On-site inspections essential to overcome sourcing challenges

The group's China sourcing success is attributed to research, third-party audits and being physically present during production.

With four decades of experience in sourcing home décor and furnishing from China, Coles Group Asia works with 400 suppliers in Shanghai and the provinces of Guangdong, Zhejiang and Shandong. Regional merchandise manager Stephen Lee discusses the current China sourcing challenges and offers tips on evaluating and negotiating with suppliers.

Do you think China will maintain its competitiveness over alternative sourcing centers such as Vietnam, Bangladesh and India in the coming years?

Yes, China suppliers will remain competitive, particularly for midrange and high-end products. But Southeast Asian countries now have an advantage over China in labor-intensive manufacturing.

Explain your top 3 criteria for evaluating suppliers.

We visit the factories and request copies of audit and test reports from third-party institutes to ensure the suppliers can comply with our requirements. Past experience of suppliers with big buyers is also a good indication.

As a large successful buyer in China, how do you ensure suppliers adhere to your product and quality specifications?

We explain clearly the quality and product specifications that need to be met. We also double-check submitted samples and related certificates. But in-line inspections are essential.

Discuss the top 3 problems you face when sourcing in China, and how you deal with them.

The first problem is that the quality of the finished product may sometimes be different from the approved sample. The best way to prevent this is to take all precautionary measures when selecting a supplier. In some cases, however, there is no choice but to charge penalties for reproduction and air freight.

Late shipment is a problem as well. To avoid this, we make sure to check the status of production regularly.

The language barrier is the third challenge. We work closely with our suppliers and encourage them to improve their English communication skills.

How do you protect your intellectual property in China?

We ask our long-term suppliers to sign nondisclosure and exclusivity agreements.

What QC measures do you employ to ensure the products shipped to you are not defective?

Both the production and QC teams are given clear product specifications. Random inspections are performed following AQL (2.5 major, 4.0 minor) and scheduled lab tests are conducted on preselected items. Further, there are monthly meetings to determine whether QC procedures have to be refined and new equipment need to be procured to meet updated quality standards, if any.

Prices of China-made products are going up, and suppliers will take every opportunity to raise quotes. What are your top 3 strategies when negotiating price?

We require our suppliers to quote prices that are valid for six to 12 months. When our suppliers let us know of their plans to raise prices, we double check the increases in labor and material costs. We also collect quotations from their competitors to see if we can negotiate prices further.

What are your top 3 tips for first-time buyers sourcing in China?

First, research the company's background and history, including annual turnover. Observe and evaluate the representative's communication skills and how production is carried out at the factory.

Second, engage the services of a third party to provide audit, certification and assessment reports of the supplier's financial standing and capability.
It is also critical to get referrals from other buyers.

About the company  
The Coles Group is one of Australia's largest retail companies. Originally established as Myer Stores in 1900, it now boasts more than 2,900 retail stores in Australia and New Zealand, with its head office located in Melbourne, Victoria. A publicly listed company in Australia, New Zealand, London and New York stock exchanges, the group has more than 400,000 shareholders, and is currently the largest non-government employer in Australia with over 165,000 staff.

The company operates the following brands: Kmart, Kmart Tyre & Auto Service, Target, Officeworks, Bi-Lo Supermarkets, Coles Supermarkets, Coles Online, Coles Express, Harris Technology, Liquorland, Liquorland Direct, Shopfast, Vintage Cellars, and First Choice Liquor.

For more information, visit www.colesgroup.com.au.

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