Made In China: For America

In today’s rough and tough economic situation, jan/san distributors are on edge and looking for any sort of balance.

As manufacturers in the United States continue to raise their product prices at monthly intervals, distributors find it extremely difficult to maintain their profit margins. Instead of passing price increases on to customers, distributors are forced to eat the costs in order to save their relationships.

With their backs up against the wall with no relief in sight, some distributors are taking an educated risk by taking their business overseas to China.

Distributors say the lower costs and ready availability of sourcing opportunities in China have accelerated the ability for them to get their own value-priced private-label products manufactured.

Thus, distributors are joining others who have been doing this for years by teaming up with Chinese manufacturers to purchase quality goods without either a U.S. presence or brand name. They then are branding the products under their private-label name brand for the U.S. market.

Almost all cleaning products are being private-labeled for U.S. distributors. However, the most popular products are mops, buckets and single-disc rotary machines, says Lionel Koh, director of Asia-Pacific services for ISSA in Singapore. Other popular

products being made in China for distributors in the states include paper, toilet seat covers, trash can liners, gloves, urinal screens, dust pans, handles and scrapers, to name a few.

Traditionally, end users have been hooked on brand loyalty. However, as the U.S. economic situation has shrunk budgets and eliminated jobs, distributors say customers are looking for the best bargain for their buck. And right now, distributors say those bargain products are coming to the states from China. However, the bargain price is often a trade-off on quality.

“Some customers don’t care, they’ll go lower quality,” says Ed Hildreth, co-owner of Sound Janitorial Supply in Tumwater, Wash. “If you understand your customer, know your customer, they’ll take the savings. Others not so much.”

Who’s Doing It?

Most U.S. jan/san distributors who are tapping into the Chinese market and reaping its benefits are located on the West Coast. West Coast distributors say they have an advantage over distributors in other areas of the country because they are immune to the sizeable shipping and freight costs associated with getting the products delivered to their warehouses.

“Freight is the neutralizer,” says Rick Hazard, vice president of marketing for Waxie Sanitary Supply in San Diego. “When a distributor in New York wants to bring in a container that hits the West Coast in Long Beach or San Pedro, they have a freight charge that the guys on the West Coast don’t have.”

Because of the high cost of transporting the freight across the country, distributors on the East Coast say there is no advantage for them to outsource products to China. That’s because by the time the product gets to the distributor’s warehouse on the East Coast, the savings from purchasing the lower-priced goods has all but evened itself out.

However, as fuel prices have dipped as of late and the domestic manufacturers prices continue to rise, distributors say purchasing from China could essentially be an economic strength that could be taken advantage of as freight companies are also looking to get back on track.

West Coast distributors have been purchasing private-label products from China for several years. Driven by manufacturers in the states who continuously are raising their prices, distributors say jumping into the Chinese market is advantageous. Those who didn’t utilize China were put at a disadvantage because they were constantly being outbid by their competition that had similar, yet lower priced Chinese products. As a result many distributors have followed their competitors overseas to China within the last couple of years.

“We had to indulge ourselves into this market because many of our competitors did it,” says a Calif.-based jan/san distributor who asked to remain nameless. “When you’re getting a price from a U.S. manufacturer at $20 a case and then you see some of your competitors importing and selling it at $16, we had to adjust.”

Although distributors who outsource their private-label products to China discover marginal benefits — some products can be anywhere from 5 percent to 15 percent cheaper than in the U.S. There are disadvantages, some of which may be too problematic for certain distributors to overcome.

Drawbacks

Negative stereotypes have been stamped on “Made In China” goods for years. In the U.S. it’s very hard for distributors to stand on the merits of a Chinese-made product because it’s difficult to market items that the public perceives to be “lower quality” or “inferior.”

The jan/san distributors who deal directly with Chinese manufacturers in outsourcing their private-label products say Chinese products are often riddled with inconsistencies, long lead times and at times, poor quality.

“The product is not as good as what we normally get here,” says Hildreth. “It also varies from shipment to shipment. Some of the samples we see sometimes are not the same product that we are shipped. We found that in a couple of instances. The quality that we’re seeing from overseas is not what we get in all of these senses.”

Fred Kfoury Jr., president of Central Paper Products Co., Inc., Manchester, N.H., has heard horror stories from distributors who got burned by purchasing direct from China.

“A lot of people have purchased private-label towel and tissue from China and in some cases its been an unmitigated disaster,” he says. “The lead times are also questionable at best and now with the economic situation being such, you can’t predict four days, never mind four weeks or four months.”

One of the biggest challenges for distributors that outsource their private-labels to Chinese manufacturers is quality control.

“There are many cases when manufacturers start out with good quality and after a few shipments the quality begins to deteriorate,” says Koh. “This usually happens when there is a sudden increase in volume and the manufacturer is not able to cope.”

What makes matters worse in trying to manage what the final outcome will be is that distributors must also be able to get past the language barrier between the two parties.

“Most managers and owners of Chinese manufacturing companies are not very proficient in English,” says Koh. “Their understanding of the English language is rudimentary in most cases and where technical terms are used, it becomes esoteric to them.”

The communication barrier can turn into grave logistical problems for distributors who are in the development stages of outsourcing a private-label product with a Chinese manufacturer. Distributors who have experience with the Chinese market say developing a private-label product in China differs greatly from working with domestic manufacturers.

“U.S. manufacturers come to you and ask what you need. ‘How are you using it?’ ‘What’s it used for?’ ‘How can we help you?’ And then they develop something for you,” says the Calif.-based jan/san distributor. “On the Chinese part, you have to do that part. That part comes from you. You have to explain every detail and how it’s done. They will manufacture it for you and you have to monitor it. It’s a lot of work.”

Even though distributors may closely monitor the process, inaccuracies still are prevalent.

“Not only do they have to recognize what the spec is, but if they do, they have a problem with having it consistent,” says the Calif.-based jan/san distributor. “So they may have one or two containers where they have the right size, the right fixed weight, and then the fourth container comes in and it’s like what the heck happened. I mean, are we talking about the same product?”

In the U.S., if a problem like this arises with a manufacturer, the distributor likely is granted a refund for incorrect product. However, since China is across the ocean, distributors are stuck with the inaccurate goods because it is too expensive to ship them back. Thus, distributors are forced to sell these products at a very low cost.

Because of the mass number of inaccuracies, distributors have hired their own in-house people to work closely and exclusively with Chinese manufacturers. Granted, distributors are saving on the price of the private-label products, but at the same time, they’ve created more overhead internally by having more people in purchasing to place orders and handle quality control.

Distributors in other parts of the country have looked at the challenges of aligning with a manufacturer in China, but realized that it may be to their advantage logistically to remain loyal to their domestic suppliers.

“The logistics (in China) are once you get started you’re OK, but there’s in some cases a 90 to 120-day lead time to get the first product in and there’s a commitment that one has to make in terms of number of containers or a time frame,” says Hazard. “So to get out of a deal takes 120 days or so. I don’t know if that gives me enough time to react to the market.”

As time progresses, Chinese manufacturers are continuously trying to shed the damaging stereotypes that are associated with their product offerings. For example, more and more, Chinese manufacturers are hiring English-speaking people to help streamline operations with U.S. jan/san distributors, but a gap still remains. Chinese manufacturers are also beginning to hire more U.S.-based representatives, says Koh. However, these reps are usually not hired on a full-time basis.

Many Chinese manufacturers as of late are also allowing their products to undergo independent testing, says Koh.

“A number of Chinese companies are also going abroad to learn of new technology and techniques to improve their production efficiency and quality,” Koh says.

One thing is certain, distributors should be clear on the capacity of the manufacturer they are working with as well as their capacity to grow before diving into the Chinese market. That said, establishing a long-term relationship with a reliable Chinese manufacturer can be a step that allows a distributor to take advantage of the competitive advantages of Chinese manufacturing and increasing their profit margins.

Jumping The Pond

If distributors are pondering outsourcing their private-label products, distributors who’ve been dealing or dealt with China, advise potential newcomers to pick their partners carefully. Because it’s a big speculation game, distributors must make sure they also have a backup supplier.

Koh suggests distributors tap into ISSA’s representative office based in Shanghai, China, or the ISSA Asia-Pacific office in Singapore as resources to get into the Chinese market or to find reliable suppliers.

Koh also advises distributors who wish to work direct with Chinese manufacturers to pay a visit to the manufacturer in which they are looking to start a relationship with.

“In China, relationships and personal communication makes a lot of difference when it comes to developing business relationships,” he says.

It is also recommended that if a company wishes to outsource their private-label offerings to China, that it be a large volume player due to the product’s price variance and time spent.

Also, distributors say if a distributor is going to work with a Chinese manufacturer it must have the financial stability to do so and to recapture the costs that are put into the endeavor.

“If you’re talking about sourcing directly to China, then whether it be a large or small company, there’s some financial stability that a company has to have to make a long-term commitment,” says Hazard. “If I’m going to commit to 20 containers, for example, or if I’m having to commit to four months supply, I have to have the financial stability to do that.”

Distributors aren’t the only companies in the jan/san industry who are tapping into China’s cheap labor and resources. Jan/san wholesalers are also getting in on the act and are allowing distributors, who otherwise wouldn’t have the financial stability to go direct to China, stay competitive in their markets by selling Chinese-made products that in turn are private-labeled.

“If you try to go to China direct, you’ll get burned,” says Kfoury. “Because you don’t know the game, you don’t know how it’s played. Unless I definitely know the people involved, I don’t think I’d buy direct. The risk is that great.”

The jan/san industry isn’t ignoring China. Suppliers are constantly looking at aligning themselves for their core items and with sources they can depend on. Only time will tell if solid relationships paired with quality goods can be established across the Pacific Ocean.