But, its pulse is weak and it will only survive if we keep our promises and translate commitments into rapid action…
From here, we must now move forward together and deliver on the expectations set out in the Glasgow Climate Pact, and close the vast gap which remains. Because as Prime Minister Mia Mottley told us at the start of this conference, for Barbados and other small island states, ‘two degrees is a death sentence.’
It is up to all of us to sustain our lodestar of keeping 1.5 degrees within reach and to continue our efforts to get finance flowing and boost adaptation. After the collective dedication which has delivered the Glasgow Climate Pact, our work here cannot be wasted.” COP26 President, Alok Sharma.
At ET2C, we are looking at how we can reduce our own carbon footprint and are working with customers on a range of solutions. For more information, please contact us at contact@et2cint.com.
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Chinese New Year 2022 – How to Prepare for Factories closing
Chinese New Year is an annual event that has a permanent place in any Buyer’s diary. It is a holiday that sharpens focus for Buyers, who must plan around it to avoid delays and stock shortages.
Chinese New Year, also known as the Spring Festival, is the most important holiday in the Chinese Calendar. The festival celebrates the start of the Lunar Calendar, its date is not a fixed day but changes every year. For about 15 days, families come together to celebrate and spend time together from all over the country.
Chinese New Year for the Manufacturing Sector
A large proportion of factory workers are in fact migrant labourers. The number is not quite what it used to be when Guangzhou was the manufacturing hub of China. By the way, it is still significant with a large section of the 700 million people travelling back home over Chinese New Year involved in manufacturing.
While the official public holiday only lasts for seven days, the majority of factories are closed for extended periods, between two and four weeks, which is referred to as Chūnyùn (春运). This is, in fact, the largest human migration in the world.
Chinese New Year for Buyers & importers
With factories closed and most of the country off work, the wheels of China’s manufacturing behemoth grind to a halt. Even after the holiday, it takes a few more weeks to get back up to full production capacity and output.
All elements of the Chinese supply chain take a while to get back online. From general employee churn (some do not return), extended holidays to getting sub-suppliers to full production capacity it can take in excess of one month for factories to be in full production mode (and who would not predict some additional disruption given the past 18 months!).
So, what should companies buying from China (keep in mind other Asian countries also celebrate the Lunar New Year, like Vietnam and Tet) do in the run-up to Chinese New Year to manage their suppliers and lead times?
Chinese New Year – Tips for Buyers
Considering lengthy factory closures, keep the following in mind as we end the Calendar Year:
1. Staff Turnover
This period of the year is considered the best time to switch jobs in China. Often, workers will move to other factories, which compounds the issue of getting the factory up and running after CNY. As a result, many factories will not be back to full production levels for over a month after the holiday.
2. ‘Quality’ Around CNY
Before the holiday, factories rush to get orders out the door. The pressure is intense to meet deadlines and prevent delayed stock from sitting idle (does not help anyone get paid). Inevitably, under such conditions, the risk of quality defects will increase as factory managers have to find a range of creative ways to meet the ex-factory dates.
Similarly, after the holiday, there may be less experienced employees in the factory. This is because HR managers need to recruit new staff for those that did not return. Again, the risk of quality defects may rise, although with the right supplier and quality program in place, this can be avoided. For example, making sure more frequent product inspections are implemented around before and after the holiday will provide greater visibility and reassurance around product quality.
3. Shipping Costs
Freight rates have had a remarkable run in 2021, much to the detriment of importers and retailers, although they have softened into Q4. Chinese New Year always presents a ‘cliff-edge’ for companies looking to ship prior to the holiday and you can therefore anticipate a spike in rates.
4. Payments
Every year, Chinese factories push for payments early to pay their staff bonuses and collect as much cash prior to the holiday. Just be careful, particularly when paying deposits or advances for stock not yet shipped. This is the time of year in which most Chinese factories close down permanently.
5. Chinese New Year 2022
February 1st, 2022 is the first day of the “Year of the Tiger.” The official government holiday lasts from January 31st through February 6th. However, some factories will close earlier in January. So check now with your factory contacts to get their exact closure dates.
A New Year’s Bounce
No Buyer wants to have no stock. So how should companies approach Chinese New Year when it comes to manufacturing in China?
Clearly, planning is central to the solution. For any shipments targeted to land in April and May, you would typically start cutting purchase orders this month. However, due to all the Covid-related supply chain bottlenecks in 2021, many experienced buyers have already placed their orders this time around. Communication is a central part of being able to plan. Make sure you are aware of when your suppliers and their suppliers are shutting down this coming Chinese New Year.
Also, often the period immediately post Chinese New Year for factories can be slow both as factories ramp up capacity, but also a result of customers already being stocked up. If it works for your purchasing cycles, using this downtime to produce your products can present benefits (price and capacity available for you) as offseason orders.
Lastly, remember that the sourcing landscape extends beyond China. Although the Lunar New Year is celebrated in other Asian countries where you may have manufacturing partners (Vietnam, South Korea, Indonesia etc), the holidays generally tend to be less imposing. Also, look for Near Shore alternatives, like Turkey for Europe.
Summary
Make sure you communicate with your partners across Asia when it comes to the Lunar new year, particularly in China. If you need support in this area or just some help on the ground, we are here to help. Contact us at contact@et2c.com.
Chinese New Year 2022 – How to Prepare for Factories closing Read More »
China Sourcing: When the Lights Go Out
China sourcing has been the mainstay of offshore manufacturing for the past three decades but what happens when the lights go out?
Overview
China sourcing remains an integral part of most sourcing strategies. Of course, there will be companies that buy from specific offshore markets and in certain product categories that do not need to lean on China’s vast manufacturing base at all. However, China’s factories still cast a long shadow across Asia and beyond. Its scale alone allows it a seat at the ‘top table’. Even in a tumultuous year for supply chains already grappling with freight rate hikes, container shortages, raw material rises and long delays inbound into Ports, heightened demand has helped retain its global competitiveness (albeit China’s PMI has marginally decreased to sub 50 indicating a small contraction in manufacturing output). But then the lights went out…
China Sourcing – In the Dark
In a bold and largely unexpected statement via video link at the UN on the 22nd of September, President Xi Jinping announced that China would double down on its environmental targets.
“China will scale up its Intended Nationally Determined Contributions by adopting more vigorous policies and measures. We aim to have [carbon dioxide] emissions peak before 2030 and achieve carbon neutrality before 2060”. President Xi Jingping to the UN Nations, 22nd September 2021.
This was certainly commendable from an environmental perspective. China is the world’s largest sourcing of carbon dioxide, responsible for approximately 28% of global emissions. The issue was the potential impact on energy in China. There were already structural issues with mining coal within China (lack of investment, alternative power etc) and this new target would only limit electricity supply to China’s industrial lands. After the Golden Week Holiday, local governments began limiting the supply of electricity (and at short notice in some cases) to avoid missing environmental targets for reducing energy and emissions.
There is no doubt there has been disruption across many provinces and manufacturers, which has hindered their production capacity and extended lead times. It is largely dependent on the manufacturing type and the province as to how much electricity is rationed. For example, we have seen factories currently being limited to 3 days a week, which will serve to extend lead times; the less time for machines to operate, the less the factory output.
A Glimmer of Light
As Buyers were wiping beads of sweat from their brows, trying to understand what the implications would be for orders currently being produced – particularly those due to complete and ship in the melee pre–Chinese New Year – the Chinese authorities acted. They ordered coal miners to boost production to allow acute power shortages to be addressed. Of course, the bigger issue was the power supply to peoples’ homes, which was also in jeopardy going into the harsh Northern Chinese winter.
Another piece of good news came just after the recent COP26 climate talks, co-hosted by Italy and the UK, where China reaffirmed its goal of achieving a carbon peak before 2030 and carbon neutrality by 2060. Even if coal output rises in the short term to address a nationwide power shortage, the Chinese authorities have pointed out that this does not signal a return to reliance on coal-fired power.
In summary, we should see the power shortages ameliorate end of November into December from a manufacturing perspective.
China Sourcing in the Spotlight
So, what does this mean from a China Sourcing perspective? Has this forced companies to look outside of China, even in the short term? This latest round of disruption certainly serves as a reminder of the need for companies to build in ‘flex’ to their supply chains. Some key take-outs include:
1. China’s Manufacturing Base
Unlike many other manufacturing markets, there is an innate resilience within China’s manufacturing sector. The past thirty years have allowed factories to hone their skills and expertise, to the extent it is always a challenging market to compete against.
2. Plan B & Plan C
Building resilience means having a range of suppliers that can be ‘tapped into’, particularly factories that are in different countries. This helps to eliminate country risk – just as when China shut down in response to Corona back in March 2020. Look at near sourcing options and alternate markets in Asia that complement each other.
3. Plan & Build in Stock
The past 6 months have seen companies replenishing stock levels – part of the reason for the demand through 2021 as economies started opening post-Covid lockdowns. It is important that Buyers are looking to plan by potentially bringing orders forward and adding order replenishment stock. This will help mitigate the extended lead times for goods to get from Source to Shelf. A lack of stock is the worst possible outcome – do what you can to have stock to sell.
In short, having options will put you in good stead. The latest disruption for China sourcing is just one example in a long list over the past 18 months. Some US Companies that shifted production into Vietnam on the back of US tariffs on Chinese products found themselves recently unable to produce any products due to the lockdown. As Socrates pointed out, ‘You don’t know what you don’t know’ so plan accordingly.
Summary
2021 continues to provide challenges for sourcing markets. China sourcing, even with power shortages over the short term, will remain important. However, make sure you are doing what you can to build flexibility (and resilience) into your supply chain.
At ET2C, we are well-positioned to provide our clients with support across a range of different sourcing markets. We are well placed, as your Sourcing Partner, to help you during these difficult times. For more information, please contact us at contact@et2cint.com.