When it comes to the supply chain and dealing with China, I often get asked this. Here is why there is no easy answer to that question.
In the past, outsourcing to China was the way of the supply chain. It was at a point where fulfillment was not an issue. In fact, it led the charge for global manufacturing, got efficiency down to a T, lowered costs, and had capacity to keep up with mass demand globally.
With current circumstances, that seems to not be the case. China’s supply fulfillment has suffered because of a number of reasons: factories shutting down due to COVID restrictions, shortage of workers, and manufacturers prioritizing bigger contracts.
The supply chain we saw China build is now suffering, causing a nightmare cascading effect for different industries and clientele. So nightmarish, in fact, that some ecommerce brands have either gone out of business, or stopped selling their products, or purchasing inventory to prioritize customers due to the possibility of running out of stock.
Let’s ask the question: Should you set up shop in China or someplace else?
The answer? That completely depends on your operations and how you see things moving forward.
While there are problems with the existing supply chain, that doesn’t mean choosing to not work with China is an easy solution because they are still leaders in the world. It still has influence in the global market, and that goes a long way in ecommerce.
There are some alternatives if you feel unsure. Look at a manufacturing company that is on your continent to cut time on the water. Wait times can make or break businesses because fulfillment can’t be completed. Something to consider is switching to a different market for your supply chain can result in loss of quality control or lower quality products.
China is a global leader in ecommerce for a reason. It knows how to create things quickly and efficiently. You run the risk of sourcing from a market that may not have as much expertise as China does.
So, what’s the alternative?
One alternative is choosing a market on the same continent as you. Say you are in Europe, and decide to set up shop in Europe. That cuts down on the amount of variables and unknowns, doesn’t it? You are able to look at a simpler picture which is land transport and lower delay times.
Another alternative is to set up somewhere else other than China. We have seen people setup in Mexico, the US, and other markets. This can result in less time in the water during shipping, and can help you get products quicker than you currently would with China. Factor in that China is pritoritzing bigger companies and leaving smaller ones to flounder on waitlists means that switching markets can help you get more volume moved faster.
Now, with any cons, there are also pros. For one, staying with China would see that you would have access to a global leader and network which can open up various opportunities for you.
The takeaway here is to be sure to have the right manufacturing partner. China has been in the ecommerce game so long, it knows a thing or two about supply and demand. It has been able to build a network of great efficiency, quality control, lower wage costs, and the ability to keep up with massive order volume.
China is a constant. You have to make the choice to find the right partner to get the job done. It may take a little time, but it is worth it in the end.
You can also choose to air freight some of your inventory so not all of it gets stuck at port. Imagine you are in quarter 4 and are going to make the biggest inventory purchase of the year.
You can have your total units come from China with 15,000 units shipped on a boat, and have the other 10,000 air freighted to you. As I said before, there are pros and cons with everything. Air freight may be a good option if you can work out volume discounts and whatnot. It isn’t the best for margins, and the price of air freight can fluctuate so this may not be something doable for you and your business, but at least you know it is an option.
China is still a very viable market. It provides businesses with the ability to establish strong relationships within a global network. The questions I really think you need to be asking yourself is not what country should we manufacture in. It should be more along the lines of “How should we set up fulfillment so that we can get product to our customers?”
For this, I want to offer two solutions.
Find a convenient fulfillment center or stock up your own inventory.
First, talk to your factory and see if they are willing to act as your fulfillment center. It may sound astonishing, but there are factories that can ship product directly to customers. This can save you loads of time waiting for your product to be brought over from the manufacturer to a separate fulfillment center.
Factoring in the cost can be something you can pass on to your customers if you charge shipping for your product, then you have a potential win-win scenario. It’s a more popular solution that ecommerce brands are using to try to bypass the crapshoot that is shipping overseas right now and dealing with ports.
The other solution is you are only selling and making money when you have inventory. If you have a validated product, order more than you need to. If you need to get cash flow financing, then get it.
You are going to need as much inventory as possible because of lead times, and that is going to be the number one hidden killer of being able to grow your business: not having enough inventory. This is why cash flow is something important to consider. Cash is everywhere, and there are so many different ways to get inventory financing.