How Well Do You Know Your Suppliers?

The increase in the value of the RMB has pushed many Chinese businesses to the breaking point. The Chinese government has pushed them very far to satisfy the trading nations and to satisfy other needs in the Chinese economy. Many Chinese companies are in trouble because of that.

When or if your suppliers close their doors, will they tell you that they are going to close shop? Will they make sure you have time to find another? Will they return all your molds. Will they maintain quality under pressure? Will they disappear when they have your cash? Would they give you back any deposit if you had any with them?

I have had a supplier who disappeared and had some of my money. I quickly called him up on the cell phone and he answered. He then agreed to meet me and give me my money back. Admittedly, I did not have a lot of money at that business, but it was good to see.

Do you know if your supplier would do that for you? Will they even keep that cell phone number when they leave? Having met the owners wife and kids is no proof they will not wait for your deposit and then run.

Pay a little extra to avoid having any significant deposit. However, the character of your supplier is of first concern. You should due diligence on them if you have any significant risk of them running. You should have copies of their business licenses and other legal documents. In most cases, you will want license that have real business behind them. You should see the ID cards and have copies of the ID cards of all principles in the business. Their attitude when you ask for these is key. If they do this readily, then you can feel a little better. You should find people who can tell you the truth about that business. You need people who will give you all the dirt. These people exist, but they do not show up in any normal due diligence.

Also, ask them lots of questions. Ask them deep questions in Chinese and face to face and watch their facial expressions. You can learn a lot.

Anything can happen in China. Do a worst case analysis, and then prepare for it. Think what you can do to mitigate risk. You should mitigate risk of their business failing and risk the owners will run even if they do not fail. You need to know if they ship quality product when they are short funds. Men and women of character will treat you well even in distress. However, most will not under stress, so choose carefully and do more than you would to investigate a U.S. supplier. Do a lot more, and Dun & Bradstreet may not solve this problem for you.

Thoughts?

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Posted in: China, Leadership, Quality, Sourcing

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