by David Dayton in 'Silk Road International'
As I meet buyers at the recent tradeshows I've been hearing some stories about buyers being shocked at containers showing up with bad product from their supplier in China. In addition to the truth that each has a sad story and they all have indeed been lied to, most have a couple of other things in common as well—things that they did not do. But before I tell you what those commonalities are let me be very clear about my position: I'd be the first one to tell you that there are a LOT of dishonest suppliers (all over the world). You can, and probably will, get ripped off just about anywhere. But in my experience, there are two things that buyers can do that will positively affect the quality of product that you'll be able to get out of China. Surprisingly, choosing which supplier you work with is not one of them.
Sure, choosing a decent supplier is important, but it's not the "most" important or even the second most important. I say this because I'm assuming that buyers are at least smart enough to choose suppliers that have been vetted to some degree (meaning you didn't get them off of Alibaba, baidu.com or a simple Google/Bing search).
The two common (missing) characteristics in every "poor buyer" story and the also most two important things that buyers should be doing (but are not) are:
These two things are more important than anything else buyers can do. And the good news is that these are two steps in the production process that are COMPLETELY within the buyer's control. Buyers are absolutely not dependent on the factory in any way to get these two steps completed. I believe that there is no excuse for buyers being shocked at what they receive in their containers.
If you ever hear a story of how some buyer received a container of worthless garbage from their supplier in China you immediately know a couple of things about the buyer:
First, the buyer didn't participate in the production process. (No, emails back and forth to ask about production dates do not count.) I'd be willing to bet that anyone that is surprised at a container's content didn't do anything other than wire money and accept a (golden) sample sent by the factory just before or right after production was started. There is almost no way that you should be surprised at what shows up in your warehouse if you've had any responsible degree of participation in the process up to that point.
Second, you also know that the shocked buyer chose to save a few hundred dollars instead of verifying product quality before they wired money. It's ironic, but the people that are going to China purely for financial reasons (lowest cost of goods) are the ones that typically are losing the most money by allowing dishonest factories to ship unsellable product. No buyer should ever be agreeing to let product be shipped, let alone paying for product, if they have not had some independent verification that what they ordered and what's to be shipped match exactly.
SIDENOTE: A man-day of QC costs about $275-$300; a couple days of which should be well within the budget of anyone buying from China. If this is too expensive for you, if it's too large a % of your China budget, you probably shouldn't be buying from China. What many new buyers to China don't want to believe is that there is a threshold for buying in China—and if you're below that quantity China will NOT save you any money even if the cost of goods is lower than what you can buy the goods for in your home country. Remember, going factory direct means that you're cutting out many essential services that you have to replace yourself. These services (QC, testing, logistics, fulfillment, warranties, returns, banking, warehousing, customs duties, domestic distribution, etc.) all cost real money and add to your cost of goods. One container of "cheap" product that can't be sold for as much as you expected (either because you didn't do QC and it's crap or because you miscalculated all the additional costs per item) could destroy your small business.
And before you fire up that I-really-did-get-ripped-off email, I hope that you noticed that I called the factories that are filling these containers with crap "dishonest," because that's exactly what they are. I have NO tolerance for being lied to about what a factory is doing or can do. The Golden Sample, or the opposite, the we'll-get-it-right-in-production sample, are two versions of the same lie. Yes there are many dishonest suppliers in the world (not just in China). Yes there are many dishonest buyers in the West too (I've lost more money to buyers not fulfilling their contracts with me than Chinese factories will ever cheat from me). But that's the point—you do due diligence back home so that you can be protected and buyers should be doing even MORE due diligence in China since it's more "foreign" and more risky than the business environment back home. To do less due diligence in China for any reason is just stupid.
Bureau Veritas has what they call the Iron Wheel of Inspection. This wheel lists out about 8 or 9 different points in the preproduction and production process where QC and testing should be done.
Now I can hear your fingers typing already. Here it comes: "Hey! I go to China to save money. If I spend thousands of dollars on QC and testing I lose my advantage. I might as well not even go to China if I have to pay that much." Um... yeah. That's right. If your quantities are so small that you can't afford to be responsible about the quality of your product then you shouldn't be buying from China.
So what should responsible buyers do? Testing, QC, project management, more testing and more QC. And then they pay to do it all again for EVERY reorder.
For example, to meet CPSIC 2008 standards, one of our clients that was going direct to Asia for a complex product spent more than $20,000 on testing for a single order that totaled about $250,000. Testing alone cost them an additional 10%+ of their cost of goods. And then additional expenses they had to pay for included QC, shipping, returns, insurance, duties and some significant project management fees (as there were more than 20 subsuppliers from three countries involved).
If you think that you can get away without doing QC or testing, I'll be honest, you're probably right. I'll bet you can.
I'm guessing the odds are in your favor that one or two orders will be good enough quality that you can justify not doing any QC or testing. But remember, when gambling the house always wins. Always. Not doing QC is like gambling—and my advice is if you like risky fun with a slight chance of victory then you should go just go to Macau and make up a story to tell your boss about why product didn't show up. Chances are you're not going to get decent product either way. And, if you go to Macau you'll also have a cool weekend to brag about (just don't post the photos on Facebook). Bonus!
The question you have to ask yourself is this: What will it cost in terms of time/money/reputation to your company if you have to either completely rework the product in your home country or go through the entire sourcing/order/testing process again with a new supplier in China? Are those potential costs larger than the cost of a few days of QC? Unless you yourself don't care about product quality they will absolutely have to be.
So how can you do all these as cheaply as possible?
First, when you're asking for certifications and testing documents, don't get sucked into the old factory ploy, "Here are our test results from our last project. See? We can do exactly what you want." In the immortal words of Nancy Reagan, "Just say No!" This is not your product so the testing results from previous products are COMPLETELY worthless to you. Look at the papers for what they are, examples of what can be done, but no guarantee that what you've ordered meets your standards.
Second, don't buy the recent but no less nefarious ploy, "It should only cost about $150 so we'll get the testing done for you ourselves." Never allow your supplier to also be your testing agent (kind of like you should never allow the factory salesperson to be your translator—that's right, you're worried now, aren't you?). For about 1,200 to 1,500 yuan, factories can buy fake testing documents for any test imaginable. And of course, no matter what materials are used, the factory passes the tests, so what incentive do they have to get it done correctly? Answer: Little to none.
Third, pay for multiple days of QC at strategic points in the process. You need to have a complete and chopped (stamped) production schedule that includes the arrival and QC of raw materials, third-party supplied components, production goals, fulfillment, etc. Once you have this schedule you can arrange dates for QC at sensitive points in that timeline—some of the visit dates you'll tell your factory about and some I suggest that you do NOT tell them about. Just show up and see what's going on.
Fourth, if the schedule is not being followed (so QC can't see what they were sent to see) or if the QC rejects the product—have the factory pay for the return/make-up visit. This is a standard practice and most factories will agree to this. But get it in your contract upfront so that there are no arguments about it later. (You do have a contract, in Chinese, right?)
Fifth, have all samples pulled from production by a third party and not by the factory (either to be sent to you or to a testing company). This can be expensive. Usually having someone go out just to pull samples costs the same as having someone spend an entire day doing QC for you. But, if you don't want the Golden Sample sent to the testing facilities, you need to pull these yourself. If you don't want the sample that the factory sent just to make you happy, then you need to pull these yourself.
Sixth, don't pay a deposit or start an order until the samples are 100% correct, especially if tooling is involved. If you believe the "We'll get it right in production" line, I've got some oceanfront property in AZ for sale, interested? Really, if you agree to this line you've got no standard to QC against. You've got no assurance that they can even meet your contractual standards. Now maybe you'll just get a Golden Sample, you say. And you'd be right, maybe you will. But what would you rather be fighting for, a standard that has never been met before or a standard that has been met but turns out to be very difficult to duplicate? For my money I'd rather be fighting to get the Golden Sample duplicated rather than hoping against hope they'll figure out a way to do something they've never ever done before.
Seventh, pay for container loading confirmation. What good is approved product if you're not getting the product that you verified? Not much.
Finally, tie all payments to the passing of independent tests and 3PQC. Contract for this. No matter what your supplier says, do not ever pay for any product that did not pass your independent QC/testing.