So you have narrowed down your list of potential suppliers, done your due diligence and decided on one factory to manufacture your product. But before you sign that contract, you would most probably need to negotiate quality, price and payment terms.
The first thing you need to make sure is you are talking to the decision maker. Quality and production concerns, for instance, should be discussed with engineers, managers and QC personnel, not salespeople. It is also better that you have your own translator, one whom you have briefed in advance about terminology and what to expect.
Before you start negotiating terms with the supplier, be aware of the following:
- Face to face meetings are always the best way to communicate.
- Most factory representatives will not tell you "no."
- There will always be problems-you just will not know about all of them.
- Do not confuse being polite or even "yes" with agreement.
- The more time you spend in the factory, the better quality product you will get.
- You must take care of all legal issues at home and in China BEFORE you do anything else.
- Contracts are rarely the final word.
- Save all phone call notes, faxes, photos and emails.
- Keep your processes and communications consistent.
- Be prepared to renegotiate everything.
Negotiating quality terms
- Specify every single component and standard you can think of.
Clearly communicate every aspect crucial to your finished product
- How your final product should look, feel, fit and function
- All internal, external labeling and user instructions
- Packing instructions (quantity, assortment, packing materials)
Overcome language barriers by communicating with:
- Technical drawings
- Written, translated instructions
- Agree in writing which language prevails
- But physical samples are still best.
- Never vary from your contracted standards and dates
Negotiating price and payment terms
- Do your own research on prevailing prices before you start negotiating.
- Make a road map for better terms; consider a 30:40:30 payment scheme.
- Your payments, penalties and shipping dates should be contractually tied to QC reports.
- Be careful if transferring funds to a private account or a third-party trading company.
- Consider financial due diligence if worried about risk.
The following sourcing experts contributed to this article:
Mike Bellamy - chair of the China Sourcing Information Center's advisory panel and founder of PassageMaker
David Dayton - owner of Silk Road International, founding member of the China Sourcing Information Center and lead editor of CSIC's China Sourcer magazine
Stuart Miller - key account manager at AsiaInspection, in charge of managing the company's most strategic clients