The Best Possible Ways to Reduce China Sourcing Cost

Purchasing products from a trusted wholesale Chinese supplier enables you to have a guaranteed higher profit without dealing with a middleman. It is all about cutting the cost down for ensuring higher bottom line. In the view of the market experts, following three things are the three key considerations that everyone involved with the China sourcing will need to keep in mind:

  • Cost Efficiency
  • Cost Reduction
  • Spend Analytics

Before a true supplier strategy is considered, a thorough cost, product and service analysis should be initiated which will allow you to review all requirements and spend for a particular category company-wide.

Fortunately, there are several ideas for achieving cost reduction while sourcing products from a Chinese wholesale supplier:

Reviewing supplier’s terms and discounts– Ensure that a Master Agreement exists for all the suppliers. Discuss with your Chinese suppliers as to when you may make procurement savings by altering your purchasing patterns. It may be that by purchasing slightly more products your automatically receive a higher discount.

Clauses that allow flexibility to adapt to business changes- Negotiate clauses that allow contractual (and commitment) modifications based on an acquisition, divestiture or significant business change. Go for a negotiated purchase price that is lower than the initial quote and additional value-add services in a contract that are free-of-charge.

Market Analysis- Compile a list of incumbent wholesale Chinese supplier and potential alternative suppliers. Ideally, these are “best in class” suppliers within the market who you know have a good quality and service reputation. If you are unsure which Chinese suppliers are potential best fits, we suggest to go for a survey and/or meeting with each to review all critical requirements.

Eradication of uncompetitive suppliers- Sustainable cost-reduction initiatives come from your suppliers as they have the best knowledge of the cost drivers. Cost cutting and containment opportunities should be communicated to suppliers. Those suppliers who do not take steps to reduce costs should be removed from your database. A review of the existing sourcing policy helps identify opportunities. Challenging the current sourcing strategy and carrying out cost-benefit analysis is a good practice.

Reviewing purchasing requirements- This ensures that only strictly necessary purchases are made. It will cut down on excess costs and storage costs and is a good way to ensure that a company makes procurement savings.

Have the right procurement toolset– The last step to capitalizing on cost savings opportunities is the use of the right tools, specifically the right procurement software. An application that allows you to run spend analysis reports can help you identify which suppliers, categories and commodities are receiving the majority of your dollars. These are the areas where investing time to achieve pricing reductions will be most lucrative.

In addition, you should consider bringing in some external expertise to help you with this effort, as consultancies that live and breathe cost reduction are often able to quickly identify significant cost savings opportunities.

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