Written by: Laura Dow, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Imagine this: Years ago, an importer of hunting apparel decided to explore sourcing from China for a hunting jacket with a faux leather shoulder patch. Not only did their sourcing team beat their target price, but they did so using genuine leather, instead of imitation, adding value to the product. This unexpected turn of events enabled the company to sell jackets of superior quality at a reduced cost, beating their competition and leading to a tenfold increase in sales. True story. Read on to discover how achieving lower costs and superior quality are not mutually exclusive.
In global sourcing, the age-old adage, "You get what you pay for," often raises questions about the relationship between price and quality. Does this mean that paying a lower price inevitably means accepting cheaper quality? The answer, however, is not as straightforward as it may seem. In this article, I will explore why the correlation between price and quality is not as rigid as it appears and how savvy sourcing teams can secure top-notch quality at lower-than-expected prices when sourcing from China.
Quality and price: Unraveling the misconception of sourcing from China
Quality and price are two distinct concepts that are not rigidly tied together. While it is true that low-quality products tend to cost less, it is a mistake to assume that lower costs must mean compromised quality. As Philip Crosby pointed out in his book “Quality is Free,” with the right approach and support, buyers can secure better quality products for a lower price. The key lies in understanding the separate dynamics of price and quality, paying attention to details, and being thorough in implementing a smart sourcing methodology and sound quality control systems.
The nuances of pricing
Understanding the basis of factory quotes is crucial for buyers aiming to secure the best quality-price ratio. These quotes are typically determined by three main factors, each of which will have a different impact on pricing based on the product considered. For example, 24-carat gold jewelry will have a high raw material cost ratio, whereas a willow basket will have a high labor cost ratio. Keeping this in mind, the main factors are:
Raw Material Costs: While commodities often have consistent pricing, variations always exist, especially for unique materials. Some manufacturers may have more cost-effective access to specific materials. Some materials in China are much cheaper than elsewhere, while others have to be imported. (i.e., Faux leather from Taiwan was more expensive than real pigskin sourced locally.)
Labor Costs: Labor costs are influenced by hourly rates, productivity, and skills. For instance, highly automated factories may have lower labor costs, while skilled labor can be pricier but more efficient. Cottage industry labor costs are lower than those of highly skilled electronic technicians, etc. Rural locations in China’s hinterland have much lower labor costs than coastal areas.
Margin: The margin represents the profit added by a supplier to their costs when quoting a price. Different suppliers may have varying margin requirements based on factors such as competitive drive, order volume, financial stability, and financial commitments (i.e., The cash flow a factory needs to repay bank loans.)
The complexities of quality
The quality of a product depends on a multitude of elements:
Design: Strict adherence to the original design is a key quality factor. The product must meet the specifications of the buyer. And the buyer must be clear about the specifications that matter to them.
Quality of Materials: The quality of the materials used for the product should be specified to the extent possible. There is usually tolerance for some variations as in the leather versus faux leather example above.
Processing and Assembly Know-How: Expertise in processing, assembly techniques, and production management can significantly impact quality. Stitches per inch can be specified in garments, but a buyer will be very interested in production consistency over long production runs. Can a supplier deliver uniform quality after 100,000 units?
Labor Skills: The proficiency and skill of the workforce play a crucial role in achieving consistent quality.
Quality Control Management: The ability to interpret the Product Specification Sheet (PSS) and enforce production standards is vital for maintaining quality through a production run. A good manufacturer will have an excellent Quality Control (QC) management team with whom a buyer can interact.
Reflecting on these quality factors, it becomes evident that while cost is a factor, there is no linear correlation between quality and price, they remain distinct and separate entities.
The role of detailed Product Specification Sheets (PSS)
The first step to gaining a clear understanding of supplier price is to make sure they all bid on the same thing. A comprehensive PSS ensures that there is little room for the suppliers to maneuver quality when they quote. This document outlines all quality requirements for a specific product, setting a clear standard to benchmark suppliers. Armed with this information, buyers can get competitive quotes for a very specific quality of product. Some quotes will inevitably be higher than others, and some may be surprisingly low.
It is essential to keep in mind:
Price Disparities: There can be significant price differences between different manufacturers, even when quoting for products with identical specifications. Accepting a lower quote does not equate to accepting lower quality. Intelligent benchmarking will uncover the valuable low-cost supplier.
The Price-Quality Fallacy: While it may be tempting to associate higher quotes with better quality, these two aspects are not connected. It is entirely possible to obtain the same quality for a lower price.
Quality Assurance: Vigilance in the Quality Assurance (QA) process is paramount, regardless of the price or the supplier. While some might assume that lower prices demand more quality scrutiny–or the reverse: that if you pay a higher price you do not need to worry about quality–quality assurance processes should be applied equally to all suppliers, no matter how reliable they appear to be, no matter how cheap or expensive they are.
The art of China sourcing
A sourcing team's key skill is not merely finding the lowest cost supplier, but leaving as little as possible to chance and identifying the supplier capable of reliably delivering the desired quality. Achieving this balance requires analysis based on meticulous documentation, rigorous quality monitoring, and a commitment to preventing "bait and switch" tactics.
In the end, quality does not cost more or less, it, together with pricing, is an integral part of the process of sourcing. As Philip B. Crosby aptly put it, "Quality is free. It's not a gift, but it's free. The 'unquality' things are what cost money."
A proficient China sourcing team can secure a low price and also ensure that quality will conform to the buyer’s needs.
Follow Laura on Facebook, Instagram, LinkedIn, YouTube and visit CPG’s website for more tips on sourcing from China.
Laura Dow, Executive Contributor Brainz Magazine
Laura Dow, Business Director at CPG, manages growth and its key components: business development, marketing, client success, and finance. In her role, Laura establishes company growth objectives, designs and executes strategies and protocols to enhance overall performance, and oversees budgets and financial activities. Laura began working in China in 2006 as a Peace Corps volunteer in Sichuan province. She holds a Master’s in International Affairs and Chinese Studies from the Johns Hopkins School of Advanced International Studies (SAIS). Ms. Dow speaks English and Mandarin fluently.
