housekeeping items introduction to presentation and speaker pre-negotiation knowledge

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


Supply Chains Serviced

Our clients are direct suppliers to

the following retailers and corporations:

www.PSSchina.com


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:


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


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


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”.


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:


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


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.


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


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


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


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


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


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)


Negotiating Price

• Don’t rely on your negotiation skills

• Do rely on your research skills


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


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

http://www.cbiconsulting.com.cn/


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

http://www.chinasourcinginfo.org/book




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.


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

mailto:[email protected]

http://www.psschina.com/

http://www.chinasourcinginfo.org/

housekeeping items introduction to presentation and speaker pre-negotiation knowledge

Documents

sourcing agents

sourcing program

china sourcing professional

apples comparisons

direct suppliers

potential suppliers

supplier blacklist csic

following retailers