1. Housekeeping items
2. Introduction to Presentation and
Speaker
3. Pre-Negotiation Knowledge
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Factory Direct vs. Middlemen
Price Benchmarking (RFQ process)
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Intellectual Property
Price
Quality
Payment Terms
4. General Face-to-Face Negotiations Tips
5. Critical Contractual Items
6. Q & A
www.PSSchina.com
Supply Chains
Serviced
Our clients are direct
suppliers to the
following retailers and
corporations:
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:
» China Sourcer e-Magazine
» Video Tutorials
» Ask-the-Experts Service
» Buyer Blogs
» White Papers
» Endorsed Service Providers
NEW: Supplier Blacklist
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:
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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 Apples
Often overlooked:
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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:
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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 as
export 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
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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:
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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
www.ChinaSourci
ngInfo.org/book
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
CSIC 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
PassageMaker
Email: MikeB@PSSchina.com
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 20-23
Booth #7L44 October 27-30