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How to organise an effective RFQ in China

How to organise an effective RFQ in China

My friend and fellow CSIC contributor Neale O’Connor is a Visiting Associate Professor at the National University of Singapore. As part of a research project, he had his students contact almost 50 suppliers in China to get quotes on USB drives.

You can find the data below. Here are my suggested takeaways from the research. While the pricing points may be of interest if you are a buyer of USB’s, for me the most interesting aspect is the way in which the quotes were received from the suppliers.

Keep in mind that the students asked all the suppliers to quote on the same specs and counter sample. Yet you can clearly see below that no two quotes share the same format. Every price is different, just as every quote format is different. Currencies, MOQ, Specs are jumbled together in way that makes it impossible for a buyer to conduct an apples to apples comparison of the supplier simply by price.

Lead times, MOQ, Specification (quality level) all impact the price. Picking the lowest price offer is most likely not the best option from the 45 choices below.

Since China doesn’t have a standard format for the factory quotes, how to plan an effective RFQ in China (request for quotation)?

Here is a behind the scenes look at how companies like PassageMaker conduct the research to find factory direct sources for our clients. The single most important factor in determining the success or failure of your sourcing program will be finding the right supplier. It sounds obvious, but making apples-to-apples comparisons of vendors at a national level can be daunting. Just look at how messy the data is from the USB suppliers below.

Phase One “Defining”

The “right supplier” is unique to each buyer. Force yourself to list all the desired attributes of the product and factory and rank them. Beyond the holy trinity of price/quality/lead-time also think of attributes like location (do they need to be near a certain port or in area where you have other vendors), Capacity, Service Attitude, Language, Intellectual Property, Warranty Terms, Factory Ownership, Equipment, Export Experience and so on.

Phase Two “Initial Research”

Initial research generates a list of 50-100 potential Chinese suppliers using existing vendors in the AVL (approved vendor list) and web directories and industry/trade show directories.

Assume the vendor is a middleman until proven otherwise, not the other way around.

Avoid factories that refuse to list the name or location of the production facility- they probably don’t own the PRC factory and are a middleman of some sort.

Focus on those factories that can clearly show production experience with your particular product or production method.

Be aware that polished English skills do not reflect production skills. Often the most polished websites are set up by trading companies.

Review the 50-100 candidates’ websites and brochures against client’s desired attribute list. But hold off on asking for price or even contacting the potential suppliers until step 3. If you start asking about price too early you will subconsciously gravitate to the vendors with the lowest price. That may or may not be the best overall option. Narrow the field down to 15 to 20 candidates based on non-price attributes.

Phase Three “First Contact”

At this point, “first contact” is initiated with 15-20 vendors in the following 5-step process.

Step one: Send an e-mail to ask for a quote. That sounds easy enough, but if you don’t follow some simple tips, you will most likely get a mess like the students got when researching the USB prices below.

Time Saving Tips:

a) Give the supplier your RFQ form to fill in which specifies the attributes you care about. That way all the suppliers are filling out the same form with the same fields. This will make it a lot easier for you to compare options.

b) For reference, also ask them to offer a quote in the standard format they use. If they don’t have a formal quote sheet, run away. That’s a red flag that they are not professional.

c) Be as specific as possible in the product description. Ask the supplier to quote to your spec. If they quote off-spec, ask them to explain in detail where their quote differs from your specs.

Step two: Are samples available? If they don’t have samples readily available, they probably don’t deal in your product on a regular basis.

Step three: Granted the sales team will be the most polished in terms of English skills, but how is their understanding of your basic requests? If you ask for information on a red umbrella and get sent a sample of a blue shoe, you are going to have problems with communication down the road!

Step four: Don’t be seduced by the siren’s song of low price. The lowest unit price can be the most expensive supplier after you factor in the cost of defects, missed deliveries and operations headaches!

Step five: Confirm the actual production location and ask for ownership papers of the factory. Be explicit that the production location may be audited and that this location cannot be changed w/out approval of buyer. (You would be surprised at the number of middlemen who will take the buyer on a visit of a factory only to change the location to a less expensive and poorer quality option after the buyer leaves)

The above research should narrow the field down to about 5 highly qualified candidates. As that point you can, with confidence, move to the final steps of negotiation, due diligence/auditing and sampling.

Related Content and Reference Material

Data from Prof. O’Connor’s research on USB pricing is listed below.

How do we choose a good manufacturer in China?

Video 1: Finding Suppliers

Video 2: Evaluating Suppliers

Video 3: Negotiations

Video 4: Project Management and Quality Control

Video 8: Avoiding Scams

QuoteNamePriceMin. OrderDelivery TermsEssential Details
1ISINO Industrial Development Co.LtdSGD4.0310002 years warranty
2Nextkey Technology Co. LtdUSD3.499100Delivery date is 2 to 3 working days after order is confirmed. Shipping cost depend son the total quantity and delivery address.12 months warranty. Quotation price valid for 4 days. Payment is made through T/T to company account. *Price quotation based on 1000 pieces.
3Hongkong Xinkang Industry Co LimitedUSD2.65Shipping fee of 1000 pcs is US$100 with door to door delivery. EMS, DHL UPS and TNT available for shipping. Delivery within 3 to 7 days.5 years warranty.
4ShenZhen Wing Digital Co.,LtdSGD0.9200Shipping terms: EMS,DHL,UPS,FedEx; FOB Price; Delivery time 4-7 days; 5 Years WarrantyFor order of 1000pc, additional 10% off with free 50 pcs
5Shenzhen Kongs Technology LimitedSGD3.431000$120 DHL delivery
6Shenzhen Full USB Co. LtdSGD1.00500 pieces– 3 Days – Free Delivery– Free printing of logo – 2 year warranty – Return/Refunds if broken along delivery
7Shenzhen Alpha Technology Co LtdSGD3.3nil-7 Days – USD 238Logo engraving included
8Zhenghong (HK) Technology Co LtdSGD4.15nil– 3 Days – Free Delivery– One Year Warranty – Logo Engraving included
9East Sky Industry Co.,LimitedUSD 3.27/USD 3.54100 units– Mass production will be done within 4-5 working days(after our Chinese New Year Holiday) – We are on Chinese new Year holiday from Jan.,25,2014 to Feb.,8,2014 and start to work on Feb.,9,2014. ***Production and delivery is 15-20 days depending on the complexity of the design (info from company website)– Our price is for 100% genuine memory capacity,if you find any upgraded USB from us, you can send back to us and we will send back to you new one. – Our quality is very good, we can control RMA rate as 0.1% or below.
10 Shenzhen Ninesong Technology Co. LtdSGD3.5503-4 days, Free ShippingPayment by Western Union, T/T, Letter of Credit, Alipay, Paypal, 3 years warranty
11Fortune Port Technology LtdSGD2.002005-7 days3 years warranty, 30% deposit in advance, Western Union, TT, LC, Alipay, Paypal
12Fuzhou Everkings Import & Export Co LtdSGD1.51003-7 days after order made, plus free samples2 years warranty, L/C, T/T, Western Union, MoneyGram, Paypal, Escrow
13GIGAFLASH LIMITEDUSD3.751000NAPrice valid 2 days from now
14VTD Technology International Co., LtdSGD4.1100Door-to-Door Delivery;Incl. of shipping insurance (coverage unstated);Excl. Singapore Import TaxPrinting on one side only;Payment must be made through Western Union;Part payment allowed:at least 30% before production begins;remainder pior to shipping out of the factory (photo verification provided)
15Nantai TechnologySGD4.251000 pcsDelivery charge $100Warranty of 2 years
16Flason Electronic Co.,LimitedUSD4.05100Not specified– Flash price is not very stable, so the final price will be subject to the day’s market price you confirm the order. – Payment terms: TT or Western Union – Warranty Term: 2 Years
17Weterm International Co., LtdUSD3.47Not specifiedFedEx shipping cost:US$135 *delivery time: 5-6 working days*both sides full color logo included *each in a poly bag *price valid before Chinese New Year Festival
18Shenzhen Baizhi Electronic Co., Ltd.USD4.841000 piecesFOBFree engraving, data pre-load and autorun
19Shenzhen Oriphe Technology Co., Ltd.USD3.181000 piecesUSD216 via FEDEXFree engraving under 3 colours
20Shenzhen Dingsheng Electronic Co. LtdUSD2.80100 PiecesLead Time: 3-4 days, Free deliveryFree packaging, Free samples
21ISINO Industrial Development Co.LtdSGD4.031000Delivery Not included2 years warranty
22Gigaflash Limited (Vida Design Ltd)USD3.851000 piecesFOB Port (HK SAR)Laser Engraving of Logo Included, 1 year warranty, With RoHS, CE and FCC marks, 7-8 day Lead Time
23Nextkey TechnologyUSD 2.598500pcsLead time for mass production: 3-4 days after payment received. Shipping cost: depends on the order quantity and delivery address.1 year warranty The price is valid for 2 days Lead time for sample: 3-4 days after payment received. Sample price is USD10 more, but we will return sample cost when you place order with us. Payment: T/T to company account
24FlashbaySGD7.841000 pieces6 days from receiving payment10 years warranty
25Industrial Co., Ltd / Shenzhen Alpha Technology Co., LtdSGD3.31000Shipping cost by DHL, CIF Singapore: $2383. Lead time: We only can provide usb to you about 2/16, as we are in CNY holiday now ,and we will come back to work on 2/9, thanks.Payment: T/T in advance to our bank account
26Bestar Industrial HK LimitedUSD4.051000 pcsFOB ShenzhenFree warranty: 2 years. Payment via TT: 30% deposit in advance, balance due before shipment.
27East Sky Industry CoUSD3.271000 pcsFOB ShenzhenProduction time: 4 – 5 working days
28SHIXIN Venture Trading Co., Ltd.USD3.55No MOQFOB Shanghai, delivery within 3 – 7 working daysPayment via TT: Before shipment.
29Xiamen HuachangUSD2.191000 pcsFOB Taiwan via EMS / DHL / China Post / HK PostInternational warranty: 5 years.
30New Rich Industry Development Co., LimitedUSD2.501000 pcsFOB Shenzhen, delivery within 3 – 5 working days
31Shenzhen USB High Electric Co., LtdUSD3.001000 pcsFOB ShenzhenProduction time: 3 – 5 working days
32Shenzhen USB High Electric Co., LtdUSD3.10100 PiecesDelivery way : DHL , UPS ,EMS and FEDES;3、Lead Time : Money can be received later 10days can delivery 4、Sample lead time : 1~3days
33 Shenzhen Honorwell Technology Co., LtdSGD3.901000 pcsusd 170 for DHL deliveryProduction time: 6-7days
34Weterm International Co., LtdUS3.22FedEx shipping cost:US$135; delivery time: 5-6 working daysprice valid before Chinese New Year Festival.(we will on holiday from 25th Jan to 6th Feb for CNY)
35East Sky Industry Co.,LimitedUS3.271000 pcsShipment cost by DHL (door to door) to SingaporePlastic box (95*45*21mm): US$0.12/pcs added on above quotation.
36SHIXIN Venture Trading Co., Ltd.USD3.55 NO MOQDelivery time :3~7 working days
37EbayUSD$4.031000 piecesAddress to be per the one on the PayPal or Credit Card (this is according to the policies PayPal and Credit.Do not ship to any international addresses à But upon enquiry (see above), they are willing to ship to30 days have receiving the item; Money back; Buyer to pay for return shipping
38Lion City Gifts located in SingaporeSGD$5.7550 piecesFree local delivery to 1 locationNett price. Free white cardboard box.
39 itforlessusa from eBay located in New York, United StatesUSD$4.031,000 piecesShips to SingaporeReturn policy within 30 days of receiving item with money back but buyer has to pay for return shipping. Payment to be made through wire transfer or western union. 1 year warranty.
40Flason Electronic Co.,LimitedUSD 4.66Within China, paid by customerWarranty Term: 2 Years
41晟济旗舰店SGD3.7No MOQWithin China, paid by customerUnconditional return within 7 days, money back within 2-3 days
42深圳市泰达兴科技有限公司SGD0.810Within China, paid by customerWarranty: 3 years
43Xia Men Hua ChangUSD2.991000 piecesFOB shanghai by EMS/DHL/China post/HK postinternational warranty . 5 years
44New Rich Industry Development Co., LimitedUSD2.50Not specifiedDelivery time :3-5 work day;DHL (CIF to your door by DHL)
45FlashbayUSD16.2725Delivery is $55.00 for any quantity to Singapore.All product prices include branding with your artwork on both the front and back (where possible). There are no origination/setup charges.

China sourcing: Purchasing manager’s salary in China and USA

Average us purchasing manager salary 2014

According to US Census Data in 2014, the average annual salary (exclusive of bonus and benefits) for a Purchasing Manager is USD 90,558. Their Chinese counterpart earns less than a 1/3 of that amount.

A US-based manager with even basic Asian language skills and Asian sourcing experience will command an even hirer salary. Additionally, a team of managers and support staff will need to be hired, trained and supervised if there is a desire to have the in-house resources needed to manage an international supply chain.

Spending time in Asia at the factory is almost a pre-requisite for success, but the cost of sending staff to Asia on multiple business trips can be cost prohibitive. The figures above are for direct salary only. All in cost to the American company to hire staff in the USA is significantly higher after bonus, overheads, mandatory benefits and other in-direct costs are calculated.

According to Fiducia in their report on HR costs in China for 2014, the average salary across all industries in the Guangdong providence is 4200 RMB per month. Even after adding bonus, mandatory benefits, dorm/housing and meal allowance, the direct labor is still under 15,000 USD per year.

2014 avg salary china

That number may sound very attractive but know that the “average person” didn’t attend university, doesn’t speak English and has very little international trade experience. A review of the internet job forums in China will show that a Chinese manager with a university degree and 5 years’ experience in general sourcing or trading can earn around 12,000 RMB per month in a major Chinese city. Candidates with specialized skills can earn much more.

Even at around $30,000 a year for an experienced Sr. Chinese manager, the cost is still a fraction of the funds needed to engage professional staff in a developed economy like N. America, EU and Australia/NZ.

The advantages of outsourcing Supply Chain Management to a lower cost country is two-fold:

Significantly reduced HR costs

Physical proximity to supply base

So why isn’t everybody opening an international purchasing office in Asia?

Almost all small-medium sized firms and even the majority of large buyers don’t actually set up their own office in China because hiring and managing a team in China is no easy task from a culture, administrative, legal, linguistic and economic point of view.

For those reasons, China-based agents are often engaged and there has been an explosion in the number of China sourcing agencies over the past 10 year. Unfortunately, there is a lack of professionalism, transparency and experience among these China based agents. Far too much overpromising and under-delivery.

A Chinese or Foreign owned sourcing agency will charge between 3% and 15% of the PO value to perform various services at various levels of (un) professionalism. These agents often receive hidden kickbacks from the factory. As a result, the so-called “buyer’s representative” is actually working for the factory!

Related content: Visit our FAQ page to see what is really happening if your agent offers to do the sourcing for free

Product Certification and Compliance in China: The Key Steps.

Product Certification and Compliance in China The Key Steps.

As the client’s purchasing agent on the ground in China, it’s not just factories that PassageMaker coordinates. For example, during the product development phase, we often help clients confirm which certificates are required to sell a given product in a given market. Safety certificates are especially important for importers of electronics, toys, medical equipment and such.

Recently, a client who has a new and unique design for a Wi-Fi enabled household wall socket asked his account manager at PassageMakerwhat safety certificates and markings do I need listed on my product to be in compliance in China with product regulations?”

If you find yourself asking similar questions for your product, you may find our response below of interest.

Excerpts from the email to the client as follows:

There are three main tasks at hand.

A) Confirm the product you have in mind is safe and is compliant with the standards set by the government in the market where you wish to sell this product.

B) Confirm what markings and labelling is required to be present on the product or product packaging.

C) Confirm if there are any certs that need to be shown to the authorities in China when exporting out of the country. Many new buyers forget about item #3 and end up having their product stuck at customs in China!

Here is the suggested plan of action!

First off, confirm in which countries you wish to sell your product.

Depending on which markets you have in mind, we may be able to find some of the information we need on a government website. But most of the time the information is not clear and it is constantly being updated. It’s rare for a government official in just about any country to take the time and point us in the right direction. In our experience, the best option is to consult with an accredited laboratory. These are the labs that can not only confirm what product attributes need to be in place (like fire retardant material for children’s sleepwear or the standard for pinch points on a toy) but they can also test the actual products to confirm if it meets these standards. For your product we can ask a few labs and get quotes from UL, Intertek and some others to ensure the best pricing.

If the product is in production phase we can coordinate your engineering firm and the labs to ensure the design will meet specs. No sense spending a lot on engineering only to learn that the finished product won’t be fit for sale in your given market.

If the product design is complete, give us a sample of the product from the supplier you said you were working with. Note that this sample needs to exactly the same as what you plan to produce in full production. If the materials and designs changes, you may be required repeat the conformance testing.

BTW, it’s not uncommon for the sales guy at the factory to say their product conforms to your market’s standards. They may even print a UL or CE mark on the item. I have seen supplier print UL on a product that was never tested, just to get a sale from a naive buyer. Certs can also be forged.

Keep in mind that if there is a problem in your home market, you are the importer of record, so the lawyers are coming after you, not the factory way over in China. For that reason, we highly recommend you do independent testing, even if the supplier claims the product is compliant.

Here is the key information we will get from the labs:

1) What tests need to be done for what purpose

2) What is the cost for the test from various labs

3) How long it will take to do this test

4) What testing plan should we put in place for periodic testing during on-going production?

5) Is the supplier’s existing test certification or test number on file? Because your product is totally new and a custom design that you came up with, I suspect we need to do the full compliance confirmations from scratch.

While we haven’t seen your product yet, based on your initial notes, at a minimum, for Europe they will need to do CE, for USA they will need to do UL (but if your Wi-Fi socket has the electronics circuit board inside then FCC may also be needed). Canada needs CSA and for AUS/NZ they will need C Tick test.

We will also have our in-house customs brokers take a sample down to the port and visit with the customs officials to confirm if there are any potential roadblocks in terms of certs and markings for the product to leave China.

Protecting intellectual property in China: Don’t be a guinea pig!

Protecting intellectual property in China Dont be a guinea pig

In the West we say “don’t burn your bridges”

In China they probably say “let the bridges you burn light the way”.

In a recent China Daily article, Heavy Equipment Manufacturer LiuGong (think of a Chinese knock off of Caterpillar) proudly explains how their company, over a 50 year period, leveraged naive international buyers and partners to grow their business. Here are some excerpts, be warned, you will see no sense of remorse.

An Australian customer bought a loader from LiuGong. Because the loader was equipped with an imported automatic gearbox, the mismatch between it and the supporting system caused many malfunctions. The angry customer set the loader on fire.

LiuGong discovered one of its Italian clients had repainted its products once the machines arrived in Italy because the customer said, “the ugly design cannot be changed, and the rusty look is intolerable”.

In other words, the strategy was “get the order, ship some junk, learn where the customer is not happy, and try to improve on the next order”.

I’m not sure if this strategy is part of Sun Tzu’s art of war, but it certainly is commonly used by Chinese suppliers large and small, even today. And there is absolutely no sense of embarrassment regarding the abuse of clients for unilateral gain.

Pretty smart. They found a way for early clients to finance the R&D, yet early clients don’t get any return on that investment.

The article goes on to explain that

“Mergers and acquisitions became a shortcut for Chinese enterprises to acquire technology and marketing channels, especially after the financial crisis in 2008.”

But you don’t have to have a formal JV in place for your technology to be hijacked. Plenty of technology is transferred because naive buyers share the “secret sauce” without taking protective measures like registering IP or setting a 3rd party black box for sensitive assembly. (Click here for an example.)

Related Videos:

Video 1: Finding Suppliers
Video 2: Evaluating Suppliers
Video 3: Negotiations
Video 4: Project Management and Quality Control
Video 5: Protecting Your Intellectual Property
Video 9: Returning Defective Products
Video 10: Resolving a Dispute

Buyers are often seduced by the siren’s song of low cost. But after the sweet and temporary taste of low price fades, the bitter taste of poor quality remains for a long long time.

As the article in the China Daily proudly explains, many China factories simply do not believe the expression “you have one chance to make a first impression” because there are so many international buyers (who take unnecessary risks) that if the factory screws up the order, they simply drop that project and go out and find another buyer. Repeat process until they manage to improve their product and production process.

Conclusion:

Make sure you or your representative make sure the so called factory is reputable and has experience making exactly what you want at the level of quality you expect.

Know the difference between “factory can make this” and “factory has made this”.

Protecting intellectual property in China is paramount. Don’t be a guinea pig for a Chinese factory’s R&D department.

China sourcing: How to avoid potential disasters!

China sourcing How to avoid potential disasters

Back in 2011, I wrote a blog post called “seconds from sourcing disaster” using the format of the National Geographic channel program called “seconds from disaster.” Today we revisit that blog as the lessons are still applicable today.

The Nat Geo show takes nightmare scenarios like plane crashes and shipwrecks and walks the viewer through the steps leading to an actual disaster. In my blog post I walk the reader thru a case study involving how an international buyer let their China sourcing project go off the rails.

Unlike the Nat Geo disasters which have complex root causes that only experts can identify, the types of sourcing disasters I share in this post are very common and with a little bit of experience you too will be able to spot them and avoid them. In writing this blog, I hope to help the reader know what to look for and avoid falling into these common pitfalls.

This very long story made short:

Do your due diligence/audits on potential suppliers BEFORE you send money and make sure you check the quality before the goods ship out of China.

Intro to the full story:

Would you buy a car without taking it for a drive, even if the dealer was well known?

Would you buy a house without taking a tour first, even if the realtor was a famous agency?

Would you have major surgery without getting a second opinion, even if the doctor was from a prestigious hospital?

Yet for some reason far too many buyers place large orders in China without conducting proper due diligence. They put far too much trust in online directories and fail to do even a minimal amount of due diligence and quality control.

Additional Resources: Check out www.SupplierBlackList for a user generated list of underperforming suppliers.

Flying yourself to China and spending a few days at the factory is a tiny investment, especially when you weight it against to the cost of a lost deposit, quality failure or missed delivery date. And if you don’t want to fly to China, know that audits can be done by 3rd parties (check out www.SourcingServiceCenter.com) at very affordable rates.

 

The full story (in Nat Geo’s Seconds from Disaster Format)

Witness (Purchase Manager): “Everything I am about to tell you we can back up absolutely with emails, photographs and videos.”

Investigator (me): “I have no reason to doubt you. Yours was not the first Sourcing train to wreck on the rails out of PRC.”
Witness: “I can tell you from firsthand experience the company has virtually no control over the crummy factories they contract with as it turns out. “

Investigator’s notes to self:

Clue #1: “as it turns out” indicates the buyer assumed the vendor was in control but later learned this was not the case.

In China if you “assume” or “hope” things will work out, you have already lost. Only if you are “sure” something will take place do you have a reasonable chance of it happening.

Probable Mistake #1: Failure to conduct due diligence or a quality audit. I suspect the buyer took the web page and factory sales people at face value when the supplier said they were a professional and experienced company.

Witness: “Even though we went to China to approve the first production sample the entire first container of our product was totally defective.”

Investigator’s notes to self:

I’m sensing some discrepancies in the story. If the entire container was defective, then all parts pulled from the production run were defective, so it is not possible that first production samples were acceptable. I suspect that the buyer THOUGHT they were looking at production samples when in reality they may have approved “golden samples” or prototypes provided by the supplier to ensure the buyer had something good in their hands before placing the order.

Wise move for the buyer to come to China, sad move that they didn’t stick around to confirm that the “so called initial production samples” actually matched what was being produced on the line for their particular order.

Likely Mistake #2: Lack of pre-shipment inspection to confirm that order was to spec as it was being loading into container for shipping.

Witness: “The company admitted to the defective product but in the process forced us, under duress, to place another order (twice as large) as a condition to take back the first order. Sadly it was not until the second container had departed and the company had received full payment we were than informed the second production run was also defective. This time they had purchased sub-standard parts and did not have the required finish.”

Investigator’s notes to self:

Repeat of Mistake #2: Failure to conduct a pre-containerization inspection.

Additional Mistake #3: Failure to link inspections with payments. The golden rule of sourcing in China is to pay your supplier (full or at least partial payment) AFTER inspection has been made on your order.

Witness: “The seller agreed to pay us to repair the defects which entailed taking every unit apart completely to replace the bad parts. They never paid for this work which we are now doing piecemeal to keep up with sales. They also “bought” hundreds of units from us two years ago but never paid for them. They are now attempting to coerce us once again to place yet another order to get the money they owe us which we are absolutely convinced will be defective.”

Investigator’s notes to self:

Train wreck imminent, yet passengers failed to jump off when the chance presented itself.

Witness: “To make matters worse while all this was going on we also had paid the company a huge deposit for tooling our commercial version of the product. The 10 production samples they sent us in time for a major show were worthless and broken. We found out later the supplier the company found was one they had never worked with in the past.”

Investigator’s notes to self:

Appears the buyer was dealing with a trading company rather than actual manufacturer. Trading company probably has a great marketing message and price, but no actual experience and little control over the manufacturer. The blind leading the blind, resulting from Mistake #1: failure to research your suppliers and verify their ability.

Witness: “When asked why the company would send garbage knowing they were no good the answer was “to make the deadline.”

Investigator’s notes to self:

Ramification of Mistake #3- not linking payment to inspections. Factory was incentivized to ship on time in order to get paid, rather than focused on “shipping products TO SPEC on time”.

Witness: “They owe us big money which they admit to in writing. Yet now in the latest email from the company representative she now states we never told them there were any problems until “months or years later.” We spent 3 days writing a reply to state agreed dates and specific emails to demonstrate this is a BIG lie.”

Investigator’s notes to self:

Missed Opportunity. Buyer should have launched legal action (at least a demand letter) (ask the author if you need an introduction to a lawyer in China to issue demand letters). Instinct tells me the supplier knows they are wrong and is throwing every last ditch excuse in hopes of getting the buyer to spend even more money.

Or perhaps the factory is using the time to liquidate their assets in case a lawsuit does come down.

Scenario is reminiscent of the old “guess which cup the ball is under” scam. The mark keeps paying round after round but never gets it right because the ball was removed from the cups when the victim wasn’t looking. In this sourcing case study, the buyer keeps putting good money after bad and the supplier may have no plans to actually ship quality product.

Witness: “I‘ll finish with one last example of the fraudulent nature of the company’s business practices. Our Netherlands distributor placed an order for 100 units which were shipped directly from the company. After the order was in transit we received an email from the company’s representative stating there was a problem and a tool was being made that would be required to repair each unit. She suggested we wait until the distributor took delivery before telling him we shipped him defective units. Needless to say we had similar issues caused by the company with all of our overseas distributors.”

Investigator: “I can’t say I didn’t see that coming.”
Witness: “As I stated, all of this is well documented and we are now seeking to discover what recourse we have to get our money back. If all else fails I may choose to put together a book proposal for my literary agent who is based in NY, to circulate to publishers. A good title might be THE GREAT CHINA RIP-OFF.

Investigator: “A book may help you vent your frustration, but it is not going to get your money back. Assuming you have proper contracts and a clear payment trail to the vendor, don’t rule out legal action. There are plenty of English speaking local lawyers based in China, and just like factory labor is lower than back home, luckily so are attorney fees. But before you engage a legal team, I would suggest the following:

a) Hire investigation firm to find out if the company you want to sue actually has any assets lawyers can sink their teeth into.

b) DON’T let your supplier know you are preparing a case. This will most likely not scare them, but rather give them time to prepare and perhaps hide assets.

Believe it or not, the China legal system has come a long way, and foreigner can get a fair shake in the courts assuming you have signed contracts and well documented order details.”

Witness: “Yes, if we choose to investigate you will hear stories from the company’s representative that our product is no good and is too hard to manufacture. “

Investigator: “Sounds like they have already started to prepare their defense.”

Witness: “Check out our website. Our product won an award and has been endorsed by industry pros. Ours is a great product that ended up in the hands of unethical amateurs not skilled in the manufacturing process and went for the cheap out of spec materials to make more money disregarding and interfering with our brand building process. “

Investigator’s notes to self:

Why would such a professional company let themselves do business in the first place with a sloppy supplier? The answer to this question will expose the root cause of this sourcing train wreck. By selecting the wrong partners in the first place, the buyer began a sequence of events that was more likely than not to end in the project’s demise.

Summary of lessons from the case study:

1. If you are going to use a trading company or broker rather than going factory direct, make sure they have excellent reputation and track record of success.

2. Link payments to performance/ inspections.

3. Do multiple inspections at various key phases of production.

4. Find the right supplier in the first place is the best way to avoid drama in the long run.

The best way to avoid defects in China? Clarify specifications

specs 300x243

In a recent blog post entitled “QC: OK to be picky. But be professional” I explain that as professional buyers we need to be picky with our China suppliers. But more importantly, we need to be professional in our ability to create a written standard for our expected quality.The best way to avoid defects in China is for the factory to have a crystal clear understanding in terms of what is your standard and how to inspect for that standard (including what tools and techniques are required).

The team at Asia Quality Focus wrote a similar blog post but included a check list. With their permission, I am sharing it with our readers:

The wordings “it”, “which” or “be picky” should be banned. It is better to clearly specify what is being referred to in the text.

The word “shall” is the best to use to define a requirement. The requirements expressed as “shall” must be fully and properly met.

Sentences should be short and direct.

Obvious spaces should be used only between paragraphs, to differentiate sections.

Each industry has a jargon and abbreviations. They all should be clearly defined one by one (the buyer could add a definition section at the beginning of the specification for example).

For all dimensions or weight requirements, it is important to mention the tolerance levels (+/-) and the measurement method applied.

For color specifications, the best option is to use a standard such as the Pantone code.

The conditions under which the item must meet the product specification should be specified. If the product performance is reduced at extreme temperatures and humidity is acceptable (this detail is still part of the product specifications).

When some specific tests are required, they should be specified and include the standards that should be used or the precise measurements to be done (Material, Conditions…)

The approval sample should be complementary to the product specification; it is an additional support only. In any case it can replace clear product specifications.

The best way to avoid defects in China Clarify specifications

Perhaps the best advice is this:

As a general rule, the buyer should write the product specifications pretending that the supplier is new to the industry.

Really “spell it out”. Here is another advantage of being detail oriented with your product specs:

As a matter of fact, the buyer should keep in mind that some suppliers will try to cut corners to decrease internal costs and bolster their profits. So ensure that the specifications describe all qualities of the product in such detail that corner-cutting is impossible.

Need QC support?

I’m on the board of advisors at Asia Quality Focus and recommend them with confidence for audits and inspections. Contact me here if you would like an introduction.

 

Great China sourcing content worth reading from December 2013

Great China sourcing content worth reading

Here is a list of the most popular pieces of content from the China Sourcing Information Center. Much of the content below was created by PassageMaker staff who volunteer at the CSIC.

Best of CSIC 12.3.2013 to 1.13.2014

QC: OK to be picky. But be professional.

Best of Fall at Asia Quality Focus [AQF]

B/L (Bill of Lading) manipulation scam

Top 4 questions asked of the CSIC in 2013

Hong Kong’s Virtual Scammers

Best of Fall at Global Sources [GS]

Sourcing Fair & Conference: Melbourne 2013. Video Recording/ Resources for Buyers

Purchase Orders or Purchase Contracts?

Insider’s look at legal services in China: Introduction to the series (Part 1)

Problems with SD card delivery. Scam or legitimate excuse?

Free tools for due diligence (China’s courts compile first ever blacklist)