Your QC department must file an incoming inspection report with a detailed defect description. Usually it will contain various photos that clearly show the defects.
It is obvious that these goods cannot be delivered to your customers because it would harm the reputation of your company.
Your company must inform both the inspection company and supplier in China immediately because they may have failed their responsibility to prevent the shipment of faulty goods. As mentioned, the defect(s) may not have been found during the inspection because it occurred during transportation. If that is not the case and the inspection company overlooked the defect, you may file a claim against them for compensation.
However, this does not solve your immediate problem, which is delivering goods to your customers. Filing a compensation claim against the inspection company will only help reduce the damages at a later stage.
Therefore, you must begin negotiating with your factory about how to solve the problem and usually there is a lot of money at stake. You can expect your supplier to be reluctant about accepting your customer claim without clear evidence that the defect exists and they were the cause of it. In addition to your QC department submitting their report and evidence, it might be a good idea to have an outside lab collaborate your QC department’s findings and also submit that to the supplier.
It now becomes important what agreements you have with your supplier about quality problems. If you have been doing business with them for awhile, they may propose sorting out the defective products by checking piece by piece. This would allow you to distribute the acceptable products to your customers.
If however the complete lot is defective, it may be a strong indication that your inspection company did not perform their work properly, you may have no other choice than to return the goods to your supplier for exchange or rework. It would be better if you can exchange the goods for a completely new lot. The freight charges (both ways) should be on your supplier’s account and of course the cost for the rework (if you accepted this as a solution) as well.
The great disadvantage to this solution is that it will take a lot of time. And time is something you do not have when your customers are waiting for their goods. You may want to consider one more option, which is reworking the goods in your country. The labor costs in your home country maybe much higher than the labor costs in China, but no sea freight charges will apply and you will probably save precious time and can supply your products to your waiting customers much earlier.
The factory may also be willing to accept the higher labor costs because they may face problems returning the goods through Chinese customs. They do not allow rejected products to enter China.
If there is no other way than to return the goods to your supplier for exchange or rework, you need to receive a written, stamped document from a factory manager/owner that spells out exactly what you have agreed to. Sending goods back without your supplier’s authorization would be the same as playing with fire. Somebody will get burned but it will not be the factory.
Also, it maybe a good idea to return all defective goods from the same factory (different goods from previous purchases) until a shipping container is filled. This saves on freight charges and leverages your bargaining power with the supplier.