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When is it worthwhile to source from China? 08JUL2010

Many people think that since China is a low cost country, then buying from China must be cheaper than the West. However all too often people forget one major factor, that being the fixed costs in shipping. This amounts to approximately GBP 350 per shipment for LCL cargo and covers the transport and documentation costs at both China and UK ports, and the ocean freight in the middle. Generally the only way around this is to source with larger volumes.

If the total value of your goods does not make the GBP 350 small enough to absorb, then sourcing investment castings, sand castings, CNC precision machined components, die castings, injection mouldings, extrusions and general fabricated products could be cheaper within the EU where documentation and ocean freight costs are removed. Sourcing from the EU may also help your cashflow as volumes accepted by factories are often lower, and removing the ocean freight time can also make for more flexible purchasing.

However, if the volume and total value of goods is large enough to make the GBP 350 relatively insignificant, then China is nearly always a cheaper source for sand castings, precision machined parts, investment castings, die castings, injection mouldings, extrusions and general fabricated products. China sourcing is beneficial when volumes are larger and more predictable. This can allow for more accurate forecasting of component usage levels so the extra shipping time is easier to factor in.

Precision Machining in China. 11APR2010

Precision machined components sourced from China are nearly always cheaper than when sourced from the UK, but there is one exception to the rule. Where CNC (Computer Numerical Control) precision is required and the volume and component sizes are appropriate and made from stock size bar, it can be more cost effective to use CNC machining centres in the UK. The primary reason for this is that there is high capital outlay for such equipment, and many factories in China that are newer would only have purchased the kit relatively recently when compared with older UK factories. Where the Chinese factories will be pricing to recoup the cost of the equipment, UK factories will have long since paid off the investment and will therefore be able to price more cheaply. As machining is already a highly automated process, one operator can operate many machines so any cost advantages gained from cheaper labour have a much smaller effect.

However, it is in relatively few instances where the combination of volume and component size from stock bar make this scenario a reality, coupled with the fact that a lot of machining is performed as a second operation to casting, forging etc. Machining as a second operation naturally requires more labour time, and in addition there may also be additional surface treatment applied which again increases the ratio of labour cost in any given product. It is for these reasons that China is, on the whole, still cheaper for sourcing precision machined components than purchasing from a UK source.

Why Sourcing from China is Still Cheaper. 19MAR2010

Even under the current economic climate, sourcing of investment castings, precision machined components, die castings, castings, injection mouldings, fabricated products and extrusions from China is still significantly cheaper than purchasing UK manufactured product.

Since Jinlogic started trading in 2003, there have been prolonged periods where GBPUSD = 2 making importing products especially cheap. At today’s GBPUSD = 1.5 products are automatically around 25% more expensive based on these two currencies alone. The Chinese currency “yuan, Renmibi, RMB, CNY” has been loosely pegged against a basket of currencies, chief of which is the US dollar. In 2003, USDCNY = 8.2; today it trades around 6.8 which is a price increase of approximately 17% based on this currency appreciation. Overall, the appreciation of both the USD and the CNY over this period means that sourcing from China for £Sterling customers is now up to 38% more expensive than before based on currency fluctuation alone. Increases in oil prices have also added to the problem as this affects transport costs.

As a result, a proportion of component manufacturing appears to be moving back to the UK, but there are other factors that far outweigh the currency appreciation issues experienced by £Sterling buyers.

  • Labour rates in China are still much cheaper than the UK, even with changes in Chinese legislation giving workers a better deal.
  • There are far fewer efficiency crippling measures imposed to “improve” health and safety. For example a worker operating a punch press in China may be able to stamp 6x as many pieces per hour versus a UK worker. This is not to say that Chinese factories are unsafe, rather that UK factories are slowed down by an unnecessary amount of safety procedure. Jinlogic independently assesses every factory that is used to ensure that sufficient safety measures are in place.
  • As it is rapidly growing, China is catching up with the developed world in the way that it handles materials. In general this results in methods that gives lower costs and is another reason why it is important to have all goods checked before they leave the factory – something that Jinlogic insists on.
  • China is also a massive landmass. Increasing costs of living in cities such as Shanghai have already forced manufacturing into second tier cities such as Ningbo. As costs rise in second tier cities the manufacturing will move even further inland. With the amount of land available to move into it could take another 100 years before it is too expensive to manufacture in remote regions.

In summary, although it is now more expensive to buy from China than it was in the past, in general it is still nearly always cheaper to source investment castings, die castings, sand castings, precision machined parts, injection mouldings and extrusions and general fabricated products there than buying them from the UK. If you have any requirements for such products, please contact us.

Jinlogic Ltd Launches New Website. 24FEB2010

Jinlogic is proud to announce its new website launched on 16th February 2010. After listening carefully to comments and feedback from our clients, we have created a site that better serves the needs of visitors. A condensed and easier to navigate menu has been added along with subsections deeper within the site giving a general overview of the manufacturing processes that we deal with. Case studies can also be scrolled through with product images as pop ups together making navigation simpler.

The new site has now made sourcing investment castings, die castings, sand castings, CNC machined products, extrusions, injection mouldings, fabricated products and tooling from China even easier