The Cost of Being a Price Buyer is too Steep
Tuesday, August 14, 2007 at 09:41PM Sad news, the head of a Chinese company that was behind the recall this month of about a million Mattel toys committed suicide over the weekend, China’s state-controlled news media reported Monday. Zhang Shuhong, a Hong Kong businessman and owner of Lee Der Industrial, a company that made toys for Mattel for 15 years, hanged himself in a company warehouse in Foshan, in southern China, The Southern Metropolis Daily said Monday.
According to the NY Times:
Experts here say many Chinese factory owners — often under intense pressure to lower production costs — cut corners in making products and regularly use cheap and illegal substitutes. And indeed, in several of the recalls involving China this year, the government says companies intentionally used cheap or illegal substitutes.
Creating competition through numerous rounds of bidding may not be the best sourcing strategy. For mature buying categories, the best option may be to take out cost through continuous improvement while maintaining quality.
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Reader Comments (2)
Very sad news indeed.
Some thoughts of mine on the topic:
1. Due diligence and supplier qualification is critical. Especially if sourcing from an unknown supplier in an unfamiliar territory.
2. Awarding a contract on price alone is going to be pretty ill-advised, for both buyer and supplier.
3. Multi-round competition is not the root cause of an unhealthy focus on price. There are all kinds of other ways of extracting lower prices from suppliers.
At the risk of sounding biased (as you know, I work for an auction provider) it is pretty clear that multi-round bidding in a well-managed auction is the best way to reach the true market price for a category. The key is "well-managed". Well-managed means taking into account other factors as well as price and ensuring suppliers are bidding on a level playing field.
Alan
A point I could have made better is that something went wrong when cost pressures drove illegal and unethical behavior.