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Managing the production process in China – Part II: Quality assurance, balance payment & shipment

By Fredrik Grönkvist

Production management part 2

This is the 2nd part of Managing the Production Process in China. In Part I, we covered the procedure from the negotiation of the Sales Contract and Deposit Payment, to Mass Production and Batch Samples.

In this second part, we guide you through the remaining steps of the process, including Quality Inspection, Compliance Testing, Balance Payment and, finally, shipment.

 

4. Quality Inspection & Compliance Testing

Now it’s time to verify that the products are manufactured according to the specification, and in compliance with all applicable safety standards and labelling requirements. It’s a two step process, as explained below.

a. Preparations

You may begin drafting a Quality Inspection checklist well before you even have a supplier. The purpose is to execute all tests necessary to verify that the goods are manufactured according to all technical specifications, listed in the sales agreement. Most likely, you’ll hire a China based quality inspection agency to carry out the inspection in the factory, on your behalf. However, it’s your job to provide them with explicit and clear checklists. Yes, very often they can provide detailed templates, but don’t make any assumptions. The inspection will be carried out according to the protocol.

As mentioned in Part 1: Sales Contract, all applicable standards and regulations must be specified in the contract to begin with. However, you should also contact a product testing company (i.e., SGS or Bureau Veritas) a few weeks before the goods are completed to confirm price and sample delivery address. You must also instruct your quality inspection agent to collect and submit samples, directly from the factory, to the testing company. Don’t entrust your supplier to do this for you.

Note: Don’t keep the inspection and compliance test a secret. Suppliers are more likely to adhere to your specifications and quality requirements if they know that you will check up on the goods – prior to the balance payment.

b. Execution

Most buyers choose to send the inspector once all products are fully assembled, and 50 to 80% is packed. As said, the inspection is carried out according to the protocol, with the result usually delivered within 24 hours. This is what you should expect from the QC agency:

1.    1. Quality Inspection Report: Contains all test data, including measurements and other results, compared to the ‘required result’

2. Images & Video: Showing functions, defects and testing procedures

The inspection agency shall also submit batch samples from compliance testing at this time, and you shall contact the testing company directly (unless managed by your QC agency) to confirm the arrival, and final testing cost. The test is to be carried out immediately after you have paid the testing company.

Upon completion, you now have the data you need to decide whether to approve or reject the batch. You are, most likely, forced to deal with a number of (hopefully minor) defects. If you approve both the quality inspection report, and if the test reports comes back with an approval stamp – you can now move forward to Step 5.

Note: The compliance testing process always exceeds the production time, and may add on another 1 to 4 weeks. When importing certain products, for example textiles and apparel, you may collect material samples much earlier in the process, and thereby save weeks. However, some products must be tested and certified as ‘assembled units’, which is the case for electronics and toys.

 

5. Balance Payment

There is no return after you’ve settled the balance payment. At this stage, you must be sure that the products match your quality requirements, and are made in compliance with all applicable regulations in your market. However, if there are any issues that must be corrected, hold on to the balance payment until said corrections has been made.

Once again. Pay the to the right bank account, and keep track of the details. Send a ‘payment proof’ and follow up until the payment is confirmed by the supplier. These days, most suppliers require payment before the ship to the port of loading. However, the specific terms depend on what you’ve negotiated in the contract. Some suppliers may also accept balance payment after sending the bill of lading copy, but not the original document (which is required to release the cargo).

 

6. Shipment

The exact process depends on the incoterm, specified in the sales contract. Below follows a summary:

EXW: The cargo is made ready for pickup at the supplier production facility. Your freight forwarder must take care of transportation to the port of loading, in China, and all export clearance procedures. I don’t recommend EXW under most circumstances, and it’s rarely more cost efficient.

FOB: The supplier takes care of delivery to the port of loading, and export clearance. However, you must book freight from the port of loading (e.g. Shenzhen) to your destination.

CIF: Everything included in FOB, and shipment to the Port of Destination. However, excluding port charges and inland transportation in the destination country. Port charges are often several times higher than the sea freight charge when shipping LCL (Less than Container Load), so be careful.

DAT: Everything included in CIF, and including Port Charges in the Port of Destination. However, inland transportation is not included.

DAP: Everything included in DAT, and including inland transportation to your office or warehouse.

That being said, before you can release the cargo, the supplier, or the freight forwarder, must send the freight documents, which includes the Bill of Lading, Commercial Invoice and Packing List. This must be done at the latest two weeks before the cargo is expected to arrive. For importing businesses based in, for example, Singapore, Malaysia and Australia, the documents must be delivered well before that.


Fredrik Grönkvist is the co-founder of ScandinAsian Enterprise in Shanghai. Since 2010, he and his team have helped hundreds of companies worldwide, primarily in the EU and US, to develop and manufacture products in China. He is also the main contributor on www.chinaimportal.com, a leading knowledge base for small- to medium-sized enterprises importing from Asia. For further questions, you can contact him on www.chinaimportal.com/contact-us/.

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