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Why Factory Outsourcing is Your Worst Nightmare!

Wednesday, 11th September 2013

There’s a very easy way to get terrible product in China.

It’s when a factory or trading company outsources production to a small, poorly run workshop.

For low technology products, smaller factories are going to be cheaper in China. They have low management overhead, low product development cost and few quality control systems.

This leads to a situation where small factories with no online selling presence (in English) are very cheap. And trading companies or factories can find them and use these local workshops at very attractive prices.

If you’re trying to push price hard, you may end up in a situation where your goods are outsourced to a cheap workshop.

Situation #1

You buy from a trading company without realizing it. Their pricing is great. You even go and visit the factory and their general production run quality is fine.

Yet when your goods arrive – they are poorly made. They do not match the quality you saw with your own eyes. What has happened?

The trading company showed you a good factory. However they placed your order with the cheapest supplier they could find. They’re in it for a quick profit, not a long term business relationship!

This may mean they found a 5-10 person workshop in a dirty shed, with minimal experience. The “factory” could consist of a husband and wife from a farm in the middle of China, with a sewing machine, little experience but lots of ambition, churning out poorly made product.

This supplier has no system in place to ensure reliable production. They have absolutely no concept of what the end customer 1,000 miles away will consider acceptable.

Situation #2

You are ordering with a factory. They are generally quite good. You may have ordered with them before with no problems. This could be your 1st, 5th or 10th container with them.

One day you begin selling your container and the defect rate is way higher than normal. In fact it’s terribly high and this is causing major issues. You unsure sure why as they have always been OK in the past.

Here’s what happened. Your normally good supplier got a massive new customer. They got so many orders they lacked production to fulfill all their normal orders.
And you weren’t at the top of their priority list, so they outsourced your product to a supplier down the road.

They bought really cheap, because your sales person knew they were leaving the company soon and wanted to maximize their year-end commission. So they bought from one of the poorest quality, yet cheapest suppliers in town.

This supplier doesn’t use the same materials, nor does it throw out defective product. And you’re normal 1-2% defect rate has ballooned to 15-20% causing massive issues to your business.

In part two of this article we’ll examine how you can counteract this common situation.

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