Archive for March, 2012

How to Inspect Manufacturing Areas during your Factory Visits in China

Would you send a substantial amount of your hard earned money to someone you have not met before with only a hope that everything will be fine later? Of course not! So why are you doing this with your newly hired factories in China? To make a fine point, visiting your Chinese factories on a regular basis is a must for all importers if you you want to minimize your risks.

After you got your first impressions of the factory upon arrival and learned more at the first meeting. Next, your job will be to look at the different production and storage areas in detail to find out if the factory complies with your company’s quality expectations.

Quality Control for Incoming Material and Components

A busy factory will receive materials on a daily basis. These include raw materials, components, packing materials, and anything needed from different vendors to support the production.

Your task is to check whether the factory has established a systematic and effective incoming material/components quality control system.Ask your factory representative to take you to the incoming area to observe the Q.C. staff conducting the incoming inspection.

Rejected Materials and Components

Here is another way to check up on the factory’s incoming Q.C. process. If they try to tell you that they do not have any rejected materials or components, you can be sure that the Q.C. staff is either not being thorough enough or they are lying and they don’t have an incoming Q.C. process. Normally, every delivery will have at least a few rejects.

Visiting the Q.C. Department and Testing Equipment

This department is vital for maintaining a high quality level during production. Do not ever skip a visit to this department in order to save time. The Q.C. department is management’s method for constantly monitoring the production quality of the factory. Here, you really want to find out if you are in good hands or not. Every time goods have to be reworked or remade it costs the factory a substantial amount of money. Only constant monitoring of internal quality standards assures the factory that a major rework or remake will be avoided.

The average factory has a separate room with testing equipment and of one or more engineers to running it. When you enter this room, take note of how well they have organized themselves. You may find anything. It could be a complete mess or well laid out testing room.

Separate Q.C. Rooms for the Customers Inspectors

It is common for customers to send their own inspectors or hire an outside inspection company to perform at least a random final inspection before the goods ship. The factory is expected to provide separate Q.C. rooms for these inspectors.

If the factory does not have separate Q.C. rooms for customer inspectors, you have to refrain from working with them because they certainly do not meet the minimum requirements for quality control.

Visit the Factory’s Mold Shop

Larger factories usually have their own mold shops where different types of molds are made.

I assume that you are not an engineer and therefore maybe not very familiar with mold design and construction. It should be adequate for you to see if the factory has a mold shop at all and learn a little something about the technical equipment they are using. Since product quality depends heavily on the precision of the mold, you should be very concerned if the mold shop is using old and outdated equipment.

Metal Punching Area

Similar to the mold shop, not every factory will have or need this equipment. If they have it, it helps them control another part of their cost equation. If the factory is using as 20 or more of these extremely expensive machines, you can imagine that their volume must be quite high, otherwise they would not have invested the money.

The Injection Molding Department

After you have seen the mold shop and learned how molds for the injection machines are made, you can now see them in operation. Injection machines are also very expensive and some of them are as big as a large truck if very large plastic parts need to be injected. It is important that you understand the factory’s injection molding capacity. Often the injection capacity defines the factory’s total capacity.

Spray Painting Department

Spray painting must be done in a spray booth that can control the emissions of particles and solvents.You may find during your factory visits that some workers in the spray booths are not wearing a protective mask at all.

Solvents such as toluene and xylene are considered to be air toxic, and could cause health problems in humans.

If you don’t want to work with companies using child labor or forced labor, you really should not want to work with factories that do not care about their workers health.

Production and Assembly Lines

This part of the factory tour is preferred by most visitors. There is so much to see including the lot of beautiful girls from all the different provinces in China.

Check if production is arranged in a logical order. Common sense applies here but factories do not always follow common sense.

Workers are not typically allowed to talk to each other when working at the conveyor belt. If they are talking or arguing with each other and nobody intervenes, it is another sign of poor management.

You may come across ongoing production of goods for other companies, even your competitors. It is a good idea to take notes and photos because this information can be important for your sales managers back home.

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.

Major Reasons for Factory Claims in China

As a company importing products from China, you will face sooner or later a claim with one of your factories. Such claims can cost you a fortune and even endanger the existence of your entire company.

Many factory claims in China can be avoided though by a good functioning quality control management. From my more than 25 years working experience in China as a major importer of Chinese products, I would like to share in the following article some vital information with you to save you pain and cost.

There are various reasons for filing a claim against a factory but you will mainly be faced with:

  1. Late or incomplete deliveries
  2. Major quality issues
  3. Copyright violations
  4. Patent infringements
  5. Non-compliance with laws of the destination countries

Let me give you more information about the likely background of these claims:

  1. Late or Incomplete Deliveries claims can easily be avoided if your company exercises the necessary due diligence to monitor the production progress at the factory. If your factory was unable to produce the ordered quantity on time or could not supply part of it on time, you should have known this weeks ahead of time. It should not come as a surprise to you at the last minute. If this happens, it is likely your company’s control systems either are not yet in place or need refinement
  2. Major Quality Issues are another claim that could probably have been avoided if your QC department and your inspection company had done their homework correctly. The exceptions are hidden defects that can be only discovered after products reach a certain manufacturing operation (properly operating technical products for instance).
  3. Copyrights Violations are the worst case scenario and in general very costly. Since it is not a quality issue there are only a few precautions that you can take but they will not always prevent these claims. Chinese manufacturers have a different understanding of copyrights and from their point of view, everything looks alright. Unfortunately, it is still very common for factories to take famous brand name products and apply marginal changes in the hope that the design will be sufficiently altered to avoid copyright infringements. Most often, the design changes are not sufficient. My only advice to you is to carefully check the copyright or patent in your home country and do not rely on statements made by the factory, regardless of how convincing they may seem. You may want to contact a patent lawyer if you are in doubt. If you have the slightest doubt that your product(s) might violate copyrights, it is best to drop the products so you can enjoy a much better night’s sleep.
  4. Patent Infringements are another worse case scenario and can be even more costly than copyright violations. Patent infringements are sometimes very difficult to determine because they are at times only subtle modifications applied that can make a big difference. Trying to bypass existing patents without being an expert would be the same as playing with fire. You will be burned and will lose a lot of money on top of it. It is inevitable that you seek the help of an experienced patent attorney to avoid the many pit falls here. On the other hand, these lawyers are very expensive and you may wonder whether your effort to import a risky product (that’s what bypassing existing patents are about) is worth all your time and money. The key point here again, is that you cannot simply trust what your supplier tells you. He is not familiar with the patent laws in your country and frankly, he simply does not care. That means you are all alone and you are the one that will be held fully responsible if you import a doubtful products.
  5. Non-Compliance with the Laws of the Destination Countries is also a serious situation but different from points 3 and 4. You may be lucky and can prove to the authorities that their findings were wrong. If a problem does exist, it is very important that you can prove the problem did not happen through your negligence; meaning that you took all necessary precautions. What makes the case more serious is that you will be dealing with government authorities who are very powerful and can enforce a nationwide sales stop or even a recall of all distributed products. If that happens you will lose a lot of money and even more serious, your reputation as a high quality importer. Usually the government authorities will contact your customers first because that is where they will retrieve testing samples. Since your customers are distributing the non-compliant products, they will be liable. Still, you cannot escape your responsibilities because most retailers have clauses in their buying contracts that pass the liability for damages or claims to purchased products themselves to the importer.

All these claims are usually about huge amounts of money and avoiding them by taking the rights precautions is surely the right thing to do.