Reasons why it is difficult to purchase or produce in small quantities in China.
Many companies, business men and entrepreneurs want to produce or buy their product in China, but that is not always the best option.
There are three important guidelines to keep in mind in order to analyze and arrive to a conclusion as to whether China is the best alternative, or if there is another, more convenient option. These guidelines are: type of product, quantity to be purchased and frequency of purchase.
In this article, we are going to analyze the second aspect, quantity to be purchased. We will focus on explaining the problems that would arise if that quantity is small.
Let’s list the eight reasons why buying or producing small quantities in China is quite difficult and might even be inconvenient for the interested party.
The minimum purchase of raw materials must meet certain “minimums”.
Factories must buy the necessary raw materials to produce their products.
If the quantity to be produced is small, it might be impossible to reach the “minimum purchase required”.
Those “minimums” are set by the very providers of the raw materials, and they are connected to large scale production and their fixed prices.
The Chinese’s factory willingness to process the order will not be the best.
If it’s a small order, it is possible that the attitude of the factory in China will not be adequate, and it might not be given the necessary time and resources to get an optimum result when manufacturing the product.
They might work on the first order with a certain degree of excitement because of their expectations for the future regarding this new client. But if quantities do not increase in subsequent orders that initial euphoria will undoubtedly fade away.
The Chinese factory will not give priority to the small order in its chain of production.
If the Chinese factory’s lines of production are busy, the small order will not be given any priority at all. On the contrary, they may even put off the start of its production, placing it on the final cycle in the production plan, if a more important order arrives.
The Chinese factory will not customize any aspect of the product.
Manufacturers in China produce large quantities. The business lies in this point. It’s a question of costs, time and resources investment, directly and proportionally ascribable to a certain product quantity. The greater volume of units, the lower unit cost and the greater profit for the manufacturer and the Chinese supplier.
Consequently, they will not rise their costs to change standard processes or to customize small quantities of a product.
The costs of shipping and logistics expenses will be high.
It is much more profitable to distribute the costs of shipping, taxes, duties and dispatch among the items in a whole container than in a part of it.
There are many fixed costs, in this instance, that will impact the purchase price of the product and so, maybe, it will no longer be convenient to buy in China.
Management and control expenses in the place of origin will be high.
In a purchase, especially if we are talking about a production, the different processes should be controlled at the place of origin. If this is not done, we are facing extremely high risks and the final outcome might be a disaster, wasting your time and money investments.
We all know –or it’s common sense—that small orders are manufactured in small, less qualified Chinese factories, those that require the greatest control and assistance. Whether through your own structure or through a specialized company, the normal process of purchase and production in China must be supervised.
These are additional costs that should be attributed to the original purchase price agreed with the Chinese provider.
The competitors’ prices are competitive.
If there is a strong competition and their purchase volume is quite large, they are already taking advantage of the benefits of buying and producing in China.
Therefore, the final purchase prices for small quantities won’t be competitive.
The nearest (maybe Chinese) distributor or wholesaler is the best option.
After making all calculations and thoroughly analyzing the situation and the risks involved, often, you will reach the conclusion that for this type of product, for that quantity and that frequency of purchase, the best option is not to buy in China, not even in Asia; the best option is the nearest local distributor or wholesaler, who is often a Chinese distributor or wholesaler.
Analyzing and considering total costs and potential risks in the operation is the only way to know exactly where to place our productions or to buy our product with the greatest competitive advantage.
I wish you the best of luck buying or manufacturing in China!
Thank you for staying tuned with the blog, and until next time!