Tag: sourcing from China

  • Factory-Direct or Trading Company? You’re Asking the Wrong Question

    Factory-Direct or Trading Company? You’re Asking the Wrong Question

    “Factory direct only. No middleman. No trading companies.”

    If you have read enough sourcing requests, you have seen this line more than once. The assumption behind it is always the same. A middleman is one more layer, and one more layer means one more markup.

    But ask yourself something first. Does a factory’s salesperson work for free? Salary, commission, the office they sit in: all of it is already inside the factory’s quote. You are paying for a sales layer either way. The real question is whether that layer is doing its job.

    An order is a game of telephone

    When you place an order, your instruction does not go straight to the machine. It travels: you, then the salesperson (or trading company), then the factory manager, then the engineer, then the workers on the line.

    Every handoff is a chance to lose something. You have played this game as a kid, and the lesson is the same here: the more hands a message passes through, the less it resembles what you said.

    Customers make mistakes. Factories make mistakes. A competent salesperson or trading company exists to reduce the total number of mistakes, not to pass messages along.

    The most important seat in the chain

    That is why the salesperson sits in the most important seat. They stand in the middle of the information chain, and they have to face two directions at once.

    Looking up, toward the customer, they must understand the product and the business well enough to hear what the customer actually means, not just what the email literally says. Without real industry experience and technical grounding, this is genuinely hard. A buyer writes “same as the sample, but more durable,” and someone without the background does not know whether that means a thicker material, a different stitching, or a different test standard.

    Looking down, toward production, they must know the manufacturing process well enough to check every link. Did the factory manager understand the instruction? Did the engineer turn it into the right drawing and process? Did the worker on the line actually build it that way? Someone has to follow the instruction all the way down and confirm it landed.

    None of this depends on whether the company is a factory or a trading company. It depends on whether the person in that seat takes responsibility for it.

    A “successful” factory that nobody was watching

    Here is a real example. We worked with a small factory: about a dozen workers, a 5,000 square meter plant, output of around 10 containers a month. By the standards of this industry, that is a successful operation.

    The plant sits in the suburbs. The sales office is downtown, with three to five salespeople working in it. The drive between the two is about 20 minutes. This is not a case of a salesperson stuck in another city.

    On our first order together, a key material was never followed up. Nobody chased it. Delivery slipped by 25%.

    Later, our inspector spent several days inside the factory carrying out inspections. In all that time, he never saw a single salesperson on the floor.

    The factory had a division of labor. Sales took the orders, production made the goods. But nobody owned the gap between the two, and the gap is exactly where orders go wrong.

    Division of labor is not accountability

    This is the pattern behind that story. A salesperson is usually measured on winning orders, not on delivering them cleanly. Inside the factory, each person owns one segment. Nobody owns the whole chain. So a missing material or a misread drawing gets handed from desk to desk, and it only becomes visible when it is too late to fix cheaply.

    Someone has to live on the factory floor

    In that case, our sourcing agent ended up at the factory every day. He worked alongside the foremen, checked product quality, and reported progress back to us. In other words, he did the follow-up the factory’s own sales team did not do.

    That is why I tell buyers who insist on dealing directly with the factory to think again. Cutting out the middle layer only makes sense if the factory’s own sales layer is doing the job. When it is not, a sourcing agent who takes responsibility can be worth more than the “direct” relationship you were trying to protect.

    How to tell who is really covering your order

    Whether you are talking to a factory salesperson, a trading company, or a sourcing agent, a few questions cut through the title:

    • Can they describe your product’s key materials and critical processes without checking with someone?
    • Do they show up on site when your goods are being inspected?
    • When something goes wrong, do they tell you first, or do you find out yourself?
    • Are confirmations at each step recorded, or only promised?

    The short version

    Stop sorting suppliers by their business license. Sort them by one question: when something goes wrong in the middle of the chain, who is standing there?

  • The Factory With Great Salespeople and No Engineer

    The Factory With Great Salespeople and No Engineer

    You’re on a call with a small factory. The sales lead knows the market cold. She talks about tolerances, materials, and finishing options like someone who has spent years on the shop floor. You hang up thinking: these people know what they’re doing.

    Then the project starts, and something odd happens. Every technical question takes days to answer. The person you’ve been talking to doesn’t answer it. She passes it along, and the answer comes back second-hand.

    Eventually you realize there is no engineer at this factory. There isn’t a technician either. The best communicator in the building is a very good messenger.

    How a small factory is actually built

    Before anyone gets self-righteous: this is not a scandal. It’s a common and perfectly rational structure.

    A technically capable owner starts a workshop. A few salespeople bring in customers. A handful of skilled core workers do the delicate jobs. Everyone else is temporary labor that scales up and down with orders. No full-time engineer, because orders are unstable and a salary is a fixed cost that arrives whether or not the orders do.

    I don’t blame anyone for building it this way. The question is what it does to your order.

    “The owner handles the technical side” is not the same thing

    The usual answer is that the owner covers the technical work. That is true, and it isn’t the same as having a technical department. Two things are different.

    Depth. Someone who does technical work part-time works at a part-time level. Most owners are competent. Few are specialists in your product’s failure modes.

    Time. An owner is also the one chasing payments, negotiating with suppliers, and managing customers. Technical questions come last, and production doesn’t wait for the queue. When you ask something at 10 AM and get an answer two days later, the line has already made a decision without you.

    Who checks the checker?

    Now follow the same logic to quality control.

    If a factory has no technical function, its QC is usually whoever supervises the workers. That’s the foreman.

    There’s nothing wrong with a foreman. But think about what’s happening: the same team makes the product, decides whether it passes, and reports the result. It’s like a student setting their own exam, answering it, and grading it. The score may be honest. There’s simply no cross-check to prove it.

    Real QC isn’t about being stricter. It’s about not sharing an incentive with the people who made the product.

    The line item that never shows up on the quote

    Here’s the reframe I use with clients.

    The price of a product should include a technical cost and a QC cost. Even in months when the engineer does nothing visible, that cost is doing something important.

    Think of it as an insurance premium. When production is smooth, the policy looks wasteful. Nobody is filing a claim. But the day something uncontrolled happens, such as a dimension drifting, a material batch behaving differently, or a drawing revision arriving mid-run, you find out what the premium bought: someone who can diagnose it and act on it that day.

    A quote without that line item isn’t cheaper. The risk has been moved off the factory’s books and onto yours, and you only see it when the claim comes due.

    Not every small factory is like this, so verify

    Some small factories do employ full-time technical staff and independent QC. Their pricing looks different for exactly that reason. So don’t assume, and check. It takes about ten minutes.

    Step 1: Ask online, plainly. “Who handles technical issues on your side? Is it the owner part-time, or a full-time engineer?” Keep the tone friendly. How fast and how specifically they answer is already information.

    Step 2: If they say yes, verify on site. Look for these signs:

    • The workstation. Engineering desks are easy to recognize. You’ll see calipers or micrometers and a multimeter within reach, and drawings open on the monitor instead of a chat window or a price list. A working desk tends to look worked-in, so a very tidy one is worth a second look.
    • A live technical question. Ask one in person. Does an engineer step forward, or does a salesperson translate for someone who isn’t in the room?
    • Records. Ask to see a past inspection report or a change record, and who wrote it.
    • Presence. If something went wrong on the line right now, who could be there in five minutes?

    No single sign is proof. Several together are a pattern.

    What you’re really choosing

    The real choice is not big factory versus small factory. Many small factories make excellent products. The real question is whether someone independent sits in the gap between “we can make it” and “it’s right,” and whether that person has the technical depth to catch a problem before it ships.

    Sometimes the factory fills that gap. Sometimes the buyer does, or a buyer-side agent that pools technical support, QC, and volume across several factories, which is how some small-batch costs come down without touching quality or lead time.

    Either way, remember this the next time a quote looks unusually low: it may simply be the one that left out the person who would have caught the problem.

  • The Cheapest Factory Is Rarely the One in the Middle: What Your Quote Isn’t Showing You

    The Cheapest Factory Is Rarely the One in the Middle: What Your Quote Isn’t Showing You

    Here’s a question I put to buyers who tell me they’ve “compared three quotes.”

    Same product. Same spec. All three factories pass QC. One is a large, well-known manufacturer. One is a mid-sized factory with a couple hundred workers. One is a small workshop where the owner is also the production manager. Which quote comes back lowest?

    Most buyers guess the small one. Some guess the big one. Almost nobody guesses both, and almost nobody notices that the mid-sized factory is the one getting squeezed.

    The reason isn’t quality, and it isn’t a mysterious “China price.” It’s a line item that never appears on a quote.

    The Line Item Nobody Prints

    Every factory in China carries the cost of operating within the rules: social insurance contributions for every employee, overtime limits and overtime pay, environmental permits and equipment, fire safety systems and inspections. Compliance is not optional, and the direction of travel is only toward stricter.

    But these costs are baked into the unit price, so you never see them. And they don’t land evenly.

    Social insurance is calculated on wages and sits on top of every payroll. Rent on a fixed factory floor creates constant pressure to stretch output hours, which makes scheduling a cost lever. Environmental and fire requirements depend on the process and the site, and they mean capital spending plus recurring expense. The more complex the operation, the higher the bar.

    Same rules. Very different arithmetic depending on who’s carrying them.

    Why the Curve Is a U

    The large factory spreads the cost. It can afford an HR team, an in-house accountant, an EHS manager, a proper fire system, because those fixed costs are divided across enormous volume. Per unit, the cost is small. Scale purchasing helps on materials too.

    The small workshop runs lean. A dozen people, an owner wearing three hats, no HR department, no compliance manager. It also doesn’t pay for people who don’t produce. Walk through a large factory and count how many of the headcount never touch the product. In a small shop, that number is close to zero. That difference shows up in the price.

    The mid-sized factory is stuck. It’s big enough to be visible: regulated as a real enterprise, audited by customers, expected to have the structure of a large plant. But it doesn’t have the volume to spread that structure across. It carries big-factory overhead on small-factory output. That’s the squeeze.

    A Story About Fried Chicken

    I recently heard about a small fried-chicken shop with two or three employees. The owner knew chicken. He agreed pay, hours and days off with his helpers, shook hands, and got to work. He never signed written employment contracts.

    One employee filed for labor arbitration over it. The owner paid several thousand dollars, roughly two months of the shop’s revenue.

    Written contracts protect workers, and they should. The point isn’t that the rule is wrong. The point is how the cost is distributed. Many of these rules were designed with a certain kind of organization in mind: one with a full-time HR person, an accountant, a legal function. Apply that framework to a three-person shop, and it’s the paperwork, not bad intent, that catches the owner.

    Now the arithmetic. Say the plate sells for ¥18 (about US$2.50). Price in every requirement in full and it lands closer to ¥30 (about US$4.20), roughly 67% more. Would customers still line up? And if the shop down the street isn’t raising its price at the same time, who wins?

    Enforcement can only reach businesses one at a time, and small shops open and close constantly. So during any given period, similar businesses carry very different costs. Manufacturing works the same way.

    Cheap Is Not the Same as Bad

    Let me be clear about what I’m not saying. I’m not saying small factories make worse products. I’ve seen small workshops match large plants on quality. Price and quality are different questions.

    What separates a durable small factory from a fragile one isn’t size. It’s what supports the price. The small factories that thrive almost always have a premium behind them: a specialized process, a niche few can serve, a brand of their own, or a steady book of orders with real margin. The ones with no premium and thin orders survive only as long as nothing goes wrong.

    Which brings us to what a quote can’t show you.

    What a Price Doesn’t Tell You

    A quote shows you today’s price. It doesn’t show how durable the cost structure behind it is. When that structure meets pressure, such as a stricter inspection cycle, a labor dispute, or a customer audit, buyers feel it in three places:

    • Continuity. A rectification order, a dispute, or a fire-safety upgrade can stop a line for days or weeks, in the middle of your run.
    • Traceability. A factory under cost pressure sometimes moves work to a subcontractor you’ve never heard of. You find out when quality drifts.
    • Paperwork. Your own customers, retailers and platforms increasingly ask how your suppliers operate. Formal due-diligence rules have moved in different directions and at different speeds, but the questions keep arriving anyway, through supplier codes, contracts and retailer requirements. “It was the cheapest” isn’t an answer.

    Same price, different durability. A spreadsheet can’t tell them apart.

    Five Questions to Ask Behind Any Quote

    1. What supports this factory’s price: scale, a niche, or a premium?
    2. How many people on the payroll don’t touch the product?
    3. What would stop this line for a week?
    4. Which processes are in-house, and which go outside, and to whom?
    5. Could you show your own customer how this order was made?

    You won’t get honest answers by email. You get them standing in the workshop: looking at the fire exits, asking who’s on the line at six in the evening, asking the owner and the floor supervisor the same question separately.

    Who Can Tell You

    This is where the structure behind whoever represents you matters. A buyer-side agent is paid to tell you what the quote doesn’t, but only if it can actually see.

    That takes an office and warehouse in China, so visits can be unannounced and goods can be checked before they move. It takes engineers and QC on staff, not outsourced, so the person on the floor understands the process. It takes years of continuous operation, long enough to have watched factories come and go. And it takes self-operated import/export, so responsibility doesn’t end at the factory gate.

    Compare that with a trading company, whose income comes from the factory. Asking it to assess the factory’s cost structure means asking the seller to audit the seller.

    A quote tells you what a factory charges. It doesn’t tell you who is carrying what the price left out. Find that out before your order does.

    About the author: Thomas is the founder of TOM Sourcing, a U.S.-registered sourcing and quality control agency operating from Shanghai since 2020, with its own office and warehouse in China. TOM Sourcing represents buyers, not factories.