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China sourcing: Help creating a Purchase Order (PO) template

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China business surprise 300x196

The importance of having a good Purchase Order (PO) in place when sourcing in China can’t be stressed enough.

The document sets the foundation for your relationship with your supplier. A buyer without a good PO/Contract gives too much leverage to the seller and allows them to manipulate the relationship to their advantage.

As part of PassageMaker’s Import/Export Management service, our account managers take our in-house PO/Contract templates then work with the local lawyers and project managers to create a robust document specific to the needs of our clients.

However, if you are not yet in a position to retain the services of a professional buying agent like PassageMaker, here is a behind-the-scenes look at how any buyer (large or small) can create an effective and affordable Purchase Order template that offers real protection in China.

Let’s start with the free stuff:

Here are some blog posts I wrote related to PO’s/Contracts:

7 ITEMS YOU PROBABLY FORGOT TO PUT IN YOUR CONTRACT WITH THE FACTORY

PURCHASE ORDER

Now let’s look at some very affordable options for getting professional help writing your PO.

On Amazon you can find guidebooks (do an Amazon search for China+ Sourcing) that offer templates and samples of key documents, including the all-important PO/contract.

For example, My guidebook is available for 58 USD and includes various templates and check lists. The PO template is also available as a standalone document in excel format. I recommend buying the book and templates together as a package because the book explains how to negotiate the terms and set up the PO in a way that protects the buyer’s interests.

While a template is a good start, much better would be having a custom document in bi-lingual format that is specific to your situation. An English speaking Chinese lawyer in China can provide this for a few 100 USD. Here is more information: AsiaBridge Law

Consider engaging an advisor to look after your PO’s/Contract as part of supply chain management. Here are 4 options for your consideration ranging from freelancers to large consultants:

OPTIONS FOR SUPPORT WITH SOURCING AND SUPPLY CHAIN MANAGEMENT

you can also visit www.SourcingServiceCenter.com for my list of endorsed service providers.

In summary, now that you know how to get help building an effective document, even on a tight budget, there is no excuse for not using a well-crafted PO when buying from China.

China sourcing: Negotiation, Contracts and Payments

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China sourcing negotiation contracts and payments

Exclusive recording of Mike Bellamy’s Sourcing Tutorial at the April 2014 Global Sources Trade Show in Hong Kong.
Learn the key factors and actionable knowledge that will help you prepare for “Chinese negotiation” and place safe orders!

Without a good foundation, your China sourcing project is likely to fail!

Mike Bellamy (PassageMaker founder) offers tips and best practices to ensure you are well positioned before the PO is even placed. Learn how to negotiate contract terms, and structure your payments, to protect your interests when doing business in China. The video tutorial covers some of the most important areas to consider before investing time and money on a China sourcing project. The recording of this seminar covers:

● The dos and don’ts of quality control, logistics and payment methods

● How to protect intellectual property

● Cost drivers and cost breakdown analysis

● Proven negotiation techniques

● Insight into the thinking of your Chinese suppliers

What I told CNN about China sourcing

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What I told CNN about China sourcing

I was recently interviewed on camera by CNN at the Global Sources trade show on the topic of what buyers need to know about China sourcing. They put me in the hot seat by asking “give our viewers the 5 most important tips for successful China sourcing” and do it in 30 seconds or less! I wrote a 300 page book on that very topic, so I have plenty of tips, but picking the top 5 and explaining them in just 30 seconds with no chance to prepare was a little intimidating. I must have said something right as CNN aired it right away!

Here are my 5 tips as given to CNN:

Selecting the right supplier upfront is the single most important step in the sourcing process. Starting a relationship with the wrong supplier can be catastrophic. So do your due diligence and verify your supplier BEFORE you place the purchase order.

Use your research skills not your negotiation skills to get a good price/ quality/lead-time. If you know what the fair price in China is for a given widget, you can use that leverage to get a good price from your verified supplier.

Link payments to supplier performance. You may have to give a deposit, but subsequent payments should only be made once the seller achieves pre-agreed targets for ship dates and quality standards. For example, final payment could take place AFTER the final inspection is done by the buyer’s representative.

Make sure the name on the contract matches the name on the bank account and the business license at the production site. If you send money to one account and sign a contract with a different legal entity, good luck getting your money back if things go wrong. Many buyers don’t pay attention to the details and end up sending money to a private account or to a holding company rather than direct to the factory.

Be more than a PO# in the eyes of the supplier. Sell them on why you are a good partner worth of respect. If the supplier can grow with you and likes you as a person, you will find advantage when it comes to lead times, payment terms and quality.

What 5 tips would you suggest to CNN?

China sourcing: Purchasing manager’s salary in China and USA

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Average us purchasing manager salary 2014

According to US Census Data in 2014, the average annual salary (exclusive of bonus and benefits) for a Purchasing Manager is USD 90,558. Their Chinese counterpart earns less than a 1/3 of that amount.

A US-based manager with even basic Asian language skills and Asian sourcing experience will command an even hirer salary. Additionally, a team of managers and support staff will need to be hired, trained and supervised if there is a desire to have the in-house resources needed to manage an international supply chain.

Spending time in Asia at the factory is almost a pre-requisite for success, but the cost of sending staff to Asia on multiple business trips can be cost prohibitive. The figures above are for direct salary only. All in cost to the American company to hire staff in the USA is significantly higher after bonus, overheads, mandatory benefits and other in-direct costs are calculated.

According to Fiducia in their report on HR costs in China for 2014, the average salary across all industries in the Guangdong providence is 4200 RMB per month. Even after adding bonus, mandatory benefits, dorm/housing and meal allowance, the direct labor is still under 15,000 USD per year.

2014 avg salary china

That number may sound very attractive but know that the “average person” didn’t attend university, doesn’t speak English and has very little international trade experience. A review of the internet job forums in China will show that a Chinese manager with a university degree and 5 years’ experience in general sourcing or trading can earn around 12,000 RMB per month in a major Chinese city. Candidates with specialized skills can earn much more.

Even at around $30,000 a year for an experienced Sr. Chinese manager, the cost is still a fraction of the funds needed to engage professional staff in a developed economy like N. America, EU and Australia/NZ.

The advantages of outsourcing Supply Chain Management to a lower cost country is two-fold:

Significantly reduced HR costs

Physical proximity to supply base

So why isn’t everybody opening an international purchasing office in Asia?

Almost all small-medium sized firms and even the majority of large buyers don’t actually set up their own office in China because hiring and managing a team in China is no easy task from a culture, administrative, legal, linguistic and economic point of view.

For those reasons, China-based agents are often engaged and there has been an explosion in the number of China sourcing agencies over the past 10 year. Unfortunately, there is a lack of professionalism, transparency and experience among these China based agents. Far too much overpromising and under-delivery.

A Chinese or Foreign owned sourcing agency will charge between 3% and 15% of the PO value to perform various services at various levels of (un) professionalism. These agents often receive hidden kickbacks from the factory. As a result, the so-called “buyer’s representative” is actually working for the factory!

Related content: Visit our FAQ page to see what is really happening if your agent offers to do the sourcing for free