Based on the following information, which vendor would be the best choice?
You are looking to produce your goods overseas, and you have found two vendors. Since these are new vendors, you know that you'll need to make monthly visits to them during the next year.
Vendor A is located in Honduras, which is a 10-hour plane ride from your facilities. You have heard good things about this vendor from your competitors. However, this vendor’s pricing is more than what you are willing to spend. If you go with this vendor, you'll have to take a smaller profit on your goods. You also know that sometimes the duty rates for Honduras can be expensive.
Vendor B is located in a remote village 5 hours outside of Xian, China. This is a 15-hour plane ride plus a 5-hour car ride from your facilities. You have heard mixed things about this vendor from your competitors. You know that they have prices that you desire and that they have the ability to negotiate duty rates that do not change. However, you know that this vendor needs more guidance with quality, so you most likely will need to travel every other week to make certain that you can control the quality.
Which vendor would you place your product with and why? Discuss the concerns and the potential obstacles you might encounter with the selected vendor. In addition, explain why you did not choose the other vendor and discuss the potential problems you could foresee with that vendor.
While most companies choose lesser quality in favor of low pricing, a committed company should choose Vendor A simply because the quality is high. Commitment to a product is as important as brand naming; if you have the best quality, you are entitled to charge more than the inferior competing products.
In the case above, while the initial cost of Vendor A's product is higher, and there is the possibility of higher tariffs on exported goods, the need to constantly monitor output on Vendor B makes them a losing proposition. You should never need to continuously check up on your vendors to ensure quality; quality control takes place at the manufacturing site and if it is not up to standards, they should be released from contract. Vendor B's only positive is their low price and stable tariffs; the long trip (unnecessary costs) and mixed reviews (unreliable) will overshadow these savings. While Vendor B will have no trouble with tariffs, their low quality control means they will waste money on unsuitable products.
Working with Honduras customs, you should be able to negotiate a 1-3 year tariff agreement, subject to renegotiation at the successful end-of-term. If your product is successful, they should be willing to extend the original low tariff, or even lower it more if they deem it profitable. Although your starting profits will be smaller, you will be able to increase revenues by word of mouth as confidence in your product increases, and perhaps lower your own prices as manufacture becomes cheaper and routine. Vendor A is the correct choice here; it is better in the long run to have something good to sell for slightly more money than to have something bad to sell cheaply.