By David Dayton in 'Silk Road International'
Sometimes getting something is just not better than getting nothing. For example, 60 percent of your order on time and the rest weeks later not only isn't helpful if you have to deliver 80 to 90 percent on time to a single distributor, it can be downright disastrous for your future business.
My experience is that most factories in China just don't get this—they don't understand the strict nature of delivery dates and wholesale responsibilities in the west. AND, they don't want to give you bad news either. The thought process is that some product on time will help you (or at least pacify your anger). They don't know that if you don't get what you ordered on time, sometimes there is no "later" opportunity. AND they usually hide as much of the problems as they can from you and either keep asking for more money (a sign that there are problems) or keep promising delivery on time despite the fact that your own numbers are saying otherwise. When the ship date arrives and they can't ship quantities even close to 100 percent, they'll have a great story, "Your QC was too strict," "Component X was much harder to work with than we expected," but they won't have what you ordered.
At the Global Sources New Buyer Shows I tell first time buyers: If you've mortgaged your home and expect to deliver product from China within a window of less than a week, you're going to lose your house. If you have to deliver to a single location, if you have a delivery window of only a few days or if you are paying more for multiple shipments, it's often better to delay shipping partial quantities and wait for the entire order to ship at once.
But this can be a double-edged sword. Yes, it means that you'll get it all at one time. But once you tell a factory that 100 percent quantity has to be completed and shipped on the same date—any delay means that they now have permission to miss the original shipping date for the entire order. But unless you're very clear, demanding 100 percent on a single day can mean that "the day" may be a long time in coming.
Where you have some leverage is in the fact that factories don't want to wait or hold product. Factories don't want to be responsible for product or for redo's or for additional shipping charges or give you time to renegotiate. They want to have you book the containers and then they fill them with as much as they can on the ship date, regardless of if it's what you've requested or not. Once the container has left their facilities they can't call it back and they (nor you) can't get it out of customs once it enters the port yard. Once they get it out the gate, it's gone—and that's the goal: Just get it gone!
The analysis goes like this: We have to deliver something. We'll work on what they expect and get as much done as we can (as much as they want to within the context of other clients' needs, raw materials' price changes, other cost changes, etc.). If it's not 100 percent, we can always just add the missing quantities to the reorder. You can use this desire to get stuff gone to get what you want on time—if you catch the problems early enough AND if you are in the factory and can enforce changes quickly enough. Usually this means that your QC or project manager steps in as soon as there are issues—within hours or a couple of days of finding issues. If you wait a week (because you're out of the county, it's too late).
Either catch it early or ship late. There are few other options. Factories will never give you money back. They will discount reorders, they will give you "free" additional quantities on reorders, they will fix or repair current orders, but they will never just hand cash back to you. Why would they? What are you going to do if they don't? Exactly. Nothing. So just don't ever expect to get your money back.
Factories will also never take product back once it's been delivered to you. Not only will they not even talk about it, if you do actually put it on a boat and return it, chances are the Chinese government won't even let it into China. Again, once it's gone, it's gone.
Recent example: "We know that about 10 percent should be rejected, but the cartons are packed and the container is loaded. We'll just give you 10 percent more for free." That's great, thanks for the free stuff but who pays for international shipping of crap? Who pays for the rejects and the domestic shipping returns from the retail stores to me? Who pays for my damaged reputation in the market? What about the wasted warehouse space for the bad product? And how about the wasted time to sort and restock? How about the fact that you know you did it wrong but you didn't do or say anything about it until it was too late? What if I don't want the product at all now (a real threat if the reject percentage is too high)?
There are really only two solutions to having bad or late product. You can accept it or you can delay it. Accepting it means that you have to deal with the reaction from your market and buyers. Delaying it to rework or replace it means that you'll get it right, but you'll also be late and that may mean that specific buyers may no longer take the product at all. So what do you do? First, you either get into the factory yourself or you have someone in there for you. You never find out about problems until you're supposed to ship unless you're there. If you're not there at all you're asking for trouble—you're basically trusting someone else with your money, and that someone else does not have the same goals as you do. You want the best product you can get (and you've contracted for such). They want to save as much as possible on each and every piece they ship out.
Second, you follow production as closely as possible—any red flag comes and you immediately investigate. If you're getting red flags in edited and controlled email communications, you know that production is not nearly as good as what you're being told and the problems are probably worse. Third, step in to resolve issues ASAP. Don't assume that they'll get it right or even take responsibility for mistakes. Work with them to fix issues, but do work and work quickly to get questions and problems taken care of sooner than later. Or you'll be stuck with the choice of crap on time or quality at some later date.
Finally, if you have delays due to quality and the factory has shipped out a majority of the goods for you already, you actually now have the upper hand in negotiations. And you may be getting, by default, better payment terms too. I would never advise anyone to abuse this new power position, since it WILL come back to bite you, but I will say this: Use this to get what you want done right and make sure that you get EVERYTHING you contracted for before you pay.
For example, we had a multicontainer order last year that didn't all go out at the same time because of quality delays. After shipping about five of the six or seven containers they played the old "we won't ship the last container until you pay the full balance" card. Of course we said, "Fine. Keep it. We won't pay for the 70 percent outstanding balance." They shipped two days later. This is a simple example where they just didn't play it very smart and a lot of times it's more complex than that. But don't be vindictive about withholding money or demanding extra product or perfect quality for the last container. Keep your side of the bargain and be fair. Remember the goal is to get as much as possible as on time as possible and then to get the rest done correctly before it ships.