Secret to Low-Cost Sourcing in China | FTI Consulting

Insider’s Take: The Big Secret to Low-Cost Sourcing in China

heat map

Despite recent tariff issues between China and the U.S., America’s largest trading partner remains a viable entity for U.S. brands looking to produce global exports. This one consideration can make all the difference when selecting the best supplier.

The phrase “Made in China” was once associated with cheap goods.

News flash: It still is. But the phrase has taken on new meaning as China has ramped up quality control in its manufacturing base and U.S. businesses have come to rely on the People's Republic as a low-cost source for brands they export globally. Even with recent rockiness between the two nations, China's depth and breadth of capability set it apart from other competitors in major industries such as automotive, beauty, nutrition, chemicals, telecom and toys, making it an advantageous choice for supplying goods (and services) efficiently and economically.

Not all Chinese manufacturers are created equal, however. Finding a dependable supplier at the right price in such a competitive market works best when an insider with specialized knowledge bridges the two cultures. The insider’s ability to analyze a business’s needs and match them to the capabilities of a manufacturing plant is the key to success — but only if it’s done right.

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Highly Selective Process

A mismatch can easily occur when an insider simply presents bids from suppliers they already know — or sometimes barely know. It's far more optimal when the insider has a strategic process for prescreening suppliers and provides the business with a curated list of choices.

Several criteria should go into the screening process. Among them are vetting reputation, reviewing public filings to understand the competitive set and performing trial runs of a prospective brand’s product and packaging. Throughout, questions from suppliers to businesses help fine-tune the producers’ preparations for bidding. Once all results are collected, a single, important tool can make all the difference in getting the match right.

That tool is a heat map of China with details about the prescreened plants.

Organized by major industries, a heat map provides industry-wide insights on leading suppliers and alternative suppliers. A 360-degree SWOT analysis on each supplier shows savings estimates as well. With the heat map in hand, a business gets a visual interpretation of its best options and can stay current on pricing options as well.

Almost anyone can create a heat map, but its value is only as good as the data that goes into it. And when it is the centerpiece of a modularized end-to-end selection process (as seen in the infographic below) created by a knowledgeable insider, businesses can get up and running quickly. What normally might take as many as nine months to go from initial contact to full production can be streamlined to as little as three.

The infographic below gives an idea of how this modularized selection process works.

Heat Map

Relations between China and the U.S. may be unsettled lately, but the advantages of pricing, economy of scale, and experience within China's manufacturing base keeps it well-positioned for American brands looking for efficient low-cost sourcing solutions. Despite all, the world's two largest trading partners still have their sights set on growth and a mutually beneficial relationship.

© Copyright 2019. The views expressed herein are those of the author and do not necessarily represent the views of FTI Consulting, Inc. or its other professionals.

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Bill He

Senior Managing Director, Leader of Asia Business Transformation