China Inspection Company: Has Yours Got a “Conflict of Interest”?

One of the tips you have often read in this blog is “you need to visit the factory and, if you can’t do it, you need an inspection company to visit it for you”.  I’ve repeated this one through different stages of the supply process (when you are selecting your supplier, through the product development process, during production, for quality control purposes…)

Today I was reading about this same topic at the Quality Inspection Tips blog. Renaud Anjoran  has written a post with tips on “How to Choose a Quality Inspection Firm”, based on an article at Pro QC International  Newsletter entitled Controlling Quality Worldwide- Without Leaving your office”.

I recommend reading both of them to get some insights on how to choose the right inspection company.

Michael L. Hetzel – Vice President / Americas, Pro QC International adds in the original article an interesting angle. Had you realized that your inspection company may have a conflict of interests?
These are the two “watch-out” remarks Mr Hetzel makes:

1. They may be the company that has qualified your supplier as ISO9000 or other quality standard
“A number of companies offering third party inspection services are also ISO9000 or other quality standard registrars. This can be a non-issue for the most part, or a liability if a vendor being qualified has been registered by that company, creating a conflict of the “of course they’re qualified, we registered them” type.”

2. They may not be a real 3rd party, but work also for the supplier.
“Another potential conflict of interest lies with companies that are not truly “third party,” who work for the supplier rather than the buyer. You’ll want a company who only works for you conducting these activities, or you may as well return to reliance on the seller’s assertions of quality and conformance and save the service costs“


Have you found yourself in this situation?
Do you agree with this view?

36 Tips on How to Deal or Negotiate with your Chinese Suppliers

During the last year, I have interviewed several entrepreneurs who source products from Chinese factories. Their tips and insights are scattered across a number of posts (and a few of them I’ve not even published). Today I am going to compile most of the tips I’ve heard so far on how to deal / negotiate with Chinese suppliers ( I say most because I am probably forgetting a few). Here is the check-list:

LOOKING FOR SUPPLIERS…
Tip #1. Initial Search for Suppliers: directories, trade-show directories and internet
Tip #2. Not all good suppliers have English websites, get on board somebody who can help you search in Chinese
Tip #3. Existing (good) suppliers may be able to help expand your supplier network in non-competing products
Tip #4. If there is any IP involved, register it in China before you approach anybody
Tip #5. Consider registering your IP for categories similar to the one you manufacture

SHORTLISTING SUPPLIERS
Tip #6. Approach them first with an introductory email presenting yourself, your company and detailing as much as possible the product you are after
Tip #7. If they do not answer fast (1-3 days) move on, they will give you trouble in the future
Tip #8. If you have a good number of suppliers to choose from, create a “pre-selection system” that helps you shortlist: level of response to your introductory e-mail response, telephone check (do they exist?), factory address provided, factory license, any certification your business requires, quality certifications…
Tip #9. Ensure you are not dealing with the middle man (I): Visit the factory… ALWAYS!
Tip #10. If you can’t visit the factory, get an Inspection Company to do it for you. It is not that expensive

NEGOTIATING WITH YOUR SELECTED SUPPLIERS
Tip #11. If you are not a fluent Chinese speaker, bring a native Chinese speaker to the negotiation- he/she will be a valuable support
Tip #12. Understand perfectly the production process
Tip #13. Be very clear on who is going to be making decisions
Tip #14. The best way to do business in China is face-to-face” Technology is great, but I do not think it is the way Chinese people are wired to work
Tip #15. “I can’t” is not in their vocabulary, so be wary if you get silence for an answer…
Tip #16. Make them recap the agreements, do not assume they understood just because you feel you were clear enough”
Tip #17. Give realistic purchase estimates. If you promise 10 more times than you are planning to buy, they will cut corners to meet their profit so it will hit you back with poor quality (they work on small margins)
Tip #18. Expect long negotiations: even points that have already been agreed will be raised again in the future
Tip #19. Pricing: Do not get obsessed with the cheapest deal. Quality has a price and you should also consider that.
Tip #20. Track commodity prices used in your products
Tip #21. Learn about your suppliers cost structure (how much goes into labor, materials cost…),
Tip #22 . If your IP is involved, make sure they agree to sign a good non disclosure agreement, with non use / non circumvention  provisions (I read this one at the China Law Blog- worth reading the whole post about it)
Tip #23. Make sure you have good contracts in place. It will be a good use of your money to get a China knowledgeable lawyer to draft them (so that the terms are enforceable and it covers all the points you need to cover- IP, stocks, product quality, product specifications, penalties, etc)
Tip #24. Ensure they have the machinery & capability to produce your product. Ask them to produce a few samples in front of you, even if they don’t match your exact specifications.

PRODUCTION & SHIPMENT
Tip #25. Make sure you visit the factory during product development. It will speed the process, as nobody will tell you on the phone when they’ve got stuck with something (especially if the product is technically sophisticated)
Tip #26. Visit the factory during production & for quality control
Tip #27. If you can’t visit factory send an inspection company or somebody you trust (and is qualified for the job)
Tip #28. Don’t pay till you are sure all the product is in good condition (make sure the contract is draft that way)
Tip # 29. Never relax! Even with good suppliers. “Quality Control: Always, even with good established suppliers”
Tip #30. Always be ready with back up options- you would be surprised about how many last minutes surprises happen
Tip #31. Expect Delays in your Supply Schedule (power shortages are common, national holidays…)
Tip #32. “Problems don’t finish after production. Supervise Logistic Paperwork! There are often mistakes that will get your shipment stuck

…ON-GOING RELATIONSHIP
Tip #33. Payment Terms… Some buyers feel that, once you build the business relationship,  things get easier (ex. Not requiring advanced payments)
Tip #34. Get rid of unreliable suppliers A.S.A.P. If they trick you once, it will happen again
Tip #35. Take care of good suppliers, they are not easy to find. Look for win-win when problems come up.
Tip #36. “Renegotiating conditions” is quite common. Your Chinese supplier sees the contract as the “beginning” of the relationship. If you follow tips 20 & 21 (track commodity prices & know suppliers cost structure) you will be able to assess if there is a fair reason to give in (hopefully in future productions)

Would you like to add your tips?

Quality Control, Quality Control, Quality Control. Can you hear me loud and clear?

Last week I was reading a post on the Silk Road International Blog with some very good advice from an industry expert on how to avoid getting into trouble when sourcing from China. I have to admit that I am really surprised that companies are still missing on two very obvious steps: quality control and production audits.

I’ve been interviewing China experts for some time, and there is one single piece of advice that they never fail to mention: quality control is a must and production inspections are more than advisable, especially with new suppliers.

Here are tips & quotes from some of those interviews:

Never relax! Even with good suppliers.
Production monitoring and quality control is still critical even when you work with your most trusted suppliers! The underlying issue is that our perception of what “acceptable” means is quite different. Your supplier may candidly approach you questioning why you can’t you take a product which is not meeting your specification if it still serves the purpose…”
from my post “7 Top Tips for Entrepreneurs Starting Business in China”- Interview with LinkPoint Europe.

“Be very strict with your quality control. You will annoy them but the loss is on you if something goes wrong.
I always go to the factory when my products are being made. I don’t tell them what day or what time, I just show up. When production has finished I personally inspect the product. I randomly inspect 10 to 30% of what has been packed. I make them open the boxes and I check the product is complying with the agreed specifications. I once made them open 300 boxes because I was not completely confident about the supplier.  They obviously don’t love it, it has a cost for them, but I don’t care. The loss is on me if something goes wrong…”
from my post “5 Tips for Negotiating a Dealing with your Suppliers in China”- Interview with Dalton Asia Limited.

I randomly check 15-20% of the final production for quality control, and reject anything that does not meet the agreed specifications. It’s usually not a problem as they always have excess production.
If you are dealing with a new supplier you must go for a production inspection”- Interview with Jennifer Patton from Asian Link

These are just a few examples of what experts based here recommend. But you don’t need to be based in China to fulfil this simple requirement. There are plenty of companies providing this type of service, so one wonders why buyers are still purchasing without QC and production inspections.