Procurement & Sourcing Managers based in the UK regularly explain to me that “components and services sourced in China will deliver savings of up to 30-50% when compared with local sources”. Yet still in 2013, despite China becoming the second largest economy on the planet – our company www.jamesdouglas.net, a UK cosmetic pads manufacturer, continues to enjoy steady demand from these same buyers. How can this be the case if such significant savings are to be realised by sourcing in China?
Some UK based manufacturing companies continue to thrive In the face of global competition?
Understandably our buyers wish to source components at the lowest possible price; it is essential that they do this if their brands are to stay competitive. However, despite all the rhetoric, the evidence suggests that UK buyers continue to recognise the value of sourcing components locally and furthermore there is some evidence of a reversal in the expected trend in recent years.
We’re not trying to kid anyone that our business is unaffected by competition from China. Lower labour rates clearly provide a significant advantage for Chinese manufacturers and as a result many EU based manufacturing companies have fallen by the wayside when they (or their customers) have chosen to transfer their manufacturing outside of the EU. Brand owners and retailers alike have restructured their supply chain resources to enable them to realise a global sourcing strategy. Global tendering exercises have exposed (directly or indirectly) even the most parochial European manufacturing company to the harsh reality of global competition. The impact of these changes cannot be underestimated and manufacturing profit margins across the health & beauty sector have been affected.
Why is demand robust if the apparent cost differential is so great?
We and other UK manufacturing companies have recognised the challenges posed by lower cost imports and have reacted accordingly to reduce our unit cost of manufacture. Whilst at the same time labour rates in China are rising and as a result the magnitude of the price differential has been reduced in recent years.
In addition, buyers have found that the “total cost” of sourcing from China is sometimes much higher than they had estimated. The type of “hidden costs” that can hit companies that import goods from the China are:
- Suppliers often require payment (or part payment) with order or prior to shipment which can pose a cash-flow impact on the importer.
- Increasing ocean freight costs – due largely to soaring fuel costs.
- Lead-times can be longer and economic order quantities higher than offered by local suppliers – companies have to hold and finance more stock.
- Logistics and import/export administration (including customs handling costs) are often more complex and costly than companies expect.
- Locally based sourcing teams and regular long haul travel are sometimes required in order to manage the suppliers in China – these both add costs to the buyer.
These (and other) hidden costs push up the “total delivered cost” of the imported goods and in many cases the potential savings are quickly eroded. These barriers to global trade are likely to be greater when dealing in niche markets where volumes are relatively low and products are tailored to the specific needs of a buyer. Conversely, there are likely to be less “hidden costs” when trading a commodity.
Lastly, cultural and language barriers can prove problematic for some companies; in some instances UK companies have found it very difficult to identify and negotiate suitable supply agreements in China.
When buyers are rightly seeking the lowest “total delivered cost” for their products; China is not always the cheapest option. There can still be a role for EU based manufacturing in delivering goods to consumers across the globe at the lowest cost.
Having drawn this conclusion we are not suggesting a boom in UK cosmetics manufacturing or a return to the “good old days”. Far from it!
Instead we expect to see more evidence of globalisation. Increasingly EU companies are collaborating or merging with companies in China in order to optimise their supply chain and logistics. As a UK based supplier we cannot afford to be complacent –and we must seek to understand the role we can play in helping our customers to deliver goods to their consumers at low cost. But we believe that the best supply answer is not always China!
About James Douglas Ltd
At James Douglas Limited we manufacture cosmetic pads from non woven fabrics for use in a wide variety of makeup remover and skincare brands around the world. We work closely with our customers to specify the most suitable non woven fabrics and when required by our customers we offer a full manufacturing service for the finished consumer packs.
If you are looking for a cosmetic pads manufacturer or require any further information about the products or the services offered by James Douglas please call us on +44 (0)1992 586553 or email us at email@example.com
By Mike Hawkes – Managing Director at James Douglas Ltd