- Published on Tuesday, 27 March 2012 11:10
by Mike Bellamy in the book "The Essential Reference Guide to China Sourcing”
A visit to the factories is the best way to review quality systems, confirm production methods, negotiate pricing and look for any potential red flags. In other words, your visit to the production facility is to confirm the information given to you during the earlier phases was accurate and truthful. This is an essential yet often overlooked step by those looking to cut corners during research. Unfortunately, due to the massive number of trading companies and aggressive China sales staff who will say almost anything to get your business, visiting the production line in person (or via your appointed representative) is the only way to confirm the real situation.
Here are some red flags to look out for:
- Communication skills: How well do you really communicate. If you are using a lot of hand signals and have trouble getting the point across in person, you may face massive obstacles down the road when you really need clear communication. For example, if there is a quality issue or need to make technical engineering adjustments.
- Bait and switch: Be explicit that the production location may be audited and that the production location cannot be changed without the approval of the buyer. You would be surprised at the number of middlemen who will take the buyer on a visit of a factory only to change the location to a less expensive and poorer quality option after the buyer leaves.
- Ownership: If you gave the factory bonus points for having foreign ownership or a specific JV partner, ask to learn about this partner’s involvement in the day-to-day operations when you visit the factory.
- Product and export history: Most buyers do not want to be the guinea pigs for a supplier testing out a new product or ties to export for the first time. When face-to-face, ask about their history. Then verify by taking a look in the warehouse. If the supplier claims they have lots of experience exporting to Denmark, but all of the boxes in the warehouse state the delivery destination to be Africa, you are safe to assume that you may be dealing with a supplier that is not up to European standards. I am not saying that African standards are low, but most buyers in that region emphasize price over quality and it is hard to take a factory that has been focused on this mentality and in the course of one order suddenly have them switch to a quality-first mentality.
- License: Do they have an import/export license hanging on the wall? If not, they may be great manufacturers but they will need to hire a 3rd party to export the product. This adds to the price and can make it difficult for the buyer to control who has access to sensitive information.
- References / recommendations: It is my firm belief that if a factory cannot give at least three references to a potential buyer, the buyer should run away. Even a mediocre factory should have at least a few clients who are friendly enough to be a reference. The supplier may say they do not give out references for security reasons. This may be a legitimate reason, but you can still pick up the identity of their buyers with the following tricks of the trade:
- Almost all buyers have the supplier print their name and address on the shipping cartons. If you can get into the warehouse on the tour, discreetly take note of the names on the shipping cartons and follow up with them directly to get a feel for what it is like doing business with this factory.
- In the factory’s sample room you may find information about the buyer located on the unit packaging, or part number found on the product itself.
- Average order quantities & production times: I have never had a supplier tell me they were at full capacity and thus could not take my order--even when they were out of space and staff. In most cases, they planned to take my order and outsource it to another factory and in other cases they explained that in theory, if given enough time, they could expand their operation to accommodate my order. So if you are worried about capacity, make sure you see with your own eyes the space and staff to be applied to your order.
- Actual vs. theoretical capacity: Do not be afraid to pull out a stopwatch and calculator to get a feel for how long it takes to produce a given widget. This is an effective way to verify the numbers given by the supplier about lead time. If your numbers and their numbers are off, ask them to take their average order quantity and break down the production process and timing. If they cannot convince you clearly why your numbers are wrong, it means that they probably have not got a clue themselves. Well managed factories will have intimate knowledge about how every minute of their labor is utilized.
- See QC in action: The quality control system you see during your factory visit is most likely the system that will be applied to your production. So if there are big holes (like no QC plan at all), then expect problems.
- What is outsourced? When is it outsourced? Do not ask your supplier “if anything is outsourced” because they will instinctively say “nothing is outsourced” because they know that outsourcing has negative connotations. When they say “nothing is outsourced”, they really mean that “they feel the core production is not outsourced”. The problem is that you may have a very different take on what the core production is. Especially if certain production methods are essential for the control of quality and protection of intellectual property.
So rather than ask “if it is outsourced” ask “what components are outsourced and at what stage of production?” For example, if they are making electronics, most likely they do not also make batteries or fasteners in house. It’s OK that some items in the BOM (bill of material) are outsourced, but it is critical that you know which ones. This is particularly true when it comes to tool and die work. Many suppliers outsource their mold making for example, but bring the molds into their factory to shoot the plastic parts. This is important to know if your mold has propriety designs that you do not want to be made public.
- Are you at the factory? If your “factory tour” is limited to a meeting at a hotel or in the sales office, there may be a reason you are being kept at arm’s length from the production location.
Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center. He is also the author of "The Essential Reference Guide to China Sourcing" and founder of PassageMaker Sourcing Solutions.