Archive for the ‘Quality Control For Imports From China’ Category

How to Assure Quality Imports from China

Many importers do not realize that quality control starts long before production actually begins. In fact, an importer’s quality control begins with the evaluation and selection of their supplier in China. To sum it all up, you must be sure that you do not only find the right products but also find the best suppliers in China to manufacture for you.

What have Price and Terms Negotiations to do with Product Quality?

All price quotations in China are calculated on the individual BOM (Bill of Materials) list. This is a document used by the manufacturer or other business to authorize purchases to be made or to request materials be pulled from inventory to fulfill customer’s order.

Bills of materials are of course only one part of a product cost. Other costs as factory operations, labor, and administrative costs all go into the net cost of a product. Finally, the supplier adds their profit margin before quoting their selling price.

When you negotiate prices with your supplier, the BOM plays an essential part in your supplier’s calculation. Actually, the most important part because most of the other costs cannot be changed. The factory cannot significantly reduce the labor costs otherwise workers will flee to other employers. The equipment the factory owns and the cost of energy for the manufacturing relatively set factory operations cost.

That leaves the BOM as the only negotiable cost. Just like most things in the world, this is accomplished by substituting cheaper materials from other vendors or outsourcing part of their production to subcontractors who are likely taking quality short cuts that your supplier does not.

You might point to the profit margin as a good place to trim the price. In reality, the profit margins are so thin that if they were further reduced it would not make much sense to even open the factory doors for business. Certainly, they do not want your purchase order if it means they will lose money on the deal.

Both options that the factory has for reducing costs are bad for your quality requirements.

Sourcing cheaper components or materials usually means inferior parts or materials. Otherwise, the factory would already be using these less expensive components.

The Difference a Switch Can Make

Consider this example of what could happen.

A factory receives a large order for 200K electric hair dryers. They face the situation where the customer’s requested price is too low. They scrutinize the BOM and find an electrical switch purchased from a reputable switch maker can be substituted with a lower cost switch made in-house.

The savings is only US$ 0.05 but when multiplied by the 200K dryers it becomes a US$ 10,000 cost reduction.

Now for the real quality issue. The switch from the specialized switch maker was lab approved and had its own approval certificate. The in-house produced switch does not have its own certificate. Rather the supplier covers it with the existing certificate for the hair dryer.

You may think that an approval is an approval and it is a good way to cut costs. However, if something happens later and the hair dryer starts burning because of a faulty switch, the lack of proper approval will become a big deal.

A component with a stand alone approval is always an advantage but does cost more money.

You can see now the direct relationship between negotiating cost and the effect it can have on quality. The more you squeeze the more likely it becomes that he will reduce the BOM cost by substituting good components or materials with inferior ones.

There is always the option of substituting A-grade components with B-grade or even C-grade ones. It is nearly impossible to discover these changes but the result will be lower performing products. This is especially true of consumer electronics that need ICs, capacitors, and resistors in A-grade quality to perform properly.

If you have a good long-term relationship with a factory, you may have some reassurance that your factory will not use this cost cutting method but there is no guarantee of it.

Hidden Low Prices

Here is a little known fact that will probably surprise you. Insisting on larger than usual payment terms (L/C 90-120 days) will be reflected either in the product price or in lower quality.

The Chinese are usually good negotiators and know ways to persuade you to listen to their arguments. If they insist after several rounds of negotiations that they will lose money by meeting your target price, you should not continue pushing this issue or it will simply become hidden somewhere else.

Look for some form of compromise to avoid getting into trouble with substandard production quality that could cost you much more than accepting a few cents higher Fob price.

Ordering Samples From Chinese Factories

After making your decision about which supplier to contract with, order your product samples but plan to evaluate them after you return home.

Sample Preparation

Sample preparation, depending which kind of products you want to import, can take considerable time. Contrary to what many people think, factories usually do not keep samples in their warehouse that can be sent right away. The more complicated a product is (for instance home appliances or consumer electronics products) the longer it will take and the more diligence is needed from the factory to prepare the samples according to your specific requirements.

You have reached a turning point in your own quality control. The first step was your scrutiny of each supplier visited during the trip. You should have a good idea how each supplier will perform and how talented their management is.

Providing them with detailed information about your sample requirements could become the key to your success. Why is this so important?

When the Sample is Wrong

Imagine that you did not pay adequate attention to instructing the supplier about your sample requirements and they prepare the sample according their own factory standards. Timing however is important and you need the samples checked for compliance with your requirements in your home country. It needs to be right the first time.

If the first sample is incorrect, you could take a risk and place your order in hopes that the supplier will get it right the second time. It is not a good idea to take this risk because there cannot be a guarantee that the supplier will actually follow your new instructions.

It is best asking the supplier to manufacture new samples. Time starts to become an issue as you wait for new samples to be made and it will take 3-7 days delivery time to ship them to your home country. Add everything up and you have possibly lost a month. This could be crucial if your goal is to be among the first to promote the new products in your home market.

Never place any order with new suppliers before you receive acceptable samples with the proper quality and your QC people or an authorized lab has approved them. Anything else is a gamble and you do not want to begin production with that level of risk. Only after establishing a sound business relationship with your suppliers, can you be confident that factory will closely follow your instructions. It is important to set things right from the very beginning.

Have Samples Properly Packaged

When asking for samples, be sure to request they be packaged according to your specifications. This should be the same packaging the end consumer receives. At this point, they should workout the details to determine how many pieces fit into one 20′ or 40′ ocean-going container. Along with this, comes the details of how many fit into one export carton and if any inner packing needs to go into the export carton.

With this information, you can calculate the freight cost. It may be necessary to change the sales packaging size in order to fit more pieces into one container and save substantial freight charges. It makes a big difference if you can pack 1,400 coffeemakers in a 40′ container instead of only 1,200 pieces and it will certainly affect your selling price.

Samples are seldom free which is understandable because they are handmade and very labor intensive. Even if they are simple plastic products, the supplier has to follow your instructions and injection mold them in a certain color which is very time consuming because the plastic injection machines are usually running at full capacity and the injection is limited to one color at a time. If you ask for several different color samples, they can only make them when they have production in the requested color. Naturally, this increases the time it takes to receive the samples.

An alternative is painting the samples but the surface of a spray painted object looks different from an injected one and may mislead you into approving something that later proves to be less than perfect.

Order Plenty of Samples

Do not make the error of ordering a single sample per product/color because you need reference samples for several purposes. Common samples needs include:

  • Samples for your showroom
  • Samples for lab testing
  • Samples for photo shooting and gift box preparation
  • Samples for your inspection company
  • Samples for your sales managers to show to customers

That is only the beginning of a long list and believe me, large buying offices like hypermarkets, department stores, and other large volume importers ask for even more samples because they are aware of the extensive need when introducing a new product.

The worst-case scenario is if you give the only color reference sample to a key customer and after they place an order with you, you cannot determine which specific color to instruct the factory to begin with. It is a good idea to always keep one or more samples per color locked up in a safe place to avoid embarrassing errors. Due to the limited storage space, suppliers may not keep their reference samples at all after completing production.

You now have the information to better understand why suppliers are reluctant to provide free samples to new customers. In many cases, you can convince the supplier to refund the sample costs after you reach a certain order volume. It is good business to negotiate this in the beginning.

Besides the sample charges, you will be asked to pay the freight charges for the sample delivery. This can get expensive because samples are usually sent by air courier in order to make up lost time and stay on schedule. Suppliers do not want to pay these charges and it is often difficult to convince them to do so. If they do so, it is usually only after a successful business relationship has been established.

If you need the samples urgently, and that is usually the case, you are better advised to look for a compromise, otherwise you may lose the competitive timing edge in your home market.

Inspecting Subcontractor Factories In China

As you visit each of your factory’s various departments, you may learn a portion of the production is subcontracted to other factories. Unless special circumstances apply, the subcontractors are usually near by.

The factories find this to be a sensitive issue and may be reluctant to disclose it.

They may try pretending the other factory belongs to them and is an extension of the production of the factory you are in. There is probably nothing further from the truth. Often, relatives of your factory’s owner run the other factories and they doing each other favors. It is very common in China.

The problem you are looking to uncover is if the subcontractor has a totally different quality standard (if they have one at all). That means whatever quality assurance the factory has given to you may be contradicted or jeopardized through their cooperation with subcontractors.

The main reasons factories use subcontractors are:

  1. To save money by squeezing the subcontractor to accept lower prices than they are capable of achieving themselves
  2. To overcome a temporary production capacity shortage
  3. To do a favor for a friend or relative that does not have enough orders to run their factory efficiently
  4. Cover-up labor rights violations
  5. Access to production equipment such as injection machines, spray-painting, and mold shops that they do not have

The problem is you have no idea how well or poorly the subcontractor’s factory is managed without visiting. Your factory might not make this visit easy but you should insist.

Possibly your factory has several subcontractors. The more subcontractors, the more risk you will be taking that some of them have quality problems. This is a very good reason to insist on visiting them.

You cannot simply go wandering into the subcontractor’s factory. You are going to need cooperation from your factory. Most likely one of the staff will accompany you and your visit will probably be limited to the area of the subcontractor’s factory that is performing work for your factory.

Be sure to apply the same stringent quality and performance requirements as you did to your own factory. It is the only way you can protect your own business interests and to assure the quality of your imports from China.