Beware the Middleman and Seek the Intermediary


The Middle Man


So you come across what seems to be a stroke of good fortune. A company having experience in making your product and after calculating your landed price are once again surprised at how cost effective it is to manufacture goods in China. There is no substitute for traveling to tour the factory, but depending on your situation, you may not have the opportunity to visit. Having received some literature, a sample and verified the company’s references, what else can you do? What is the worst that can happen? Let me tell you the pitfalls and learn from my experience importing a new product, from a new company, for the first time.

This is a story as much about the intermediary as it is about the middleman. Both are important aspects to consider in the importing process. Both will cost you money and increase your landed price, but only one will add value.

Sourcing Companies vs. The Source
There are an unlimited amount of companies in China that represent themselves as the manufacturer and they can, at times, make it hard to make the distinction. These companies can do some of the leg-work for you of having to locate the manufacturer in person or on the internet. They can be useful in that they are creating a “one stop shop” to find and purchase all of your goods. Sourcing companies have created partnerships or special pricing agreements with the different manufacturers and in turn resell the goods to you. While I have found a number of sourcing companies that are useful, it is best to go right to the source. One issue, is that without dealing with the source, you do not know who or how your products are really getting produced and under what circumstances. Secondarily, if you have problems with your goods, you are going to have to deal with the source through another company (or two possibly – you just don’t know). Another important detail is that without dealing with the source, you cannot be sure that this isn’t the first time they have built your product. As in my situation, the company had produced similar “wood” products like front doors and figured that was enough expertise to build “wood” kitchen cabinets. As with many things in China, the country is amazing at being able to accomplish extraordinary feats of “Magic” that may not have ever been done before or at that scale. This can sometimes be dangerous for the consumer.

It is important to note that it is only good business ethic to do a trial run of any product you import for the first time at your own risk and not the clients’. This is the case for my venture into producing modular kitchen cabinets to add to our private label product line.

Pre-Manufacturing Design
One of the issues with working with the middleman or sourcing company/agency is that they may be knowledgeable about a wide variety of products, but not intricately experienced in any of them. By unknowingly using a sourcing company, I opened myself up to an extraordinary amount of work early on in my kitchen cabinet manufacturing venture. Aside from putting together kitchen cabinet layouts, order lists and color/style selections I immediately found myself in a storm of pre-manufacturing design related conversations with the “manufacturer”. The questions I was being presented with are ones that should already be known as industry standard specifications for a product. Check it out, an actual diagram from the sourcing company asking design related details to cabinet construction. It gets much worse, but you get the idea.

Unknown Design Related Questions

Delays & Intermediaries
Suffice it to say, design wasn’t the only head-ache, delays were inevitable. Production was looking to run past a year and I encountered excuses about material shortages, issues with paint drying due to the rainy season and hardware not arriving on schedule. I had no way to confirm production was actually moving according to the emails I am receiving. At the same time I was expected to make progress payments on the manufacturing. I became skeptical if I would ever receive the order when I asked that a sample door be produced, completed ahead of the order as to confirm quality and mailed to me. This was nothing more than an attempt to satisfy my curiosity of their actual progress. Additional excuses followed and with a 20% deposit on the line, I contracted an intermediary to do some due diligence on the company. The World Trade Group has offices here in the US and in various places in China. This is important as you have a local contact in both places in which to interface, send documents, etc. For a consulting fee they are able to fly a consultant out from a city in China to your factory and give us a detailed report with photos. This was invaluable in that for the first time we were able to get a vivid picture of exactly what and who we were dealing with.

Their Findings
The report from the World Trade Group confirmed that the factory was not being truthful as to the nature for the lengthy delays. By the time of their arrival, it was claimed my sample doors had “just shipped out” express mail. By hiring a consultant, we were able to reopen communications with the sourcing company since talks had broken down months prior. They also were able to begin to negotiate for a hard ETA on completing production and had a backup plan if they were not successful. Lets look at some of the details from the report. The report outlined an actual timeline of events generated from email correspondence on both sides. Also included was a description of the company outlining that it had been in business for ten years exporting wood doors and had started their new cabinetry product offering shipping only to Europe. There were six factories that the sourcing company was working with, each without a sign identifying who owned the factory or their affiliation. All finishing/paint coating was to be subcontracted, but at the time of the inspection by WTG, no contractor had been selected.

Factory from Report

Factory Machines from Report

All door and drawer panels had been completed and stacked in the corner.

Finished Panels from Factory Report

Of course reviewing all of this information gave me a false sense of security that everything will go on schedule from this point forward. As a contingency for further issues, a hard date was set for shipment and terms for late delivery established. WTG continued to monitor communications and status of shipment and when the factory again failed to meet deadlines, intervened. Due to the terms of our agreement, the shipment was so late that we had to again negotiate an acceptable discount even though we had an agreement in place.

Arrival/Conclusion
The order exceeded a year to conclude and with only one of the two containers finally shipped. At the final point, it was decided to have the cabinets painted and finished here in the United States for fear they would never be completed. The World Trade Group or other companies alike are essential in conducting business from the US. They provide a cost effective alternative to source new products, evaluate factories of interest, provide quality assurance measures, confirm integrity of products before shipment or mediate an already bad situation.

Dylan Blankenship signature
dylan@sourcejuice.com
2007-12-16
 
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