A Factory Visit to Huafun Int. (China) Co Ltd
By Dr. Neale G O’Connor FCPA (Aust)
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HUAFUN is a subsidiary company of Golden SKY. Golden SKY also has another three subsidiaries, Shenzhen Feixin Photoelectric Co., Ltd (LCD producer), Oulei Ma Technology Co., Ltd (touch panel producer) and Shenzhen Sony Technology Co., Ltd (assembler).
During the past few years, Golden SKY found that many of their suppliers went bankrupt and resulted in their operation problems, therefore, at the beginning of this year they decided to merge some small companies and do the raw materials manufacture themselves to get rid of the risk of the suppliers’ influences.
After setting up the Golden Sky Group, they can better control the cost of production. They make the main components of the tablets all by themselves, like the glasses, LCM module, and do the assembly. Particularly worth mentioning is they produce not only final products but also the components to ship to other factories.
Their finished goods include tablets, drones, car DVRs, which allows them to widen their production lines. Their daily capacity for the tablets can reach 6,000 per day.
Customers and payment terms
They will do the credit check before they start to do business with the new customers. Middle East customers normally pay by cash follow the 30/70 rule, and most of the European customers use Letter of Credit (LoC), while, American customers prefer account terms.
Regarding the managing the payments terms, they have 10 to 15 days’ open accounts for LCDs and 90 to 120 days for other products. But actually, they face a big risk of bad debts; also based on their experience before, the suppliers went to bankruptcy, and it was hard for them to get the money back. It’s always a challenge in the domestic market because in China accounts receivable can be 12 months or even longer, so it is very difficult the firm to get the cash. However, the company needs the cash to buy raw materials and pay for the daily costs. Therefore, they use the credit insurance to minimize the bad debts risk. However, the costs of the insurance will ultimately pass to the customers. Nevertheless, what they are doing creates the opportunity for small buyers to take advantage of them because the small buyers know they already have insurance.
For international customers, 70 percent of them are using the open account with 60 to 90 days, so HUAFUN normally buys the insurance for those transactions. And for the brand new customers, they will have an agreement of 30/70, which means the customers pay 30 percent deposit in advance and pay the remaining balance before shipment of the goods.
They have advanced production equipment for the LCD and touch panel, and they will do the scheduled maintenance of the machines. And all the workers who operate the machines are well trained. They have a different standard of the dust-free workshop, in some workstation, it needs a stricter dust-free environment, there will be clear casings cover the workstation, and all the workers in the workshop need wear dust cloak.
They shut down the production and shift the workers’ schedule due to the customs hold up. Even though they mentioned that this kind of issue happens once a few months, it depends on the customs inspectors; sometimes they inspect tightened because some of the big conferences are holding in Mainland. They still need to cope better with the customs issue, because this is something that does not frequently occur in other countries. If they cannot control the lead-time, it will do harm to their reputation and result in losing customers.
What surprises us is their failure online, their workshops are professional, and they have a wide range of the products with high quality. Like other companies, they also wanted to expand their online market, especially when the online markets grow so fast recently. Therefore, they put their products on Amazon, and their product even ranked as top 5 in Amazon. At the beginning of their sales on Amazon, they can sell 100 units of the $49 tablets per week.
However, they did not pay more attention to the after-sales service, some of the clients left comments to complain, but they didn’t reply in time. They only had two people in charge of online sales at that time, so Amazon decided to close their store because they did not follow up with the compliance of the customer. Amazon temporarily shut down their store to maintain their good reputation of online sales and services. Therefore, this example tells us services are as important as the products themselves.