How To Avoid China Factory Claims

The first thing you want to do, if you have not done so already, is to establish your own in-house quality control department. That is the first step to making sure that your company has the means to control the quality of all incoming samples or any other quality issues before you place any purchase orders.

At the beginning, you do not want to start with too large of a department because you will be learning from experience. Efficiency should be more important to you than size. The composition of your department depends very much on the nature of your import products. If you are in the textile business, you may want to hire a textile engineer plus one or two assistants. If you are in electrical or electronic products, you need to hire an electronics engineer plus one or two technicians.

To perform their quality tests properly, your specialists will need suitable technical equipment. A note of caution: do not jump the gun by establishing a fully equipped lab at this early stage. That would prove very expensive. The easiest way to determine the kind of technical equipment needed is to rely heavily on your engineers after they are hired. They will know what is needed and where to get it. A discussion about equipping the test lab can easily be included in the interview process for the engineers.

This is the most reasonable way to establish your own functioning quality control department at an affordable cost and in the least amount of time. The second step is to visiting your Chinese factories on a regular basis if you want to minimize your risk. As a businessperson, you regularly take precautions to protect your company’s interest and visiting your supplier’s factories needs to be included as an insurance policy.

If you want to avoid claims, you need to discuss your quality requirements in person with the factory management to make sure that they have clearly understood your quality requirements and will implement it accordingly during their production.

The third step is appointing an inspection company to perform an inspection for you. You can choose from the following three primary inspection methods:

  • Initial Production Inspection (IPI)
  • During Production Inspection (DPI)
  • Final Random Inspection (FRI)

The most commonly used inspection method is the Final Random Inspection which is executed when a consignment is 100% manufactured and at least 80% packed.The fourth step is to provide precise information in your P/O, L/C and any other accompanying documents. That is often overlooked and many claims result from insufficient information from the importer to the factory. Having discussed your company’s specifications with the factory management in person, does not mean that you can omit such vital information in your documents later.

The fifth step is to include a specific provision in your contracts with Chinese suppliers requiring them to obtain and maintain sufficient product and general liability insurance with a reputable international insurance carrier.

Such insurance should not be seen as a replacement of the other four steps but it can become your backup. Following this 5-step procedure will surely help you to prevent most but not all claims with your Chinese factories.

Posted November 4th, 2009 in China Factory Claims.

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