admin, Author at ET2C International

Your Go-To Guide for Supplier Risk Mitigation

Industry Insights / admin / business, Industry, risk mitigation, suppliers

Guide for Supplier Risk Mitigation

The internet has been an incredible enabler when it comes to sourcing new factories. In a few clicks, you can find a whole smorgasbord of suppliers ‘able’ to manufacture and deliver what you need. However, understanding the risks when outsourcing production and the risk mitigation strategies to address these is integral to avoiding any potential pitfalls. Asia, in particular, presents a greater challenge due to a more complex business environment that is overlaid with more marked cultural, language and regulatory differences.

With two decades of experience operating in Asia, we have honed our approach to vetting and onboarding suppliers to deliver on time and against specification. Below we have pulled together some key points to help with this end of the process.

Vetting a Supplier

Selecting the right supplier is critical. It will determine the success or failure of the production.

Risk Mitigation supplier

When selecting a supplier, you should ultimately be sure that your interests are shared, or at least aligned. Success for you needs to mean success for your supplier. There is simply no point in today’s environment with short-termism and lop-sided relationships in which the supplier is suffering on price, payment terms, short delivery times etc. There will only be one ultimate loser, and that is invariably the buyer. When first identifying the right supplier for your needs, make you address the points below:

1. Understand their business

Take an ‘under-the-hood’ approach, which means developing an understanding of the facility (how many production lines, people, seasonality, size, turnover etc.), their history, other clients (third party references if possible) and where their expertise lies.

2. Ask for their registration documents

We do this as a matter of course. Although often in a foreign language, be sure that the supplier is who they say they are and not an imposter! For example, an export agent and not the ultimate manufacturer as this may lead to additional costs and possible contractual complexities in the case of any disputes.

Risk Mitigation certification

3. Check any quality certifications

As independent verification of standards, these are useful but make sure that these are still within the validity period, they are verifiable by the governing bodies (not fakes) and are evident on any visits.

4. Visit the site and meet the management

Sounds simple, but we have seen many businesses pay suppliers without visiting the site and spending long enough with the management team. Understand their product expertise and manufacturing capability and what drives the management team (for example, is ethics important).

A lot of these can be addressed by having some kind of local presence on the ground, with staff who can speak the language and visit the factory to make sure that all is in order. We have seen factories change the signs on the side of the building as soon as the potential client leaves! Not a good omen.

factory manufacturing

Onboarding a Supplier

This is where we see a number of companies making mistakes when implementing a direct sourcing strategy. Any risk mitigation strategy has to be underpinned by law. This is complex where legal systems are less robust or less developed than in the West. Some key points to consider in this regard:

a. Legal Jurisdiction

In some Countries it is difficult to enforce a contract that has been breached. For example, it is not easy to enforce a purchase agreement against a Chinese factory governed by US law. And even when there is enforceability present, some legal systems are less than effective when it comes to claiming for any breach of contract. Make sure you take legal advice in this regard*.

b. Non-Disclosure Agreements

These are commonly used to ensure that there is protection against any company IP being shared or used. However, the best protection is to make sure that any NDA covers off Non-use, Non-disclosure and non-circumvention. These are commonly referred to as NNN agreements.

c. Communication Requirements

At the outset, be clear as to the expectations. Set up a critical path with key milestones and agree with your supplier what is expected of them as part of the management of the information flow. For example, make sure that there is a clear specification sheet that provides product details, colourways, packaging requirements etc. This eliminates the risk of timing issues or mistakes executing the product quality.

Communication Team work

Making sure that you understand the formal relationship that you are entering into and the fact that in a lot of cases it is a very alien business environment will put you in good stead. In addition, a lot of companies use commercial levers (like payment terms) to provide protection should something go wrong. Working with a company that has experience on the ground can help you manage such risks.

Summary

Over the years, we have been told and likewise heard of some production runs gone badly wrong. Being able to develop a relationship will define how easy it is to work with an overseas supplier. In Asia, relationships are of particular importance and leveraging this can help you benefit from the broad manufacturing base. Look at your suppliers as ‘Partners’, who can actually help you deliver the products you want, help drive innovation and sync with your own procurement technology rather than look simply over a short term horizon.

In the main, having some kind of local presence will only help enhance these relationships whether it be your own office, a sourcing company or some other third party presence. If you were manufacturing 30miles up the road from your head-office, you’d be visiting the facility on a regular basis. The same principle should stand true if the equivalent spend is put to work 6,000 miles away.

At ET2C, we provide our clients with the transparency needed to best manage their suppliers across Asia and help with any risk mitigation strategy. For more information on how we can help you, please contact us at contact@et2cint.com.

*None of the comments in this article should be construed as legal advice. Should you have any queries, you should seek legal advice relevant to your own individual circumstances

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Reverse Auctions. We found the right tool for your business.

Industry Insights / admin / business, procurement, reverse auctions

Reverse auctions in brief

Reverse auctions have been around since the late 1990s. They are a proven negotiation method that invites your vendors to compete to provide products or services to your business. Vendors place lower bids throughout the auction until the lowest bid wins your contract. Reverse auctions are excellent for products where price is the main differential; such as stationery, uniforms, consumables, packaging, and much more.

The obvious choice for smart buying

Recently, an exciting new online negotiation platform has been created to give procurement professionals a competitive edge when buying most goods or services. eTrade Procurement aims to keep your business’s purchasing functions simple and effective, and your negotiations easy. Through this platform your procurement process can be streamlined, saving valuable time, and your team can achieve significant cost reduction, all while having reporting and analysis directly at your fingertips. With minimal investment, this innovative reverse auction webapp makes this possible.

Online Auctions made simple, effective and accessible

Andrea Saunders came up with the idea to create a user-friendly negotiation platform to support procurement professionals in their purchasing activities. With her years of buying experience, Andrea spotted an opportunity to bring this powerful tool into a modern procurement space. By combining the accessibility and efficiency of online platforms with the commercially prudent reverse auction strategy, eTrade Procurement combines two proven methods to give your business another tool for its buying toolkit, giving you a commercial advantage.

This negotiation platform allows vendors to compete for your business in a transparent way for buyers and vendors alike. Your procurement team can effortlessly announce their specifications to any number of vendors(as an RFQ), prior to commencing an auction. The auction participants see the negotiation taking place in real-time so both buyers and vendors see that the best price is achieved, all as it happens. By using one of our reverse auctions, your business can move away from non-competitive, stale contracts, and achieve real savings – fast!.

Find the best reverse auction method for you

eTrade Procurement offers four auction methods to best meet your specific needs:
• Ranked auction: you nominate your opening price. vendors can only see their ranked position, based on their bid in relation to competitors’ bids. Vendors can place as many bids as they like
• Open auction: you set your opening price for the auction. Vendors can see their own bid, as well as their ranked position, and other participants’ bids.
• Sliding auctions: you set your opening price and, during the auction, the price will reduce in set increments, with vendors placing their optimal bid. The auction concludes when all participants have placed their one bid
• Tender auction: vendors place their single, best bid prior to your deadline date

Reverse Auctions. Why use eTrade Procurement?

Leveraging mobile technology, all this can be done anywhere, any time. Your purchasing team will require only minimal training to be able to run simple, efficient, transparent negotiations, thereby opening up new relationships, all while achieving the most competitive bottom line.

eTrade Procurement is a user friendly platform that anyone can use. Watch the video to know more.

In summary, eTrade Procurement offers:

an intuitive and user-friendly webapp
an intuitive and user-friendly webapp
easy integration into existing practice with minimal investment
a process that is totally transparent.

Try eTrade Procurement now!

eTrade Procurement in the real world has resulted in average savings of over 15%. With training and real-time support throughout you are in safe hands. Having this tool as a part of your procurement arsenal will mean your business is well-equipped to simply and effectively manage your purchasing needs in 2020 and beyond.
For an obligation-free trial, and to discover how eTrade Procurement can best fit your business contact Andrea and her team today.

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How are trade tensions changing China sourcing trends

Industry Insights / admin / business, China, sourcing

Where once the mosaic patchworks of paddy fields and sugar crops dominated the landscape of Central Java, now sit a swathe of vast garment factories which produce apparel for leading retailers and brands. Similarly, 4,970 miles to the West, across the Indian ocean, rising out of the flat and baron plains of Ethiopia are large industrial parks (Special Economic Zones) likewise pumping out thousands of garments for international companies. These emerging industries are gaining ground on China, so long the factory of the world, and taking market share.

Of course, there has been the natural progression of China’s manufacturing sector up the value chain. This has allowed wage and margin growth but has increasingly forced the lower value add end of the manufacturing spectrum (particularly soft goods, and ‘cut & sew’) to look beyond China’s sprawling boundaries. However, there have been some sourcing trends in 2019 that have further exacerbated this movement out of China. In this context, what are the current China sourcing trends and how will China fit into any sourcing strategy going into 2020?

Sourcing Trends in 2019

‘Uncertainty’ and ‘Consumerism’ are broadly the two main drivers of these trends. However, with more choice of where products can be manufactured, there has been a trend to ‘de-risk China’. In essence, not put ‘all your eggs in one basket’ and with the Chinese economy slowing down it makes sense where possible to have alternate locations to manufacture your products (albeit this may bring additional challenges in some cases).

Uncertainty

Clearly, the highlight of this past year has been the US/China trade war. The unpredictability of the discussions and the imposition of punitive tariffs has led to US companies scrambling for alternate supplier-hubs. China is out as far as Trump is concerned in his high stakes game of poker with his Chinese counterpart. Undoubtedly, there have been Chinese moves on currency and slack on price with incumbent Chinese suppliers to mitigate the impact. But other markets around South East Asia have certainly been willing beneficiaries of American dollars. Conversely, should a deal be done later on this year as is anticipated (in some guise), expect this trend to at least slow down rather than stop altogether.

There has also been uncertainty in most retail markets as the threat of recession has led Buyers to lower volumes but work through quicker reordering cycles. This has been further compounded in the UK with the quagmire of ‘Brexit’.

Consumerism

We have previously discussed at length the impact that the new generation of consumers is already having on incumbent supply chains. One of the main consequences has been the need for more agile and flexible production. Therefore, having an ability to manufacture products closer to your local market (“Near Sourcing”) has been one solution to address this need, particularly when complemented with larger volumes from Asia.

Customisation and personalisation have been sourcing trends in 2019 that continue to enhance the level of engagement with customers. Whether it be a mix of colours, some embroidery or a label, the capability to in some way personalise the product to an individual or business provides a unique proposition. Suppliers are therefore needing to invest in technology and stock planning to make this a possibility.

Lastly, and one trend that has been increasingly prevalent this past year, is the need for sustainability. There’s a growing movement of Brands across the retail spectrum looking for sustainable stories around their suppliers, products and packaging. There may be varying degrees of engagement with this piece depending on the ultimate consumer and their needs. But there is little doubt that it is changing the sourcing landscape for the better with the imposition of high ethical standards on many factory sites and also driving innovation through the products and packaging to meet company and consumer expectations.

Where Does China Fit in Then?

Yes, the outsource manufacturing sector is in a state of flux. China has certainly lost its almost complete dominance in manufacturing that it wielded some 15 years ago. Wage inflation and currency appreciation have reduced its competitive edge. But taking a step back and looking at the facts paints a slightly different picture.

Clothing and footwear

To take clothing and footwear – the industries most impacted by domestic cost increases – over the past five years, China has only lost 6.6% of the relative share of global exports. The main beneficiary has been Vietnam at 5.1% growth, followed by Bangladesh at 0.9% growth. China still makes 57.5% of global shoe production and the US makes over 80% of its shoes (even with the tariffs already in place) in China’s factories. There is a trend away from China. However, capacity and scale cannot be ignored or replicated that easily.

Furniture and household

Away from soft goods, another example is furniture and household fixtures. In fact in these sectors, China has gained 1.6% relative market share of global exports over the past 5 years. It still sits in a strong position even when you include alternate markets that can compete but perhaps do not have the capacity currently to take a significant share of exports. In addition, manufacturing wage gains in the lower-cost countries (albeit from a lower base). One just has to look at some of the protests in countries like Cambodia and Bangladesh around minimum wage demands.

Automation

Lastly, China is automating its manufacturing base and the rest of Asia is slow to follow. That does not mean there are not some excellent new factories being across South East Asia that have state of the art machines in situ and are well placed to address ethical standards. The difference with China the Government drives in part this investment in the lead up to ‘Made in China 2025’.

As a global producer, China will maintain its relevance for the foreseeable future.

China Sourcing Trends – Our Key Takeaways

There is no doubt that the sourcing trends in 2019 have eroded China’s dominance as the factory of the world. But, China’s current size and breadth of capability still present a significant advantage of some of its smaller neighbours. Some of the key points are:

A China + 1 sourcing strategy (invariably Vietnam) is still a compelling sourcing strategy
Other market opportunities will be dependent on product category, company and sales market
Look for China to ramp up investment in smart manufacturing
Partner with suppliers over the medium term to allow them to invest in delivering value
Flexibility & Agility will be key to identifying opportunities in new markets
US/China tariffs to likely drop off by end of the year

At ET2C, we look to partner with our clients to deliver sourcing solutions that work for them. With offices across Asia, we are well placed to help you identify the right suppliers and deliver value through to your bottom line. For more enquiries, please contact us on contact@et2cint.com.

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We Are Garden: Vietnam Sourcing Insights

Industry Insights / admin / Furniture, sourcing, Vietnam

Garden Products: Key Sectors and Strengths

ET2C’s Vietnam Sourcing Team has already identified opportunities within the Garden & Outdoor sector exclusively from Vietnam due to raw material availability as well as manufacturing capability already in situ. Combined with other political, social and economic factors, Vietnam presents an opportunity on the global stage.
Vietnam continues to attract business from US buyers due to the current tariffs imposed on Chinese products, which will mean costs rising by anything up to 25% later on this year (should the US and China not come to an agreement). In addition, many Vietnamese suppliers are investing in additional R&D to ensure they have a competitive edge by presenting new designs according to market requirements.

As your Asian sourcing expert, we highlighted some key sectors within this broad category including, Pottery, netting, garden tools, garden gloves, plant supports, arches and obelisks, hanging baskets, coco-liners and furniture. To build on our ‘We Are Garden’ initiative, we recently spent some time with a couple of suppliers. They provided some greater insight into their background, the industry and the opportunities presented. The first one to be featured is a furniture and decking manufacturer predominately for the US and EU markets.

Furniture Supplier

Forty-five minutes outside of Ho Chi Minh city, we turned off the main road into a vast industrial park. Unlike most industrial parks, we found ourselves pulling up beside a wooden house set within a lush garden, where we were greeted by the company Chairman (“Mr T”). This was of course a showroom and an oasis set aside the impressively well-managed manufacturing facility. Mr T has over 20 years’ experience in dealing with wooden furniture exports from Vietnam. During the years, he has seen the evolution of manufacturing capability first-hand. His factory is both FSC™ and BSCI certified and is set up to deliver against international expectations from an Asian sourcing perspective.

Interview

1. Which countries within the Asian Region do you see as your main competitors?

I see Indonesia and Malaysia as my main threats given the type of products that they manufacture, service level, and quality they can produce.

2. What does ‘Sustainability’ mean to your business?

Sustainability and eco-friendly was important for our brand from the very beginning. As a result, we have a strict process when it comes to selecting the source of raw material. Whether our wood comes from the US, EU, Malaysia, Paraguay, Brasil or even locally, it all must be FSC™ certified. We also comply with the protocol of using only non-formaldehyde compounds to ensure our products are as sustainable and eco-friendly as possible.

3. How do you continue to develop your export market and client base?

We have experience in dealing with large international clients. Therefore, we understand that executing against specifications, delivery dates and price are key-components in developing and retaining our client base. For instance, we put an emphasis on developing ‘partnerships’ that help us innovate and align with the client. In this way, we are always able to find the best possible options for our clients.

4. What are your biggest challenges as a business?

From an external perspective, with a number of companies recently moving out of China, we are having to often compete with pricing that has been developed over a long period of time with their previous suppliers and based on historical volumes. Of course, we understand that price is important. However, we also want to work with clients that recognize what we bring to the table which is broader than just price and recognize the quality we produce.
Internally, our biggest challenge is wage inflation and staff retention. Wage inflation is increasing at 3-5% per year. Our employees are central to our business and lead to our long-term success. Therefore, we have created a development program to help our staff grow and develop alongside our business.

5. What is the future for the Vietnam manufacturing base in your product category?

The furniture industry in Vietnam continues to develop and evolve with increased competition across Asia. There needs to be a shift to a greater use of technology and machinery to enhance efficiencies and maintain prices rather than solely rely on manual labour.
There is Government investment in infrastructure and manufacturing. Combine this with the experience of making furniture over many years in Vietnam, we are well-positioned to continue to grow this category of exports in the future. As a business, we are looking to reach new markets with different requirements who focus on quality, design, and sustainability.

Summary

There are approximately 1,500 furniture exporters in Vietnam with 30% of these being a result of foreign direct investment (FDI). Certainly, one key advantage of this category is the flexibility that has been demonstrated with a pivot from the more traditional outdoor furniture lines to an increasing industry for indoor furniture (as with Mr T’s factory).
As a Vietnam Sourcing Company, on the ground for over 10 years, we have identified the Garden Product and Outdoor sector as a growth manufacturing sector in Vietnam. Where necessary, we have developed manufacturing capability at factory level to produce high-quality products at competitive prices. There is now a unique opportunity to source a breadth of products all out of Vietnam.

For more information, please contact us at vietnam@et2cint.com. We will help your business positively bloom!

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The Forest Stewardship Council™: A Step in the Right Direction

Company News / admin / FSC, sourcing, Sustainability

The Path towards a Sustainable Future

For most organisations, sustainability is a progressive evolution towards a more sustainable future. This can be focused on a range of different goals like eradicating hunger, clean water, gender equality or aspects of the environment. Any initiative around sustainability should centre on the organisation and what is pertinent to the stakeholders’ values and beliefs. This enables a better commitment and engagement to whichever cause or initiative is being undertaken. Importantly, be selective and understand the implications around each initiative; what they mean to your organisation, product and customer.

Little Steps

There is no point as a sourcing company, to move to chrome free leather production without assessing and understanding other dying processes and the environmental impact that these may have. Likewise moving from a synthetic material to a 100% cotton, although sounds a more sustainable option from a production perspective, discounts the environmental impact the production of cotton actually has (20,000 litres is the amount of water to produce one kilo of cotton).

Also, plastic is an amazingly adaptable, cost-effective and useful material. Therefore, removing it all together may not necessarily work but understanding its end-use may have a profound impact on the environment. For example, leading to reuse through recycling or other processes. The point is that there is no one answer. Any step, however little, towards a more sustainable future is a step worth taking.

FSC™ Certified Companies

Sustainability is a key pillar in the ET2C Ecosystem, and one of our sustainability goals for 2019 was to attain FSC certification. As a sourcing agent that manufactures and sells wooden products, we felt it important to support the FSC’s work on sustainable forest management. We achieved this certification on the 30th August 2019.

The global media coverage of the deforestation of the Amazon this past Summer has served as a reminder of the environmental harm being caused by unsustainable farming practices (mainly for rearing cattle). This Summer alone there were 26,000 reported incidents of fires. Certainly, this forms only a small part of the continual yearly reduction of the Amazon. Clearly, greater protections need to be implemented at an international level to protect already fragile ecosystems.

How Forest Stewardship Council is growing

It was actually at the 1992 Earth Summit in Rio De Janeiro that the concept of the Forest Stewardship Council was born. On the back of a failure to produce any agreement on deforestation, a group of businesses, environmentalists and community leads developed the idea and now the FSC has just celebrated 25 years! Today, the organisation has grown significantly, and through a set of principles and standards that ensure both sustainable forestry management and ensure the chain of custody of products using wood from these forests, steps are being taken to protect the environment. The FSC now has:

200,233,958 Certified Hectares
39,664 CoC Certificates
1,655 FM/CoC Certificates
1,127 International Members across 90 Countries

The Amazon rainforest is approximately 550 million hectares on its own and largely sits within Brazil’s borders. However, in the 9 months to April 2019, 217,000 hectares were lost, a 20% increase on the prior 9 months. The international community needs to address more directly the drivers for this deforestation. Moreover, they should potentially take measures in their own markets to lessen the attractiveness of beef as a commodity.

FSC and The Consumer

The Millennial and the Gen Z consumer are looking at sustainability when it comes to Brands and what products they are looking to purchase. The FSC™ label has long formed a part of the product proposition both on packaging and the product itself. Importantly, the FSC is now looking at innovations to further enhance this proposition to the end consumer with Blockchain. Blockchain can track any movement of goods with value between different trading parties. This means that it can efficiently pass along claims in a verifiable and trusted way. Certainly, this will further provide reassurance as to the provenance of the raw material used for any given product.

Summary

Certainly, the FSC Certification is one step forward for ET2C as we continue along our journey towards a sustainable future. Therefore, we are constantly looking at ways to improve our sustainable footprint and will continue to do so. For any queries on FSC certification or anything related to Sustainability, please contact us at sustainability@et2cint.com.

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“Upstream”: The Key to any Modern Product Development Company

Industry Insights / admin / design, product development, sourcing

Market Overview

In the past, Asian factories have been over-reliant on their customers for design and development. There was always a greater onus on transactional outsource manufacturing rather than design and innovation. As the sector has evolved, particularly in China, design, and innovation have come to the forefront. This is the culmination of a natural progression of suppliers’ own internal capabilities on the back of investment in R&D and other factors such as competition and external drivers (for example, the recent US Trade War) that have ushered this transformation further forward.

A good illustration, at one end of the product spectrum, of how prominent innovation is now within the Chinese manufacturing base is that “Ninety percent of the world’s headphones are produced in China, 90% of China’s headphones are produced in Guangdong, and 90% of Guangdong’s headphones are made in Dongguan” as stated by SIVGA co-founder and product chief Zhou Jian (Bloomberg).

The likes of Amazon and other e-commerce platforms are actually taking this one step further. They are now working and collaborating with manufacturers on pricing strategy, ranging, logistics, warehousing, and delivery in foreign markets. Ultimately, they are affecting the cannibalization of manufacturing capacity whilst also potentially competing in the same markets as their clients. Certainly, something to keep in mind when identifying new suppliers.

The key to any product development company

The key therefore for any product development company is to leverage this expertise and innovation and develop an ‘upstream’ design/development capability. This means investing time and resources to work side by side with your partners in their sample rooms or developing mold. Where companies have Sourcing Offices then it is ensuring a local design/innovation capability to work closely with the manufacturers. Alternatively, and this is happening with some large brands, having the design teams spend months on-site at the factories.

To build on this, we have pulled together some tips so you can shorten your development cycle, access R&D, and take advantage of the many other resources available to you.

Tip #1: Save Time

Companies are always looking to shorten lead times and it is often the development cycle that is the longest and least efficient part of the entire critical path from concept through to delivery. Here are a few ways that as a product development company you can do just that by being on-site with your supplier:

Be present: Collaborate in real-time and in-person
Remove Waste: Samples made, adjusted and approved on-site
Innovation: Identify potential options, tests, and feedback immediately
Sustainability: Remove carbon footprint and waste

time saving

Tip #2: Use Tech

There will, of course, be times when designers and engineers are not able to be at the factory. It is important too, therefore, to think through the application of technology to minimize cost and increase efficiency. Here are just some of the ways you can cut time and money.

Additive/3D Printing: 3D printing used for sampling, functional testing and mold confirmation pre-investment
Photography/Imaging: Use photography, scanning, and imaging as much as possible to avoid multiple iterations being shipped. Rely on the final sample for sign off.
Software: Use of specialist software to make the development cycle more efficient. For example, design software that shows final garments on models prior to development, which aids the design process.

3d printing

Tip #3: Pick the Right Partners

Whatever your sourcing strategy, as a product development company, picking the right partner is integral to being able to develop your products. If you are working with a manufacturer direct, then being able to collaborate with them closely and is a necessity. Alternatively, choosing the correct sourcing partner can make all the difference where there is a need to work upstream on development and you do not have sufficient resources to do so yourself.

Understanding: Your partner needs to know what your needs are and how to address them.
Capability: Your partner needs to have the upstream design/development capability.
Language/Cultural Barriers: It is essential that the communication channels are effective and there are no unnecessary misunderstandings that may lead to delays and additional costs.
Trust: In addition to standard contracts etc, you need to be sure that your partner is accountable and trustworthy. You do not want them competing with you in your market with similar designs (remember the ‘Amazon effect’!).

teamwork team

Summary

The world has become smaller whether through the availability of travel or technology. It is important that as a product development company you are leveraging what is possible in today’s age. This should drive down costs, increase efficiency and the ability to enhance the design/development process.
At ET2C, we have in-house capability across a range of products whilst also working with design partners in certain instances. For all inquiries, please contact us at contact@et2cint.com.

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Quality Assurance at ET2C: Elaborate, Efficient, and Excellent

Company News / admin / quality assurance, Quality Control, sourcing

Quality Assurance is one of the biggest concerns that companies have when sourcing from Asia. Why? Over the years, a myriad of problems has occurred to entrepreneurs lacking effective communication skills when dealing with suppliers in Asian countries. Quality issues can cause the loss of hundreds of thousands of dollars or more.
These cases are not uncommon; the amount of inspection failures each year in Asia have been volatile the last few years, but still reaches high percentages.

However, there is a way to avoid becoming part of these statistics. Any company should look to ‘check before they buy’ their products. Having an upstream capability to do this in Asia is imperative to removing the additional costs once the goods arrive. Identifying issues at the factory means that they can be addressed, or worst case, they can be rejected.

Quality Assurance is an essential process in any industry hoping to ensure the well-being of their consumers.

Quality Assurance – step by step.

ET2C quality assurance processes are divided up into five different steps. Each step is an essential part of the quality control process to ensure the consistency and integrity of the product throughout all steps of production.

Raw Material Receipt

Here the raw materials of the product are laid out for our quality control agents to inspect. This ensures that from the very beginning, our suppliers are using ingredients that are conducive to your company’s specifications. This avoids many problems later in production. This step ensures that the products can handle the stresses of production, transport, or use.

Early Production Checking

After the raw materials are approved and begin the manufacturing process, they are checked once more in the early stages of production. This ensures that the right steps are being made so that any errors in production can be caught before the product continues into production, saving money and materials down the line.

In-Line Inspections

As the product moves towards the middle parts of production, it is inspected again on the production line. This is to continue to ensure the quality of the product at all stages of production. With these measures in place, it is easier and to pinpoint exactly where errors are being made.

Final Inspections

These inspections take place at the end of production and before shipment. This catches any errors in the product before they reach the customer, which make it one of the most important steps of the quality control process.

Quality Control Review, Authorization, and Release

The final step of quality control consists of condensing the information from all the inspections and the raw material receipt. First by reviewing the quality of the quality control processes, then authorizing that the information within the report is correct, and sending that information to our partners at the end. This step is extremely vital to the process. In this way, our associates can see into the course of their products’ production and are sure that their order will meet their specifications.

This can change based on a risk assessment and based on the level of engagement with the relevant factory. In fact, our aim is to implement processes that ultimately the factory can follow to facilitate a continual improvement methodology. The more eyes and processes that can be developed to eliminate defects can only be a positive development.

Quality Assurance – Our Operations Abroad

One component of quality assurance that most outsiders might not consider is how quality control is conducted in different countries. Undoubtedly, ET2C has an immersive supplier network. Because of this, we realize how to interact and ensure quality in multiple different areas of the world. Some of our biggest operating areas such as China, Vietnam, and India, vary in how quality control is viewed by suppliers.

China – trustworthy relationships and effective communication

To start with China, there are a few things for sourcing companies to keep in mind while conducting business in the middle kingdom. First, dealing with bureaucracy is a huge part of doing business in China. Because of the complex nature of government intervention in business, any manufacturing contract should be in Chinese with the specifications of the product clearly and specifically laid out and the producer company’s seal on it. This is to avoid potential legal headaches down the road. In addition, face to face conversations are absolutely crucial to producing in China. To know and to form a relationship with the supplier is a good way to ensure quality as well as effective communication of your specific production conditions.

India – the importance of independent quality assurance

ET2C’s expansive supplier network have developed the need for a comprehensive and transparent quality control process.
Next, production in India also has certain aspects that also require special attention. Like China, India has policies on quality control. Their Quality Council of India was formed to give India an edge for quality and allows for a government presence in ensuring QC. However, it is still important for a company to conduct independent quality assurance as well, since this bureaucratic arm is often stretched too thin to capture many details about the production process. This requires consistent quality management on the part of the customer, which can be done through a supply chain company like ET2C.

Vietnam – find reliable manufacturers

Vietnam, as a rising economy, is displaying many of its own unique aspects of quality control. As one of the newer developing economies, the lower cost of labor raises concerns over quality and reduced reliability. This is why it is essential to make sure that you are pairing with a reliable manufacturer. However, Vietnam has also shown itself to have a comparative advantage in producing garments, furniture and shoes. This has encouraged the government to look into methods of bureaucratic quality assurance to help encourage foreign business relationships.

Do you want to know more about quality assurance? If you have any questions or need assistance, please contact us via our website www.et2c.com

Quality Assurance at ET2C: Elaborate, Efficient, and Excellent Read More »

Trump & Tariffs: the Impact on Sourcing Service

Industry Insights / admin / sourcing, Tariffs, Trade War

Trumps & Tariffs: the Impact on Sourcing Service

Uncertainty is never a good thing for business. Global Trade is in a state of flux; the US tariffs on China are the most prominent driver. US companies are looking to get to grips with the complexities of shifting their supply base at short notice (if any at all) and what the resultant impact will be on both their business and their consumer.
As an Asian sourcing expert, we have been looking at some of the main issues of this trade war, the impact that they are already having and possible ways forward.

Overview

As of 1st September, President Trump levied an additional round of tariffs on the remaining $300 billion dollars of imports from China in addition to the 15% tariffs already levied on $250 billion of imports. The new tariffs come into effect from 1st September through 15th December (with 5% more on prior tariffs on 15th October). In contrast to the earlier rounds of tariff escalation, this round of tariffs largely impacts consumer products and, as a result, is expected to be more visible on the US Consumer.
Companies are being forced to make difficult decisions about the $ value that consumers are willing to pay for a product and how much of this effective tax the supply chain can absorb. However, it is not just the % increase that is impacting companies’ bottom lines but also the arbitrary and volatile nature of the timing of the tariffs. It is the uncertainty that is causing paralysis in the decision-making process as to any China sourcing strategy through the end of 2020.

Current Consequences

In short, the cost of purchasing products from China has gone up for US companies. American consumerism has long surfed the wave of Chinese outsource manufacturing, and now that reef is crumbling.
Aside from cost uplifts, as expected, companies are looking at their current sourcing strategies and looking for alternative countries that can supply the products. Vietnam sourcing strategies have certainly been a prominent consequence over the past 18 months. In some instances, companies are even leveraging loopholes in trade law with reports that Cambodia is being used to channel Chinese exports through to mitigate the tariffs.

There is no doubt that alternate markets will help reduce tariffs (for now, Trump has already suggested other markets are in his ‘cross hairs’). But this shift does little to address some of the complexities of the incumbent Supply Chains already in place for years. Other factors like raw material availability, labour efficiencies, lead times, logistics, price points and capacity all need to be looked at to understand the net result. There is also no benefit in breaking up a relationship developed over years when there is no guarantee that the tariffs will be a permanent fixture in the medium term.

Uncertainty strikes again.

A good example of some of this complexity can be illustrated through the Shoe Manufacturing industry. With limited price elasticity, the industry has been subject to the latest round of 1st September tariffs and is facing the additional tranche 4 tariffs later this year. As all you ‘shoe dogs’ out there will know, the industry has been centered around China for a considerable period of time (with Taiwan) and although Vietnam continues to take market share from China, China is still a dominant player.

To put this in perspective, according to recent statements made by the Footwear Distributors and Retailers of America (“FDRA”), 57.5% of the world’s production of shoes is still made in China. To look at this another way, the combined shoe manufacturing capacity outside of China makes up less than 75% of China’s total capacity. Although the US is only one market, therein lies the problem with the current global manufacturing picture. There is no immediate fix to these tariffs.

It is also true that these alternate markets may not necessarily be as cost effective. Again, looking at the shoe industry, the FDRA has calculated that the average landed cost of footwear from all manufacturing jurisdictions in 2018 was $10.79. From China, the average cost was $8.26 and by comparison Vietnam (with an 18% market share) was $13.40. These may only be averages and may therefore ignore variances in qualities, styles and volumes but the point is well made. It is not necessarily the case you will get net product cost savings, even with tariffs being imposed.

A Way Forward

Even with this uncertainty and disruption, US companies should be looking to create increased flexibility within their supply chains to account for multiple potential outcomes. The ultimate aim is to have multiple sites in different jurisdictions that have been onboarded and can be ‘turned-on’ as required. In certain sectors this will be hard, and perhaps even impossible.

Recommendations:

Our sourcing service team are already working with our US clients to mitigate the current disruption whilst also identifying opportunities to limit the cost increases where possible. Some of our recommendations include:

Cost reductions due to RMB Devaluation and sharing tariff uplifts where possible, remembering that there is another side to this coin should tariffs be removed or there is appreciation in RMB value vs the Dollar;
Identify alternative markets and look to onboard substitute suppliers;
Continue the dialogue with China suppliers with possible re-engineering an option for product cost reductions;
Increase orders/stock draw down to ship in pre-tariffs (Oct 15th and December 15th at time of writing);
Work with a partner who has reached across the region and can enhance the resource applied;
Increase price points in advance of tariffs to counter any margin erosion on the buy-side.

Summary

One thing is for certain and that is that the Trade War is not in the economic interests of either country or the respective consumers. In both economies, there are signs that the Trade War is having an impact on the GDP and growth targets.
The next 3-6 months and the lead up to the Presidential Election in the US are going to determine whether companies are willing to “gamble” on disrupting their existing well-established relationships in China and commit to alternate locations. There are rumours that a ‘deal’ is in the works with a simplified agreement to be in place by the year-end giving both economies a bounce.
At ET2C, as a product sourcing service provider, we are constantly looking to provide tangible solutions to our clients and are already helping our US clients with their sourcing strategies during this period of disruption. Please contact us for more information on how we can help you.

Trump & Tariffs: the Impact on Sourcing Service Read More »

Top 5 Tips for Choosing a Product Sourcing Company

Industry Insights / admin / Product Sourcing Company, Quality Control, sourcing

Top 5 Tips for Choosing a Product Sourcing Company

The abundance of outsourced manufacturers (particularly in Asia) has allowed retailers and brands to manufacture own brand products whilst also reducing barriers to entry for new start-ups. How these factories are managed is an important part of the success of these companies. There are numerous ways to engage with suppliers and these will need address in-house expertise, location, language, culture, manufacturing capability to name a few.

One option is partnering with a product sourcing company which has a presence on the ground in the local market, product knowledge and can add value when it comes to managing the supplier from development through to shipment. In this article, we will be providing you with top tips for choosing a product sourcing company you can depend on based on a few critical factors.

Tip #1: Make Sure They Know Your Industry

The sourcing company you choose should have a vast array of knowledge in various categories. If they do not understand your product line, the manufacturing process or quality standards then critical steps could be missed. One of the largest benefits of using a sourcing company is the ability to leverage resource (as opposed to relying on one in-house product developer as an example) and expertise.

Always ask and check their site for case studies and know-how about your product. At ET2C, for example, we have over 2,000 supplier contacts across a broad manufacturing sector.

Tip #2: Trust and Credibility

Always make sure the product sourcing company you choose can pass an in-depth background check. Research their previous clients, social media including LinkedIn as well as each employee carefully. As an overseas supplier, integrity and trust are essential and you should be able to get client references to further consolidate your due diligence process.

Check out the following thoroughly:

Years in the industry
Proven track record
Quality Assurance Process
Financial assessment
Excellent reviews from a variety of clients
Organisational structure and the ‘Team’
Certifications and accreditations that the company has been awarded

Bonus Tip: Particularly in Asia, integrity is essential and make sure you understand the management structure and their key clients as part of your reference check. Look for examples of long client relationships.

Tip #3: Location

One of the most crucial aspects of choosing a product sourcing company is taking advantage of its reach across the manufacturing base. It is important that they have offices and staff that are well placed to service these suppliers and work closely with them. This is particularly relevant for quality control and assurance as if they are located far away from your suppliers this could lead to higher costs due to transport, time etc. It pays to therefore familiarize yourself with where your products are sourced and how close that is to your sourcing partners.

Tip #4: Ethical Considerations

Increasingly, the consumer is becoming more ethically aware and this means that your sourcing partner should have an understanding of what this means on a quality and manufacturing level. It is a complex topic and leveraging some expertise, whether it is around innovative materials or processes to the rights of factory workers, is invaluable.

Tip #5: Quality Control

Making sure your sourcing company successfully oversees every step of the quality process is critical. The main areas that require quality assurance are:

Factory Evaluation – this refers to checking in on every aspect of the factory process, from manufacturing and technical audits. This will give you peace of mind as well as transparency with your overseas partners
Product and Sampling – a third party should be overseeing your samples and product standards to save on cost, make sure there is no damage to the samples, as well as evaluating shipping and other technical criteria
Process Inspection – having someone check in regularly during the production process is also critical. Every factory should have consistent updates to ensure quality and safety
Final Quality Inspection – a final check on the production quality to make sure that any issues are identified upstream and can be addressed before shipment.

Summary

Having a successful partnership with a product sourcing company should not hard. Make sure any company you select has a good track record and years of experience. It is essential to your business that you get the products you need at the right price, quality and on time. Leveraging the experience and expertise of a product sourcing company is one good way of making this happen.

Top 5 Tips for Choosing a Product Sourcing Company Read More »

Vetting a Supplier

1. Understand their business

2. Ask for their registration documents

3. Check any quality certifications

4. Visit the site and meet the management

Onboarding a Supplier

a. Legal Jurisdiction

b. Non-Disclosure Agreements

c. Communication Requirements

Summary

Question #1: How established is your sourcing partner?

Question #2: What are the company’s ethical standards?

Question #3: Who are the People?

Find the Best Asia Sourcing Company.

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Vietnam – find reliable manufacturers

Trumps & Tariffs: the Impact on Sourcing Service

Overview

Current Consequences

Uncertainty strikes again.

A Way Forward

Recommendations:

Summary

Top 5 Tips for Choosing a Product Sourcing Company

Tip #1: Make Sure They Know Your Industry

Tip #2: Trust and Credibility

Tip #3: Location

Tip #4: Ethical Considerations

Tip #5: Quality Control

Summary

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