How to assure quality imports from China

By Klaus-Dieter Hanke

In-House Quality Control
The first thing you want to do, if you have not done so already, is to establish your own in-house quality control department. That is the first step to making sure that your company has the means to control the quality of all incoming samples or any other quality issues before you place any purchase orders.

Having your own quality control department can give your company an edge over your competitors that do not have in-house quality control capability. If your competitors already have this service and you do not, starting a quality control department will level the playing field.

Customers hate filing claims and the extra costs related to quality issues. They prefer to buy goods from a source that provides reliable quality assurance. You should consider the cost of setting up a QC department as an investment in the future of your company.

Visiting your Suppliers in China
I would also like to emphasize the importance of personally visiting your suppliers in China. You may have heard other consultants that do not see the necessity of going to China at all. They suggest their clients order samples and place orders based on the results of their sample evaluation. I strongly advise you against it and will explain why. I have over 25 years of experience importing goods from China that tells me otherwise.

Of course, some very large manufacturers in China have solid QC organizations that can guarantee you a relatively constant level of quality products. If you choose one of them, you can probably afford to be a little easier going. However, chances are that they cannot offer you the most competitive prices because their superior QC organization costs money. Also, they likely already have a customer base in your home country distributing their products. This makes it less desirable to buy from them.

Why Visit Small and Medium Suppliers
Most likely you will want to deal with smaller or medium size factories. These companies need clear instructions from you and this can be only done if you sit down face to face to discuss your requirements and expectations.

How do you expect to assure quality imports from China without ever visiting your suppliers in person to explain and discuss your quality requirements? You need to go over designs and standards. You need to ask them pertinent questions and answer their questions to be positive they fully understand your requirements.

Besides, the Chinese business culture favors frequent personal contact with their overseas trading partners and visiting suppliers is the best way to do this. It will go a long way in developing a good working relationship that will pay off time and time again.

The smaller and medium size factories can usually offer you more competitive prices. Since you are getting into importing to improve your profit margin, they will most probably be the better partners for you.

By visiting your pre-selected factories, you will be in the best position to decide with whom you want to deal with and whom you will entrust with your precious money but only after you have concluded your negotiations.

During your factory visits, you will be in for many surprises. You may have to revise your first judgments that resulted from earlier communication with some of your factories. You will find that some factories are smaller than expected and have less production capacity available on their premises that you had been led to believe. They do not want to miss out on your purchase orders so they asked a subcontractor to produce for them instead.

This is totally unacceptable because the subcontractors are almost always inferior when it comes to quality management. More importantly, they care less about your orders because you are not their direct customer. If a factory has a policy of hiring a subcontractor without informing you, simply do not work with them if you want to stay out of trouble.

What have Price and Terms Negotiations to do with Product Quality?
All price quotations in China are calculated on the individual BOM (Bill of Materials) list. This is a document used by the manufacturer or other business to authorize purchases to be made or to request materials be pulled from inventory to fulfill customer's order.

Bills of materials are of course only one part of a product cost. Other costs as factory operations, labor, and administrative costs all go into the net cost of a product. Finally, the supplier adds their profit margin before quoting their selling price.

When you negotiate prices with your supplier, the BOM plays an essential part in your supplier's calculation. Actually, the most important part because most of the other costs cannot be changed. The factory cannot significantly reduce the labor costs otherwise workers will flee to other employers. The equipment the factory owns and the cost of energy for the manufacturing relatively set factory operations cost.

That leaves the BOM as the only negotiable cost. Just like most things in the world, this is accomplished by substituting cheaper materials from other vendors or outsourcing part of their production to subcontractors who are likely taking quality short cuts that your supplier does not.

You might point to the profit margin as a good place to trim the price. In reality, the profit margins are so thin that if they were further reduced it would not make much sense to even open the factory doors for business. Certainly, they do not want your purchase order if it means they will lose money on the deal.

Both options that the factory has for reducing costs are bad for your quality requirements.

Sourcing cheaper components or materials usually means inferior parts or materials. Otherwise, the factory would already be using these less expensive components.

Hidden Low Prices
Here is a little known fact that will probably surprise you. Insisting on larger than usual payment terms (L/C 90-120 days) will be reflected either in the product price or in lower quality.

The Chinese are usually good negotiators and know ways to persuade you to listen to their arguments. If they insist after several rounds of negotiations that they will lose money by meeting your target price, you should not continue pushing this issue or it will simply become hidden somewhere else.

Look for some form of compromise to avoid getting into trouble with substandard production quality that could cost you much more than accepting a few cents higher Fob price.

---

Readers have left 4 comments.

 1. Untitled
Robin Blom, Unregistered

Amazing article!

 Posted 2008-11-21 12:04:19

 2. QA-inspector
Wang Lijun, Unregistered

Good article, quality is come from production lines, not inspection, quality start top manange ,Involve and contribute to all product member.

www.china-inspector.com

 Posted 2009-03-23 09:01:25

 3. Sales Manager
chris, Unregistered

obviously quality assurance is neccessary for any potential importer. A factory audit is a must before you place any order. There is no point to cut this cost.

Chris from http://www.fullcircleinspection.com

 Posted 2009-04-02 00:27:30

 4. Production Manager
Sam, Unregistered

I agree with most comments in the article. As a Western Managed Manufacturer in China, we always audit our Chinese Suppliers before production, during production and before shipment to ensure we are getting what we want. It's just too dangerous otherwise. But i don't agree completely when he says that when a Chinese manufacturer says the price is too low, it's too low. Having over 35 years of experience in China, every single manufacturer and supplier i've ever met has always mentioned that to me. You can not believe anybodies BOM, they always inflate it! The key is understanding your product. Understanding the actual current material, labor and overhead costs to still give a reasonable profit. See us at http//www.3cinterglobal.com to see how we can help you.

 Posted 2009-04-20 13:22:33

Add a comment
Name :
Title :
E-mail :
Website :
Comment(s) :
Verify :
	The opposite of BOY is ?

J! Reactions 1.09.04 • Professional Site License
Copyright © 2006 S. A. DeCaro