How To Make Sense Of China’s Supply Chain For Global Ecommerce Businesses

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Francois Marchand: The China supply chain—it's big, it's complex, and it has its own intricacies and rules. But if you are an ecommerce company looking to sell products direct to consumers, odds are you'll turn to China for product selection, shipping, and order fulfillment. But how do you make sense of it and what are some of the essential tips to do it right?

Welcome to The Ecomm Manager podcast. Our mission is to help you succeed in your ecommerce journey with helpful advice from the experts who made it big. I'm your host, Francois Marchand.

And today I'm joined by Dayu Yang—he's the Founder and CEO of EcommOps, a China-based fulfillment center that helps businesses scale their existing infrastructure in the most cost effective ways. Together we'll be chatting about how to make sense of China parcel shipping for direct to consumer ecommerce. So stay tuned to discover the best practices for shipping direct to consumers from China and everything in between, and that includes cultural differences, risks, rewards, quality control, and a whole lot more. Listen, it's a big one and there's a lot to unpack. 

Dayu, thank you so much for being here on this episode of The Ecomm Manager podcast. Telling us how to make sense of China parcel shipping for international direct to consumer ecommerce businesses. That's a mouthful. Tell me a little bit about your experience and how you came to be the expert in all things parcel shipping from China.

Dayu Yang: Hey Francois, great to be here. Nice to meet you. Thank you for having me. So I actually have quite a story background actually. I started in technology. I was actually up in Vancouver for a couple years working at a gaming studio there. And I went to business school, I was a consultant for a while, and I decided to start my own business.

So I started this smart toy business called Pillar Learning with Codi, the storyteller for young kids. And it was fully produced, manufactured in China, and we went online and a couple years ago we were actually featuring our Shark Tank. So that was real surreal. 

Francois Marchand: Nice. 

Dayu Yang: Yeah. We walked away with a deal and everything like that.

So that was my initial foray into product development and we had to figure out how to sell it. Therefore, ecommerce. We started on Shopify and we're trying to figure out our own fulfillment and logistics, and that's where I started to get into the entire supply chain space as well. At the time, I realized that there was this big boom in what was called drop shipping.

So it was the first time I heard about dropshipping at the time. So drop shipping, building a Shopify store, for example, in drop shipping from China, from AliExpress, et cetera. And I was like, because I saw some YouTube videos online and I was like, these young kids making like a million dollars, these gurus selling their courses.

But it was, it seemed amazing to me with much less risk. And I was like, wow. We had all this investment and it took so long to get our products out. Maybe I'll dabble in drop shipping for a while and check out like how to refine my marketing. So that's where I started my own dropshipping brands for a while.

Just completely drop shipping from China, and some of it did really well. I realized though, drop shipping in the traditional way, which is not holding any stock, just pure drop shipping, not controlling your product at all. That had a lot of issues. 

Francois Marchand: What were some of the main issues that you've identified?

Dayu Yang: Yeah, so because you couldn't control the product, it's double-edged sword, right? You don't have to invest in the product, you don't have to invest in inventory, but most of the time you don't even touch the product before you send it out to your customers. And also the shipping can be quite inconsistent as well.

But what I realized that given my actual experience of supply chain was that if you disconnect the traditional idea of drop shipping from the fact that hey, you can just ship products from China to customers around the world. With that disconnect, I realized, wow if you remove all of the issues of drop shipping, which is primarily actually, you just don't control the stock at all, but you still leverage the ability to ship from China.

So essentially just having a fulfillment center in China, just as an ecommerce brand might have a fulfillment center in the US for example, then you actually can achieve a lot of the benefits of that model without a lot of the disadvantages. And we'll talk about some of the benefits, right?

Francois Marchand: Yeah, that was going to be my first question actually, talking about some of the key benefits of shipping orders to customers directly from China and how that impacts your operations.

Dayu Yang: Yeah. So you know, let me just wrap up a little bit with how I got to where I am today. So I did realize that, and that's where I started EcommOps, which is where I am now, where we specialize in offering fulfillment services directly from China to consumers. And we really serve brands of all sizes, and it's not drop shipping at all. 

They ship products to us and they access our fulfillment center, and I saw the really big benefits in doing so at the time and the business has grown a lot. We supported something around 120, $150 million worth of retail sales over the last couple years, fulfilled a million parcels or so over that time. It's been a very much booming business and we also see a lot of demand from all areas of ecommerce for this kind of shipping. So to answer your question about why I got into this in the first place, and you know what the benefits are, right?

And by the way, to the audience out there, it is always really important for your customers as well to understand, what the pain points you're trying to solve for, what the benefits you provide to your customers, so you really position your brand around that. The traditional way of selling things is typically you produce your products in China, not always, but a lot of times it's made in China where Asia, 

and it would be moved to a fulfillment location where a warehouse where maybe a retail store in the US for example, and then that was shared directly to consumers or a physical storefront. The main problem with that is depending on the method you use it to get there, it could take weeks and many times, months using containers on the water, for example.

And what that means is that you have to hold a lot more inventory. The average ecommerce brand, they hold anywhere from months to six months to a year's worth of inventory, sometimes, depending on their specific situation. And that means a lot of cash tied up in stock and it also means a lack of flexibility.

Sometimes you have overstock. That's why a lot of brands have like fire sales sometimes, right? But sometimes you run out during Covid, for example, a lot of brands just ran outta stock. They couldn't get stock in fast enough. So they couldn't actually adapt to the ever-changing needs and demands of their customer base, and they couldn't be as agile, right, in launching new products, for example, and reacting to the changing environment. 

Now with China fulfillment, your factory to any location, any warehouse in China will take days, sometimes hours actually. We have some factories send stuff to us in literally four hours if they're based in Shenzhen, for example.

And what that means is that a lot of our clients, they hold 90% less inventory than they did before, they were shipping it to a local fulfillment center first. So that has obvious implications on your balance sheets, just lowering your risk on launching products faster. You can launch products like months faster because literally you can start shipping out and selling right away.

And one other very obvious benefit is international ecommerce. One of the obvious low-hanging fruit is usually international expansion. If your brand is doing really well in the US why wouldn't it do well in Australia? Why wouldn't it do well in the UK? But traditionally, it costs an arm and a lake like almost literally to ship from the US to Australia, for example and it takes four weeks, right? 

It's much cheaper to ship directly from China to every country around the world, as opposed to getting into the US in the first place. So we have situations where a brand might been tied up in only selling to the US or Canada, and they're able to access global markets efficiently and they increase theirselves by 40%, 50%, almost overnight. What I mean is like almost overnight, maybe a couple months, but that's almost overnight in this industry. 

Francois Marchand: That's still pretty quick. 

Dayu Yang: Yeah, exactly. Exactly. 

Francois Marchand: So can you give me an example of a company that took advantage of direct from China using that form of China shipping to fuel their growth? I think you, you have a good one in your back pocket there. 

Dayu Yang: Yes. So actually, first of all, there's a lot of brands out there that actually utilize it and you may not actually realize it, and, sometimes you see a brand you like, and it says shipping might take five to 10 days.

Not guaranteed it's from China, but they might be shipping from China. But one brand that I think that the audience should know very well, or at least learn about is, is Shein. And they are, I believe, currently the largest fashion brand online in direct competition with fast fashion brands like Zara and H&M, who initially took the pie in terms of fashion, they revolutionized fast fashion at first.

Shein took it to the next level by being able to ship directly from China, and they have a crazy model actually. So what they do is when they launch new SKUs or new products, they could just launch with 50 units of it, which is crazy for a brand that size, right? Because like literally their factory is, again, it's so close to where they fulfill orders.

So they just get like 50 of it from, some factory they like and they just test it. If it doesn't work, I mean 50 units to them is nothing obviously, but if it does, they can scale up to global markets like almost immediately, within a week and just take the market by storm. So what that does is that they're able to like rapidly iterate on that data and it's really one of the main reasons why they were able to take the market so fast and honestly by surprise as well.

And if you were ever, or if anyone here is a customer of Shein, you're gonna know that, they obviously ship from China, they tell you it's gonna take 7 days, 10 days. I think they might be evolving now, but something like 90% plus of the orders actually are shipped directly from China worldwide.

At one point they were valued at a hundred billion dollars. Now they're a little bit less like a lot of brands out there, but still quite impressive and really, competitors can't compete with how agile and flexible they are. And obviously it's relatively cheap, so you know it's affordable as well, 

Francois Marchand: if you're a company that's in that sphere, let's say fashion or consumer products or lifestyle, that wants to emulate that model that Shein is doing, is it possible to do it or do you need like an insane amount of capital to get it done? 

Dayu Yang: No, that's one of the beautiful things. It's maybe not quite the next Shein. Maybe even 1% of Shein could be like a great goal already in itself. But yes, I definitely think so.

And actually, especially in the days of drop shipping, when I was drop shipping at the time, and some clients came from drop shipping too. It was almost exactly the model that they were taking on, just a much smaller scale testing things just drop shipping at first. This is what one of Shein's secret is, they are almost pretty much drop shipping a lot of their products when they first start out, they're just taking a fast race products. 

It's technically not drop shipping because they're like just next door, so they just take it and ship it out. But again, going back to they might launch a single SKU with a hundred units or something. Like their products are cheap, like a dollar each maybe. They spend like maybe a hundred dollars, $500 sometimes in the new product launch. And we've actually seen so many times as well with drop shippers start a store with literally just a couple hundred dollars in investment, and most of it's on like ads actually, right?

So yes, we have seen it over and over again that this model does actually work. Now the level of Shein obviously is quite different as well, right? Because what Shein did is not only did they leverage the supply chain, they really doubled down on this kind of like just this big fashion brand. And they were honest about it too.

And I think that's one of the things that kind of makes Shein very different than a lot of brands who might have tried to do something different, but they weren't very honest about it. They try to think that they're a very high value, potentially fashion brand, and there's different expectations and Shein is Hey, look, here's a $7 shirt. You're gonna get it in a week and it's not $50, but you might be happy that it's $7. 

Francois Marchand: Yeah. And I mean, transparency is such a big issue when it comes to fashion at this point in time. So it's better probably, to be honest about it than to try to pretend that you're doing something you're not doing.

So it might not be necessarily for the eco-conscious or green customer. The Shein model might not necessarily be what attracts them, but for the budget conscious that wants a product that's affordable and gets to them fast, then yes, why not do it. Right? 

Dayu Yang: Yes. So I have a bunch of products and maybe some people here have a bunch of products that are litterally from China, more and more actually Chinese brands as well.

So it's not necessarily cheapest possible, right? But it's really focused on great value. I like keyboards. A custom keyboards, I believe they were really all the rage coming from Europe at first. And then the Chinese market took it by storm and now like some of the best products are actually directly from China, share from China, and they're catching wild right now.

So that's one example as well. And all sorts of different consumer products. So I will just say that Chinese companies are already taking advantage of this. So in a pretty competitive market and industry like this, it's something that you at least probably want to consider to remain competitive with, Chinese brands.

Francois Marchand: Yeah. So I'm a DTC ecommerce business owner, and I want to tackle navigating the logistics of importing products from China. What are some of the common strategies that I can use to streamline that process? 

Dayu Yang: Sure. It might be better to start talking about some of the watch outs that you might wanna plan for in advance.

Francois Marchand: Sure. Okay. We can, let's talk about the risks first if you want to go that way.

Dayu Yang: Well, you we'll talk about some of the overall risks as well, but more what I mean is that in terms of just purely thinking about logistics in general, direct shipment from China to consumers has relatively evolved recently to a stable state. Back in the day when drop shipping first started, just cross border trade first started cuz something like AliExpress, it started not to support drop shippers.

It's the Amazon of China, right? It just happened to ship worldwide. Most China shipping was using postal services. They were using shipping lines that were made for mail. And they just happened to realize I guess you could just max out, like you can send parcels through mail lines as well, which was actually quite efficient, but it was very inconsistent because how it worked is that you start with the China Postal Service, China Post, and it would disappear for a while. Like it'll get on a plane, disappear for a while, and it'll end up at USPS and then it'll arrive. And it was just inconsistent.

It worked, but it was very inconsistent. However, it worked well enough that people were buying from AliExpress and then drop shippers are realizing they can actually sell and deliver to customers at a reasonable speed, so most of them wouldn't get so upset. It's not super smooth. And what happened though was that a lot of other companies realized that this was a high demand type of service.

So they actually provided, they actually launched their own courier services to replace this inconsistency. And what they utilize is a combination of, in the first mile process, like within China, they collect orders from fulfillment centers like us. They organize air freight, multiple planes sometimes to each location every single day, they clear customs in bulk on a parcel basis. 

So as soon as it arrives to the destination country, it gets fast injected into the local courier system, whether it's USPS or like Royal Mail in the UK, for example, and then it's as if you're shipping from within the US anyways. So what that does is that transition in between is extremely consistent, which was the main issue before.

So now you're seeing, you can shift to the UK from Shenzhen in as fast as two days. Now, we don't say that it always takes two days, but usually it's anywhere between three to six days, which is great. The US you can do like four to seven days or so, right? Not two day prime shipping. But honestly, if you're trying to compete with Amazon Prime, you might have a little bit of problem there.

It's fast enough and it's highly consistent. So the key here to really optimize your supply chain around utilizing this logistics chain successfully is make sure you understand what courier lines you're actually using. Make sure that you avoid the ones that are smaller. Make sure you avoid postal services.

I'll give you a few examples. One of the biggest lines out there, and Shein uses them a lot, is called Yunexpress. They're one of the biggest players in the game, and there's a couple out there, but that's an example. And a lot of times we do actually hear from folks, oh, they had such a bad experience with pan shipping.

I mean, sure, yeah. If you're using, a bad line, if you're not using the right process, then it's not exactly the possibilities or the potential of China shipping that you can actually take advantage of. So that's gonna be really the most important thing. 

Francois Marchand: We were gonna talk about some of the risks. So we talked about using the right shipping mechanisms. So avoiding the postal service, making sure that you use a big carrier that'll connect properly for your last mile delivery stage. But you know, one of the main questions that we'll get from ecommerce managers out there in ecommerce businesses relate more to quality control, product quality, maybe copied products versus original trademark brands. 

So if you're a DTC business and you want to deliver quality, how do you mitigate some of those risks that we just mentioned? Like quality and trademark infringement, for example. 

Dayu Yang: Yeah, of course. And I think that the key is you have to do your homework and really think about your business in the right way and do the right things in terms of pairing supply chain accordingly. 

In terms of product quality, so China production thankfully is not like how it was maybe 15, 20 years ago where it was a little bit of the wild west and it was definitely a crapshoot for sure. These days you are going to have great factories that really, actually potentially are better than anywhere else in the world. Actually, a lot of things were made in China anyways, so the key is finding those right factories and doing your due diligence and working with them, and also having an appetite for the balance between quality and price and potentially production time. A lot of times we see that if there's ongoing quality issues, it typically is because there is just unreasonable pressures on the factory for either costs or production times.

And quality control is a big piece of this as well. The control part of quality is actually really important because in the production process, really for any kind of factory or product, you're gonna have a certain element of variation. And that usually means quality issues, right? Now quality control is a process that is a part of the production process.

It's essentially a bit extra, right? Where there is a quality check and defects get remade or thrown away, or there's investigations around how to fix these defects in the production run, right? And so this is why, where even if you work with the best factories possible, if you're pressuring them on either time or price so that they literally do not have the time and resources to run the appropriate quality control process. 

Not saying it's your fault exactly, you as an ecommerce brand are going to have some responsibility there. 

Francois Marchand: Of course, yeah. 

Dayu Yang: And you're gonna have to come like halfway there. And similarly on the IP concern as well, right? This is where if you care about your IP, don't do stuff like drop shipping, right? Don't do stuff like find a generic product on the market and selling it and you have no IP there anyways because it's obviously a product that was made before.

If that is a serious concern for you, make sure that, obviously you do have some kind of uniqueness in your product and you make sure that you go through the right legal channels to make sure that's as protected as possible. Copycats are never going to be able to be prevented, unfortunately.

It is always a problem. I mean, it's not a problem for just ecommerce brands, but you know, like really all brands out there, right? Now, one thing to hopefully assuage those concerns a little bit is that typically speaking within the markets where that is legally protected, if you go through the right legal processes, you do have a lot of protection.

For example Shopify, what would even shut down a brand that you claim an IP infringement on your product. Whereas most of the copycat issues are obviously if you don't go through the right methods to protect yourself, or typically it's actually sold in markets where you don't have that protection in the first place like in China.

In China you could buy a pair of Nike shoes for $5. 

Francois Marchand: Sure, yeah. 

Dayu Yang: "Nike shoes", right? 

Francois Marchand: Yeah. Yeah. 

Dayu Yang: I also think that there is another concern that we generally hear about, and that's actually on the customer side where a lot of brand owners who don't have experience yet shipping from China, they actually wonder, okay, is my customer going to freak out?

Is this gonna make my brand look bad? Right? Just because it's from China. So again, I think that Shein did prove that okay, just the fact they're shipping from China doesn't mean that you can't get a loyal customer base. Again, they're not Amazon Prime. I like to use Amazon Prime a lot, I'll admit it, but you're gonna have customers who just really wanna buy Amazon Prime and you can't capture that anyways.

So just because it's shipping from China, as long as you're honest about it. And that's key and we addressed this earlier as well, that transparency. We have clients who sell thousands of orders per day. Okay? That's per day. All ship from China and they're very clear on their webpage, it's gonna take 5 to 10 days, right?

They don't necessarily say it's from China. I think it's unnecessary, and all these orders arrive and no one cares, right? Because they tell them it's gonna arrive in 5 to 10 days and it's gonna arrive in 7 days. Okay, great. Great product. I'm happy about it. And this is also, by the way, why it's important to use the right shipping lines because the current optimized shipping lines, they actually have a last mile label in the destination country. 

So the USPS label, Canada post label, for example. So, there's no Chinese on it, there's no, random stuff on it. The packaging looks like literally, I mean, technically it is from the local warehouse, right? Because if there's a routing warehouse that it goes through, anyways.

Francois Marchand: But they print the shipping labels for the destination country and those are the labels that are affixed to the packages when they send them out, correct? Yep. 

Dayu Yang: Yeah exactly. So it literally looks exactly the same. Now you could possibly pretend or represent that it's from the destination country, but I would suggest doing that. That causes more trouble than it's worth, honestly. Like most people don't care. 

Francois Marchand: That's when you're gonna get some blow bag there. 

Dayu Yang: Yeah, exactly. 

Francois Marchand: Because you're not being honest. I mean, you can't sell to your customers with a certain degree of deceit, that's not gonna work.

Dayu Yang: Exactly. On that front is that, that might work for the first order. That might work if sometimes they repurchase from you. But really the biggest brands, the most successful brands these days are the brands who have that relationship with their customers. More and more with our clients as well, everyone and they should be more optimizing for the LTV of your customer as opposed to just the revenue you get on a single sale.

And how do you optimize for LTV? Well, you get them to purchase again and again. How they do that was because they have a connection with your brand and no one's gonna have a connection with the brand that they feel cheated out of, that they feel was dishonest with them and obviously just had this bad stuff in general. 

Francois Marchand: Yeah, that's right. You mentioned earlier that China's supply chain and the factories are much different now than they used to be. So that misconception that the product that you're getting is of a lower quality because it's made from China, it's made in China and ship from China, that's gone by now. But you're still dealing with some challenges, as English speaking or other language speaking.

It doesn't necessarily deal in Mandarin or Cantonese, for example, when you're working with China's supply chain. So language barriers are a thing. How do you navigate that language barrier, making sure that your products are compliant with, your local standards? And other factors that we mentioned before, like IP and that stuff so.

Dayu Yang: Yes. 

Francois Marchand: Yeah. It becomes a little bit of a headache for ecommerce businesses. So how do you untangle that? 

Dayu Yang: So the communications front is really important, and it's not actually just purely language in the way that you can just translate and get your point across. The Chinese culture is very different in terms of the business culture and actually various other parts of the culture as well.

And a lot of the times the communications has issues not just because of your wording or translations, but it's literally just different forms of, usage in terms of communications. The Chinese culture tends to be the opposite of direct. I was gonna say indirect, but it's the opposite of direct, actually, to be more specific.

Generally speaking, Chinese people are used to reading between the lines. Assuming that other people read between their lines, it's all just mind games. I was born in China, but I grew up in the US so I'm somewhat more Chinese. I call myself bicultural cause I usually am, but then when I first met my father-in-law, it's like very traditional.

I thought I understand what he was saying the first time I met him. My wife was like, oh, did you understand his points? And I was like yeah. And she was like, no, you did not understand him at all. You that's in personal life, right? So unfortunately, this is something that simple translations can't really resolve. 

And I think that if you're really serious about dealing with Chinese businesses probably at the first stage it is probably best to actually work with some kind of third party agent, whether it's a sourcing agent, more fulfillment like more fulfillment agent like us. They do sometimes get a little bit of flack because they obviously are middlemen, right?

But there is a lot of value in that, especially if they have more western business experience as well, they can actually offer that bridge in between. And almost always, if you find the right services, it's actually worth the usually pretty small class because usually they make money on volume as opposed to, just pure, absolute amount per unit.

So that's the first step, especially if you're relatively smaller and starting out. I would say that the end game goal though is to appreciate the fact that the culture is different and work with them on that. And help your factory contact your recruit directly. Also, understand that your culture's a little bit different as well, because sometimes they don't fully realize that as well.

And having that mutual understanding and appreciation. So I'll give you an example is that, I always say that the supply chain is never perfect. Like anyone who's promised you perfection in the supply chain is probably trying to rip you off or lying to you. But then what happens though is that, especially if you're a little bit less experienced dealing with the supply chain, you assume that things should go well, right?

And when something happens, it tends to be a little bit more of a Western approach to be very direct about it and potentially be a little bit aggressive about it from the Chinese viewpoint. And it creates sometimes a vicious cycle where then your Chinese counterpart is gonna be hesitant or afraid to give you bad news, right?

Hey, you're factory burned down, sorry, can't do anything about it. The better way to probably tell you about it is they find some other option, but no, sometimes they're afraid of what's gonna happen because of your reactions, and they smooth stuff like a week later and they don't tell you why.

And then after they tell you, oh, sorry, there's a fire, we couldn't actually help it. That stuff happens. Maybe not the fire, but that stuff happens all the time. 

Francois Marchand: Yeah. Yeah. Okay. Yeah. 

Dayu Yang: In that specific situation, right? Like just having a little bit of understanding of the communication, practices, and cultural norms in the Chinese factory space where Chinese businesses, it does really help to come in the middle. Let the factory know. Let your suppliers know that, Hey, let's partner together on this. Let's communicate, tell me when thing is wrong. Maybe I might get upset, but let's work on it together.

That is really important. And related to that as well is this idea of partnership, both in terms of communications and in just working together. Especially if you're thinking about potentially, one product at a time and somewhat lower volumes. Some brands tend to think of their factories as transactions, right?

It tends to be very transactional. One order at a time, one PO at a time. And if you do that, well, they're probably going to think of you as a transactional partner as well. We're transactional relationship as opposed to a partnership, and that's gonna imply things around prioritization of your orders, potential pricing, potential additional value they can provide you, but not letting you know, right? Because why put in the effort? Because who knows when the next order's gonna come in anyways, right? So especially if you're serious about a product, you're serious about a factory, take the extra step to actually form that partnership mindset with them.

Part of it is working with them to understand issues and being patient about it. So one of the things that we always suggest to our clients is when they're working factories, tell them your plans share with them your plans. There's no point not to really, they can plan their production cycles better.

They're not always just stressed out because there's this huge PO that comes and you're giving me two weeks to knock it out and who knows when the next PO is gonna come. And actually on that point, this is one of the things that we see like a big change in the supply chain as well as they able to access this faster China fulfillment method.

Because the traditional method is ecommerce brand might order a couple of batches, a couple of POs per year. When your freight lead time is like three days, they can actually plan for five days in inventory at a time. So what this means is that they are actually able to work with the factory and say that, can we just have weekly batches as opposed to quarterly?

And a lot of times they can actually access similar pricing, even though technically smaller batches. But because they can work with their factories to smoothen out their production lines, maybe pre-order some materials, right? Which tends to drive the lead time the most, right? And some components tend to be just a fraction of the overall cost anyways, right?

So more and more we actually see this partnership model with factories to work together to figure out what the smoothest production cycle is that can also take advantage of this more agile supply chain. 

Francois Marchand: And when we talk about, supply chain agility, China, if I'm not mistaken, of course, is leading the way when it comes to automation, digital technology, just-in-time planning and using all these new tools and AI and to make sure that, production cycles are maximized and they can actually work better with small batches that you just mentioned so that all comes into play? 

Dayu Yang: Yeah, exactly. And I think ever since there was like a discipline of optimizing your supply chain, there's been this idea of how to make your supply chain more agile.

Toyota, way back in the day, was a great example of the Toyota method just-in-time. 

Francois Marchand: The Kanban. 

Dayu Yang: Exactly. Kanban just-in-time stock planning. Now it isn't impossible, theoretical ideal, I think because the most ideal is that you have demand and then make the product, and then it gets delivered. Now that's virtually impossible, but it gets closer to that possibility when your lead times are shorter. And on the other end is that if your lead times along, which is the traditional method, this is where you're forced to plan with what's more called the push method versus the pull method, right?

Push method is, you planned for your inventory in advance, you project it out. I've never seen an accurate projection in my life. It just doesn't work like that ever, so it's never perfect. And you hope you try to sell it, but part of it is hope. You hope that you sell it through. 

Francois Marchand: You anticipate the need or the demand, but it doesn't mean it's gonna sell.

Dayu Yang: Exactly. Whereas the poll model is, again, more theoretical, but as the demand comes in, then you adjust that demand. Actually, not just China logistics we're talking about, but the entire Chinese supply chain has really evolved to more of this. And by the way, this is not really even supporting Western countries. 

Like in China, Chinese consumers they're not only used to like this idea of two day shipping, but what goes behind the scenes? So how Amazon achieves two day shipping is they just have warehouses everywhere, right? How China achieves fast shipping is that literally just constant production going on and just shipping out like immediately. So they even evolve the production chain so that it can be as agile as possible.

And yes, part of it is through automation. And part of it is through technology for sure, but part of it is actually not even that complicated, right? Part of it is just being able to plan for shorter cycles, that revolutionizes everything in terms of being able to plan on a daily basis, giving on your demand. Which really was impossible, I mean, it didn't even make sense, back in the day.

Because why would you plan on a daily basis? Because you don't even have data on the, like you're not even getting daily POs, right? You're getting like, POs every year or something, from a random client somewhere. So, that's really the biggest trend that is actually happening in China right now.

And, really something that, brands around the world are really starting to take advantage of. Shein was the example they were just talking about in terms of how agile they can be. And more and more brands are seeing the benefits and, coming to film centers like us or building out their own warehouse in China.

And that being said, I would say that there is a balance. I'm not gonna go around and say everything should be shipped from China close down on the warehouses around the world. That's not necessarily the case, just from my own understanding and study the supply chain, the optimal model is actually a hybrid model.

So if we just take one country as an example, there is a trade off between speed and cost. There always is, right? The absolute cheapest way to get your orders to your customers is going to be fill up entire containers, get on the slowest boat you can find for the cheapest possible, and get it to a warehouse in the middle of nowhere.

Right? And that's gonna take three months. But that's gonna be the absolute cheapest possible. And then obviously you use the cheapest like USPS, UPS services possible, right? That's exactly what makes companies hold like six months of stock, right? Now, to be more agile, you gotta use air freight or these services that use air freight.

So it's gonna be more expensive, right, on average. However, it's all about margins at the end of the day, right? If your margins can support it, then you can consider that trade off between optimizing for your balance sheet or optimizing for your inventory costs versus somewhat lower cash flow from somewhat more expensive fulfillment services, right? 

Now, the hybrid model that I think works really well and we support a lot of our clients on is they still fill out containers, but they under stock, they under project what they need given their historical data fully knowing that there is a risk of running out. They're able to hold like 70% less inventory because of that.

And if they run out, then they ship directly from China for a month to months at a time. And you know what? They make a little bit less money, what is worse is selling out, to not make money at all. 

Francois Marchand: So if I understand correctly, what you would do is that you would reduce the costs associated with warehousing locally with holding that stock, those vast amounts of stock near where you are going to be delivering them, you cut those costs down, but you fill that gap with the expensive part of it, which is, the air freight and the last mile that is taken care of by couriers. So if you're able to balance that, then what's left is profit.

Dayu Yang: It is really that balance, right? Like how much cash do you want tied up in your inventory versus how much cash flow you actually get out it. And I think that neither extreme is the most ideal once you get to that point. But there is gonna be the balance depending on the needs of your business. Right?

And then obviously there's the international shipping part, which is, I will just say like obviously if you can't do it, just ship it from China. 

Francois Marchand: Is there an ideal ratio, like a golden ratio for what we just talked about in getting that hybrid model going? 

Dayu Yang: So it is gonna be difficult to say because it's very sensitive to the weight of your product.

So for example, like if you have a very light product, like a couple of ounces, couple hundred grams, it gets very price competitive to ship from China. Yeah, it might be cheaper to go on the sea freight portion, but what's the difference between 350 to $4 maybe on your margins when you're selling it for 30 bucks, whatever.

As it gets heavier, then it becomes a little bit more complicated because then the direct from China shipping and the air freight becomes relatively more expensive versus like just placing it in a boat. And it's gonna like really matter in terms of your margins as well. IPhones, I think iPhones can ship all from China, actually, 

Francois Marchand: Most of them do.

Dayu Yang: They also do hold local stock. 

Francois Marchand: Yeah, that's true. 

Dayu Yang: You can use the most expensive options in China. Because actually when I was saying like, four to seven days, like that's like relatively economical like option. Technically you can ship from China in three days as well. It's gonna cost a lot, but iPhones can probably support it.

Francois Marchand: The size of the package makes a difference too, like the actual size of the box that's being shipped so we're talking about weight, but the size plays a role in there too?

Dayu Yang: Yeah exactly. So there's also the volumetric measurements as well. So if your volume is too large then that counts as the way calculation, and that's very similar to the freight calculation.

There's things that are very obviously not a good fit, like furniture, like you probably shouldn't never ship furniture from China or use the air freight for furniture unless it's some antique thing. Right? Pillows. Pillows are bad because they're like, they weigh nothing, but they take a lot of space.

There are a lot of consumer products out there that, really fit that nice, not too heavy, pretty dense, pretty high value. A lot of consumer electronics, for example, fit in that perfectly, right? 

Francois Marchand: So if you're a business owner out there, do your analysis, see what works best for you, and seek out a connection, a middle person that can help you navigate the landscape in China and make those connections.

Understand the language barriers and regulations and how that works with the factories. And you're primed for being a little bit more successful in your endeavor in dealing with international DTC ecommerce from China. 

Dayu, we spent a lot of time together. We covered a lot of stuff. Thank you so much for being here. Is there anything else you'd like to add about your ecommerce experience or any other piece of advice or insight that you would rank as your number one piece of advice for ecommerce managers and businesses out there? 

Dayu Yang: I think that China shipping or China fulfillment aside, my most important piece of advice for the general ecommerce audience is don't forget that the supply chain is half of your business, quite literally, and obviously exactly what percentage is gonna depend a little bit, but you know, sometimes there is a thought that you really gotta sell stuff. You really gotta focus the marketing strategy, which is obviously very important. And I'll be honest, you can't sell stuff without good marketing, obviously. But as soon as you get to that point where you get that traction, it is true that you have to sell it first, right?

But very soon after you hit any traction at all, your supply chain becomes almost just as important because that defines your customer experience. That defines the products they get, how they feel about the physical aspects of your brand, how fast they get things, how slow they get things, that is where I do see sometimes it's, especially scaling businesses don't invest enough of their energy and thought into. So whether or not wherever you ship from, don't forget that as you scale up, the supply chain becomes more and more your business.

I'd say that definitely at least half of your business. 

Francois Marchand: Thank you so much, Dayu. I think that sums it up perfectly. Thanks again for spending so much time with us, illuminating us on China's supply chain logistics and how to make things better for your ecommerce business. 

On that note, I want to thank you the listener out there for tuning in this episode of The Ecomm Manager podcast. Your support is much appreciated. If you'd liked what you heard today, please don't be shy—leave us a review, comment, let us know how we're doing. And don't forget to subscribe to The Ecomm Manager podcast. Be the first to know when we drop a new episode in your feed.

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