Improve my China Supply Chain – Many folks contact us at TCI seeking advice and guidance on how to improve their China Supply Chain in terms of efficiency and cost.
Now, I am not going to give away any secrets over a blog freely, but I have always been advising clients to use the PIDEL model to monitor and maintain their supply chain in China.
So, let’s look at each of these important steps. For any readers who have not visited any of TCI China’s previous blogs, our recommended method for Supply Chain Monitoring is called PIDEL. PIDEL is an acronym for the key stages in a Supply Chain which are:
- Product
- Inspection & Insurance
- Duties & Taxes
- Exchange Rates
- Logistics
While the information below will be of use to many. Some might find that it does not quite answer their individual questions. That’s where TCI Consulting services come in. We need to earn our wages after all!. So, if you require an expert review of your supply chain or need consulting in any area of your supply chain in China or any other country, don’t hesitate to contact me. I am happy to try and explore what your issues are and plan out a path to overcome these issues.
So, how can products improve my China Supply Chain?
Global trade is about products. The objective is to source a quality product and then sell it to a buyer at an acceptable price. So how do we ensure that we continuously receive a quality product? Three key areas that should be covered:
- Correct Supplier Selection
- All parties sign a detailed bi-lingual Purchase Contact
- Have more than one Supplier
So, you must fully know your product in terms of specifications, packing, certifications and standards.
Once this has been done, you need to search for capable suppliers with a proven track record of producing products that meet your requirements.
You should then document all aspects of your requirements, including timelines and other areas, and have the Supplier sign it before any order is placed with them. It is a measure that ensures there are no communication gaps in your requirements and expectations.
And finally, you need to have more than one Supplier to maintain market knowledge on pricing. It will also build in contingencies in the event of a dispute or disruption with a chosen supplier.
Why do I need Inspections in my China Supply Chain?
We abide by a policy at TCI China: “It is always better to find a fault on the Suppliers floor rather than at your door”. It is vital for any China Supply Chain that this policy is followed.
Inspections are vital to ensure that the products are sent to you meet your requirements in terms of:
- Quantities
- Product Specifications
- Packing
- Labelling
- Certifications & Standards
Inspections conducted at the Supplier’s location ensure that you can avoid the cost of failure if you are sent products with defective products. These costs can be:
- Transport Costs
- Brand Damage Costs
- Employee Time Costs
- Lost Sales Costs
It is therefore vital to have quality inspections conducted for every order. Third-Party Inspection firms such as Goodada Inspections provide a broad range of inspection and audit services in China and many other countries.
So, What Type of Insurance do I need for my China Supply Chain?
A China Supply Chain is made up of many parts, and many of them are always moving. While many types of insurance cover many risks, you should focus on trying to have insurance in place when ownership of the goods transfers across to your business from the Supplier.
For many, this occurs during the transportation phase. Many firms’ standard insurance cover may not protect them during the initial transportation of the goods from the Supplier to their warehouse.
So all China traders must bring Cargo Insurance into their China Supply Chain. It helps a firm to reduce potential losses on goods getting lost or damaged during the transportation phase. Goodada provides firms with access to online Cargo insurance providers. Here they can get online quotes for their insurance.
How do Duties & Taxes affect my China Supply Chain?
Import Duties and Taxes are an instrument governments and authorities use to influence what countries their citizens can trade with on a global scale.
Most businesses cannot bypass the brunt of tariff fluctuations due to the economic conflict between trading blocs. An excellent example of this is bedroom furniture. The USA wanted to develop more trade links with Vietnam and, simultaneously, signal to China that it could influence China’s exports. The USA imposed high trade tariffs on bedroom furniture from China yet at the same time dramatically reduced tariffs on bedroom furniture sourced from Vietnam. This action changed trade almost overnight for these countries.
So, today, firms need to be extra cautious while sourcing materials from China. It is recommended that import duty and tax research be carried out before any orders are placed.
On a side note, reviewing all HS codes used for products sourced from China is always a helpful exercise. Perhaps a changed HS code might lead to a reduction in import duties and taxes.
So, how can exchange rates affect my China Supply China?
China uses the US dollar for international trade. The vast majority of all companies in China will use US$ for their global sales. With perhaps the possible exception of the Euro, many traders who source from China will have to transfer their currency into US$ before being able to send payments over to China.
So, firms need to have a dollar rate agreed with their suppliers and have this rate fixed in their contracts.
Some other tips to reduce costs in the China Supply China include:
- Have a dollar account with your bank.
- When your local currency is strong, buy US$ dollars, it will save you money.
- Use Global Payments firms, such as Goodada Payments, instead of banks for international payments. Banks charge high fees and offer poor exchange rates.
- After a period of trading, try and persuade the China supplier to deal in your currency.
Why Logistics are important in a Supply Chain?
Getting the products out of China and to their final destination is critical in any China Supply Chain. When looking for a logistics provider, they must offer:
- Good transport times to the end destination.
- Be dependable with their shipping commitments.
- Be able to provide several types of transport solutions.
- Offer Competitive transport rates.
- Provide excellent communications and coordination services.
It is essential to know incoterms. They are used for international pricing and freight. These terms are widespread in international business. Examples include EXW (Ex Works), FOB (Free on Board and (Cost, Insurance and Freight). There is an excellent explainer video available on this topic. You can access this 5-minute video here.
Always remember that when determining the value of an item for import taxes and duties calculations, you need to include not only the cost of the product but also the shipping costs and other associated costs with transporting the goods to the country of import.
So, over to you
China Supply Chains can often become complicated for firms to navigate through. For companies to succeed in China, a complete understanding of the supply chain’s key elements will enable them to maintain control, increase value and improve their China Supply China.
Therefore, hiring outside specialists in this area, such as TCI China. Our China Supply Chain Consulting services assist clients to improve their China Supply Chain to our clients. If you would like to have a complimentary 15-minute call with me to discuss your China Supply Issues, please do not hesitate to contact me.
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Or at the following numbers:
(Europe/ Rest of the World) +353 1 885 3919
(UK) +44.020.3287.2990
(North America) +1.518.290.6604
Or email me, Aidan Conaty
Aidan Conaty