Thinking of outsourcing to China? Here’s what you need to know

Setting aside the current trade dispute between the United States and China, which I will get into in a minute, horror stories abound surrounding the pitfalls of attempting do to business in China if you are not careful or prepared. Many of those tales are told by brokers, who are in the business of finding and managing suppliers in China; an equal number are recounted by manufacturers, who decry the cost and other disadvantages of using a middleman. 

Made in China
Image courtesy Eisenhans/stock-adobe.com.

So, who should you believe when looking to outsource work to China? How important is it to work directly with a manufacturer rather than through a broker?

A common reason to forgo using a broker is cost. A broker adds margins to any factory prices, making the offer less competitive and, thus, negating one of the reasons you were looking to China in the first place. 

But is this actually the case and, if so, could the fee actually save you in administrative, travel and other project management costs? Are there any advantages to working with a broker or trade company instead of a manufacturer?

Let’s look at some key points when selecting suppliers, and the answer that’s best for you probably will reveal itself.

Cost. The understood truth—manufacturers will always be able to offer you lower prices than brokers—is not always the case. Manufacturers with factories and equipment have overhead they must cover. They also try to keep work in house, even when external suppliers could offer a more competitive price. Brokers, on the other hand, generally are low-overhead businesses. While they need to add their margin, they often do it on top of negotiated and preferential rates from their suppliers and under the assumption they will be buying a lot. The actual cost differences could be lower than you think and might even trend in the other direction, depending on the project.

There are also the indirect costs connected with sourcing parts from China—you need people to manage the process and ensure quality and stability. When you factor in the headaches and man hours, a broker could be very cost effective, indeed.  

Quality. Manufacturers will have more control over their processes, and they can catch and fix problems quicker. On the other hand, they will tend to look kindly on their own work and often have their own profit margins first and foremost in mind. A broker could offer a layer of protection you won’t get from a manufacturer. Brokers generally build their businesses on a reputation for delivering quality products and will look to protect that.

Speed. A manufacturer should be able to bump you up in the queue if you are in a rush and prioritize your work if you are a preferred customer. But he is also going to try keep things in house, even when he is near capacity. A broker with a network of suppliers can shop around for the best lead times for a given project, which could be an advantage.

Flexibility. Manufacturers have a limited number of services and processes they perform and will often limit themselves to just these. A broker, on the other hand, will have built an extensive supply chain to add value. This supply chain and network will enable him to offer more services.

Engineering support. Brokers may be able to offer engineering support, but it will be limited to making suggestions based on experience of similar parts and processes. Manufacturers can discuss actual production processes and their impact on the design and final part. They know better what they are able to achieve. 

Data protection. Here, there is no real competition. It is almost impossible for a trade company to control your data, when the very nature of the business involves sending data to suppliers. A manufacturer can exercise greater protection of your data and IP, but that doesn’t always guarantee he will.

Accessibility. Brokers are often fully committed to the customer service aspect of running a job, so they will be on line to talk with you whenever you need them. The one downside is they are often in a remote location from where the parts are being made. Getting quick answers that reflect the actual situation may be a little more difficult.

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