China Supply Chain Strategy – How to cut costs
Table of Contents
- What are the main elements of a Supply Chain for China?
- So, where are the main areas to cut costs in Your China Supply Chain Strategy?
- Why do I need to break down the parts of my China Supply Chain for cost reduction?
- Is it hard to reduce the costs of sourcing from China with my Supply Chain?
- So, how can I save money with my current China Supply Chain Strategy?
- So, how much does it cost to have an expert review my China Supply Chain Strategy?
- Over to you…
Many companies and buyers worldwide are starting to notice that the costs of sourcing products from China have risen dramatically over the last 12 months.
Many buyers should undertake a costing exercise to find out if there is still any value in China or if they need to buy from a different country.
If you are reading this blog, then you are also thinking about these same issues.
If, after reading below, you want to use TCI Chinas services to assist you with this analysis, please contact me.
What are the main elements of a Supply Chain for China?
There are five main elements in any International Supply Chain, including China. These elements are:
1. Products
2. Quality Control Inspections & Insurance
3. Duties & Taxes
4. Exchange Rates
5. Logistics & Storage
When you conduct a review of a costing review of your China Supply Chain Strategy, you need to factor in these elements.
So, where are the main areas to cut costs in Your China Supply Chain Strategy?
Now that the five main elements of your China Supply Chain have been identified, let’s explore each part:
1. Products
The costs of production are rising in China. So it is now vital to explore how you buy from China. You should ask the following questions:
- Am I purchasing through a trading company?
- Can I buy direct from the Supplier?
- Should I bring in a professional price negotiator to remove the “foreigner charge” from my product prices?
- Have I conducted a pricing comparison exercise against other suppliers?
- Are my prices ex-works, FOB, CIF?
- Can I break up these costs into different parts?
- Can I use an export licence to claim back rebates from the Chinese government?
2. Quality Control Inspections & Insurance
Quality Control Inspections and Freight Insurance always need to be factored into a supply chain. Their role is to reduce the companies’ risks when sourcing products from international suppliers.
Many companies and buyers incorrectly look at removing these costs first. Only focus on reducing these costs. Never remove them. Ways to reduce these costs include:
- Move away from the expensive Laboratory/ Inspection firms such as SGS, Intertek, TUV and Bureau Verities. Remember, these are primarily testing firms who happen to do onsite inspections, not the other way round.
- Switch to Global Third-Party Inspection firms such as Goodada Inspections. This is an inspection company that can conduct your inspections at a lower price.
- Shop around for Freight Insurance. Here is a link to an Online Freight Insurance quotation website where you can compare prices.
3. Duties & Taxes
It is crucial to ensure that the correct classification of import tax codes is used for each product. International Trade agreements, rules and regulations use these codes to determine the import duties & tax rates.
If an incorrect code is used, there is a danger that you could be paying higher import duties and taxes.
4. Exchange Rates
Many companies in China quote in US dollars. However, over the last 12 months, Chinese sellers are opening up to using other currencies such as the Euro or Great British Pound.
Having the Supplier in China quote in your domestic currency will enable you to reduce the costs and pricing differences that come with exchange rates.
5. Logistics & Storage
Everyone knows that the cost of transport has increased by 400% over the last 12 months. It will pay to have two or three quotes from different freight forwarders. You can also ask your Supplier in China to provide a CIF rate.
Why do I need to break down the parts of my China Supply Chain for cost reduction?
Many people think that the cost to source a product from China is only the price you pay to the Supplier in China. It actually is more complex than that. You need to include logistics, Import Taxes and banking fees.
Breaking your China Supply Chain down into its various elements will allow you to conduct a proper cost analysis and search for savings.
Is it hard to reduce the costs of sourcing from China with my Supply Chain?
Use the five cost elements which I have provided and treat each one as a separate unique costing exercise. You will be able to find cost savings.
Many firms hire my company TCI China to do conduct this costing exercise for them.
So, how can I save money with my current China Supply Chain Strategy?
There are many ways to save money using the five-element approach, which I outlined earlier.
The key objective is, to begin with conducting a full review of your current costs. Once you have correctly established this, you can explore ways to save money when you source from China.
So, how much does it cost to have an expert review my China Supply Chain Strategy?
The first consultation is free. I will chat with you to understand your current China Supply Chain Strategy. Once this has been completed, the scope of the work and its costs can then be determined.
TCI China charges €125 per hour.
Over to you…
If you are looking to find cost savings in your China Supply Chain Strategy, please do not hesitate to contact me. I’m here to help you explore all your options.
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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
tcichina.co.uk | think China, think TCI