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Sourcing Tactics Mike BellamyCSIC & PassageMaker
1. Housekeeping items2. Introduction to Presentation and
Speaker 3. Pre-Negotiation Knowledge
• Factory Direct vs. Middlemen• Price Benchmarking (RFQ process)
4. General Face-to-Face Negotiations Tips5. Critical Contractual Items
• Intellectual Property• Price• Quality• Payment Terms
6. Q & A
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Supply Chains Serviced
Our clients are direct suppliers to
the following retailers and corporations:
www.PSSchina.com
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Intro to the CSIC
» China Sourcer e-Magazine
» Video Tutorials
» Ask-the-Experts Service
» Buyer Blogs
» White Papers
» Endorsed Service Providers
NEW: Supplier Blacklist
CSIC is a not-for-profit organization that exists to help educate, develop, and advance the China sourcing professional. The following resources are available free of charge to the public:
Sourcing Tactics Mike BellamyCSIC & PassageMaker
How to Spot a Middleman
Assume all potential suppliers are middlemen until proven otherwise!
No “Code of Ethics” for Sourcing Agents
Spin of the US/European Middleman “leverage for your benefit” 99% of the time this is not true and is simply a slick sales message to make the buyer feel safe and keep you at arms length from the factory.
Spin of the Chinese middlemen “we own the factory”excuses, excuses, excuses to keep you away.
“How to Spot a Trading Company Check List” availble via e-mail
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Conducting a RFQ (comparing apples to apples)
In following slides we will explore:
• How to define your ideal supplier• Making First Contact• Organizing an effective RFQ
Sourcing Tactics Mike BellamyCSIC & PassageMaker
How to define your ideal supplier
The single most important factor in determining the success or failure of your sourcing program is…. Drum Roll Please…
But Apples-to-apples comparisons at a national level can be
daunting.
Therefore Phase One is “Defining the Target”.
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Phase Two “Measuring against Attributes”:
At PassageMaker a typical supplier identification research project takes 30-45 working days assuming multiple components and production methods need to be explored at a national level.
For those that wish to DIY, the process is follows:
Sourcing Tactics Mike BellamyCSIC & PassageMaker
1. Initial research can generate 50-100 potential suppliers using web directories like www.GlobalSources.com, industry/trade show directories and existing Approved Vendor Lists (AVL)
2. Narrow down to top 20 candidates based on Non-Price Attributes
Note: Haven’t asked for a price yet
3. Make “first contact”
Send an e-mail, fax or make a phone call to ask for initial product-specific information (price, minimum order size, lead time).
Thus begins the RFQ process
Sourcing Tactics Mike BellamyCSIC & PassageMaker
RFQ Goal- Apples to ApplesOften overlooked:
• Set up- tooling cost hustlers• Payment Term (30-70 vs 100% vs LC)• Quality Requirements • BOM• Shipping/Duties/Tax (Resist the
tendency to quote Door 2 Door)
Go from 20 down to 5 or less, and you are ready for negotiations.
Sourcing Tactics Mike BellamyCSIC & PassageMaker
General Negotiation Tips for the Face to Face Meeting at the factory:
• Orient yourself toward the decision maker• Have a Baijiu Back Door• Tips for using a translator (slow down, prep
terms, bring your own)• Relax
Trick: Western Speaker of Chinese
Sourcing Tactics Mike BellamyCSIC & PassageMaker
While you are at the factory…
• Factory Audit Few 100 USD if using a 3rd party specialist like www.AsiaQualityFocus.com
• Do they have a Quality Manual?
“PQM” template available at www.PSSchina.com
After you leave…Consider verification & investigation by specialist like www.CBIconsulting.com.cn
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Negotiation Tips for Protecting IP
Definition of IPR Most people think Intellectual Property Rights (IPR) = Designs and Trademarks.
But for the course of this program, expand IPR to include other sensitive buyer information such asexport value, shipping destination, customer and end user identity, volume and market value of goods shipped.
Culture Factor: Examples from a Dorm
CEO’s, Eggs
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Think IP property protection at two Phases
Phase 1) Supplier Identification Phase
• Register First (FTM vs. FTR)• Bad News & Good News (play by rules, nice price
to play) • Spread it around at component level• Avoid trading companies
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Phase 2- Production
May offend some lawyers in the audience……”NDA/NC cant’ hurt but don’t rely solely on it”
The problem with doing IP the “American Way” What happens to that 30 page NDA
Therefore:• MOU core concepts/bi-lingual/initials/
staple to PO• 3rd Party Assembly/Inspection (Black
Box)• physical vs. legal approach
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Physical rather than legal approach
• Own the tooling outright (if custom made)
• 30% Rule of Thumb• Build the relationship to be
more than a PO #• Keep an eye on things (tool
room) (warehouse room) (sample room)
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Negotiating Price
• Don’t rely on your negotiation skills
• Do rely on your research skills
Sourcing Tactics Mike BellamyCSIC & PassageMaker
QC Related Stipulations
Under signature of factory as part of the PO or Agreement:• Define the Certificates of Conformance to
Accompany Delivery (CoC)• Provide the Internal Data you desire• Explore costs of future batch testing (Ex
RoHS = $100) Who pays?• Warranty (re-work, replacement, express
air…)• Review QC Plan
“PQM” template at www.PSSchina.com
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Lesson learned: PO’s and Payments
1. “30-40-30” & Roadmap
2. Financial Exposure is really Quality Exposure
3. Traditional Risk (www.CBIconsulting.com.cn)
4. State lead times & penalties in contract
5. Tooling & set up ownership as leverage (if a custom made part) (don’t amortize)
6. The LV experience: China as legal jurisdiction of contract enforcement. Why? Location of Defendant, Enforcement of Ruling, Cost of Battle
7. Payment Terms are not Incoterms
8. Beware of ExW! Quote FOB China port during RFQ
Sourcing Tactics Mike BellamyCSIC & PassageMaker
www.ChinaSourcingInfo.org/book
Shameless Book Plug
Includes templates for PO, Supplier Contract, Factory Audits, QC guidelines, RFQ and more
$150 USD online or $100 Cash at booth at trade show while supplies last
Sourcing Tactics Mike BellamyCSIC & PassageMaker
Corporate SponsorsCSIC is a not-for-profit organization. Buyer education resources are made available to the public free-of-charge thanks to the financial donations of our corporate sponsors.
If you happen to need any support in China, know that your patronage of these reputable companies will also be helping to support the CSIC.
Sourcing Tactics Mike BellamyCSIC & PassageMaker
If take away just two things…
Spend the time to find the right partners for both manufacturing and service providers
Inspection linked to a Payment Plan
PassageMakerEmail: [email protected] Company: www.PSSchina.com
China Sourcing Information Center(A Not for Profit, Buyer Support
Network/Endorsed Service Providers)www.ChinaSourcingInfo.org
Blog: www.AnotherChinaBlog.com
LinkedIn “Mike Bellamy China”
Booth #5A36 October 20-23Booth #7L44 October 27-30