Top Ten Pitfalls to Avoid in Chinese Outsourcing - #6 Not Identifying All Costs

#6 - Not Identifying All Costs

This is a relatively easy one to describe and avoid. The unit price of an item quoted in China is only the beginning. In addition are tooling, sampling, freight costs to the port, ocean or air freight charges, inland freight from destination port to delivery location, duty and possibly quota and customs inspection charges. Within the charges from the freight forwarder are often things that need to be identified early or they can be surprises when the bill arrives. Port charges are one item that forwarders don't often include in their quotes.

In addition, importers should consider the working capital costs of sourcing in China. Initial terms are often 50% payment due with the order and the balance due before shipment. Inventory carrying costs increase because you usually have to buy higher volume in China than you would from a US source to offset freight charges and realize labor savings.

Finally, importers should consider the potential cost of errors and delays, and the cost of administering your outsourcing program. OPS America can reduce or eliminate these costs.

To address pitfall #6 companies should set clear cost-savings targets in their outsourcing plans. We suggest our customers target 25% after freight with a very short payback period for tooling costs. From there we can do better or decided to move forward with less. Either way we do it intentionally and with an understanding of the implications.

In addition companies should plan to start their outsourcing programs small. The companies that run into problems start with a key item or start with a make-or-break new product project with a definite launch deadline.