I am getting tired of explaining to new importers that they MUST spend time helping the manufacturer and that they MUST check the quality of their products.

I guess they think I am promoting my services. If I were a banker, I would push them to use a letter of credit. It so happens that I am in the quality assurance field, so of course I push for QC inspections.

I have pasted excepts from articles written by experts who are NOT in my field, and who do NOT sell quality control. Maybe it will help dissipate some suspicions.

First, Etienne Charlier, from Procur’Asia in Shanghai (a sourcing company working on industrial goods), wrote Take Control of Quality Management. I like the way Etienne lays out his logic, and I very much agree with his advice.

In the West, most buyers have implicitly outsourced quality assurance and control of the product they buy to their suppliers. The buyer defines a specification and requirement, the supplier commits to deliver such product and implicitly takes the responsibility of the quality assurance structure required to deliver consistently compliant products. In addition, the supplier often knows more than the buyer about the required standards and regulations and also commits to comply with them.

While purchasing from Chinese supplier, it is dangerous to proceed with the same implicit outsourcing. At the very least, it needs to be a conscious decision made by the buyer after understanding the real capabilities of each particular supplier. Beside bad suppliers which any professional buyer will avoid, there are a range of suppliers with good capabilities but which are not fully aware of the intricacy of what is required to get “good quality”. These suppliers want to be good, can be good but do not know what they need to do to be good.

This is where the buyer needs to take back the control of quality management. As a buyer, taking control of quality management means:

• Define what one requires to consider that the product is of good quality (product, packing, documentation, legal standards, industry standards, company standards, …);
• Define, with the supplier, a quality plan that will highlight all these points and will confirm what is done by the supplier as routine quality control;
• Take a “we trust you but will check it anyway” attitude and organize regular pre-shipment inspections to verify that the quality plan was respected.

Second, Dan Harris, an international lawyer with deep experience in China business, wrote China QC Inspection. So Totally Worth It. Dan has a strong opinion about QC inspections:

I have always thought it crazy for a company not to have a quality control inspection done of its China product before shipping. Yes, crazy.

I have no idea what percent of product comes bad if you do not engage in QC inspections nor do I know what percent of product comes bad if you do, but I have seen enough to become absolutely convinced (as is pretty much every person I know who has worked in or around Chinese manufacturing over the last five years) that QC inspections are pretty much always worth the money.

I very much agree. Two years ago, I wrote 5 legitimate reasons why your company does not need third-party quality control. If you are not in one of these 5 situations, I truly believe you need to send QC inspectors or engineers in the factories that work for you.

What do you think?

When a first-time importer asks me for advice, one of the first things I tell him/her is “you can’t send the container back to your China factory, and re-working the goods in your country would be expensive, so make sure product quality is confirmed before shipment”.

The CSIC just published an insightful article about this topic: How does one actually return defective product back to China?

It states that “the system in China is designed to make it very hard to get defective goods into China, even if the overseas buyer has clear paper trail and full support of the original supplier”. This is exactly what I heard from several sources: don’t count on it.

An importer who discovers defective products in his warehouse has already paid the import duties. If he wants to send the goods to China, he will have to pay for international freight and for the duties to export into China. And then, again the same story, to get the goods in his country. It takes a lot of time and a lot of money.

BUT there are other options, as outlined in the CSIC’s article:

a) send the defects back, supplier gives you credit on future order and they eat the cost to return, rework and replace. Be very careful that this supplier will be around to complete the transaction and that you have a lot of leverage and history together. I have seen more than a few suppliers simply pass on doing business with the client ever again rather than do what is right and replace the goods.

Good luck with that… Very unlikely in 98% of cases. Chinese suppliers are very focused on their short-term bottom line, and they never want to lose money on one transaction.

b) rework the goods in the USA with local technicians or ones sent over from China.

That’s what happens most often (if the goods can be reworked and if it makes more sense than just sorting out the bad products or throwing everything away). Some companies are specialized in repairing/relabeling/repackaging defective products from China!

c) send the goods to HK and have the re-work take place there. Labor and warehouse is much more than in PRC, but still much less than USA. Most important, HK is more flexible with the duties.

This one probably seldom happens, but it is good to keep it in mind.

d) once the goods are in HK, you could also arrange for a “gray shipment” to PRC for re-work. Don’t try to arrange it under your name, but there are 3rd parties who will leverage their relationships with the border officials to bring your product into China at a reduced tax rate. This is very much a “gray area” practice, but very common none the less. Often, the 3rd party will reclassify your goods under an HS code that is not taxed at importation. The reason I suggest you ship to HK first, is that it is very hard for these 3rd parties to arrange “special channel” for international freight, but the HK-Shenzhen boarder is much more porous and things are flexible as trucks cross back and forth overland. As this is not black and white, your supplier may not have experience either, especially if they are not based in S. China near HK. So if you do explore this gray channel, make sure you deal with a firm that does have experience and structure your payments so that they get paid AFTER the delivery is made.

A bit risky and not really legal, but good to know…

e) if all else fails and your supplier isn’t stepping up to the plate to fix the problems or saying “they can’t afford to fix it”, know that I have had many suppliers “suddenly” come up with the cash once a lawsuit was pending.

Right. But it takes a solid OEM contract, drafted by a lawyer who knows the Chinese system and chopped by the supplier.

Another preventive action is to inspect quality during production and again before shipment. Oh, and the best is to work with a reliable manufacturer, of course.

What do you think?

Last week I wrote about bad relationships with Chinese suppliers and Dan, on the China Law Blog, mentioned it in There Must Be Fifty Ways To Leave A Bad China Supplier.

Specifically, Dan asked this question to his readers:

What percent of the time does a Chinese supplier who has provided bad product and not owned up to it provide good product the next time?

My guess was: in about 80% of cases, once it’s unacceptable, it remains unacceptable whatever the importer does.

The remaining 20% are special situations:

• The supplier is a trading company that placed production in a factory that was not up to the task (or that didn’t care of this indirect customer). Then they make efforts and use a better factory for the second order.
• The manufacturer subcontracted production in a cheap workshop, and then took better care of the customer in following orders. I even saw a lingerie supplier re-produce (in house) a batch of strings (that had certainly been subcontracted) FOR FREE, because the photos from the customer showed the problems were really unacceptable. **Warning: it is representative of maybe 0.3% of the cases**

Most interesting are the comments from readers of the China Law Blog.

Here is one:

In my experience (16 years sourcing all sorts of product from China), once things go wrong, they only get worse from there. My advice is not to enter into a new contract with the same supplier who caused you the problems, but to enter into a new contract with someone else.

Another one:

I’ve had exactly one supplier out of nearly 10 years who went bad, then recovered. The rest just went from bad to worse.

And this one:

Let’s see now. I’ve done deals with 8 Chinese suppliers and all 8 eventually went bad and never went better. So I would say it’s 100%.

Wow. What this suggests is that importers should run away as soon as they see a substandard production batch, and they should always assume that it will no get any better, ever.

So I am an optimist regarding China manufacturing quality? Who would have said that??

A few years ago, I worked with a very experienced French importer. He was playing games with his Chinese suppliers to extract their best pricing. But he was very straight when it came to dealing with his country’s customs office. He told me to “never take any chances with them, they can throw you directly in jail”.

Unfortunately, many importers are not aware of the risks involved in their activity. They feel they “cover their rear end” when they ask their Chinese manufacturers for certificates of compliance to their country’s regulations.

Is it enough to get a paper “certifying” that the product you are buying is CE- and ROHS-compliant (for example)? No!

Chinese exporters can get any paper they want–they just need to pay for it, or do a bit of Photoshop magic. And maybe they really sent their products to a lab for a previous order, but who knows if you will really get the same goods (made in the same workshop, and out of the same components)?

Is it enough if you see the “CE” mark on the product body? No!

There is no legal risk (except is you have a contract that is enforceable in China and that addresses this issue) for a Chinese supplier to sell products bearing marks that are only intended to deceive consumers.

I was reading the latest edition of the Sourcer magazine when I found yet another example where a Chinese manufacturer tried to fool foreign buyers.

Here is an extract from an article written by Charles Kimuss, an American importer of electronic products:

The latest saga consists of equipment that is labeled with a new label that I feel is now giving the consumer a false sense of security and leading the customer to assume that a product meets CE safety testing when it fact it does not. Of interest in particular to EU buyers here is the latest in new marketing concepts from some less than professional Mainland Chinese manufacturers that I have recently run into… a label that designates “China Export” and may be confused with the recognized “CE” product safety label. Compare the two labels:

A product marked with a CE, UL, cUL, FCC or other laboratory mark indicates that a product is safe. On seeing such a label one would automatically assume that the manufacturer has gone through all the steps to meet safety standards. It also implies that the manufacturer is sincere and implies that the product is world class. Not the case here.

To avoid this type of situation, read 5 tips for testing China products against regulatory standards.

Many importers go on Chinese trade shows or browse online directories to find their suppliers. They find companies that display the product they look for, they ask for prices, and then they go for the lowest quotation. Most of the time, this is a big mistake.

In such cases, the lowest quote is usually below costs. There are two reasons for this:

1. Some suppliers want to start developing a product with you and manufacturing it for you, and they will find reasons for increasing the price along the way (usually after the deposit for the first order has been wired).
2. Some other suppliers simply don’t know what the costs are. They have never made this product, even though it is displayed in their booth. They will wonder where and how to manufacture it after you have sent them a PO.

Which case is the worst? Both are extremely frustrating for importers, but the second case is the most dangerous. Not only will you get unexpected price rises, but you will also certainly get poor quality products.

A Chinese supplier that tries to reduce his costs will tend to purchase the lowest-quality components he can find. He will then process/assemble and pack them in a small and unstructured workshop that has no idea about the customer’s standard. That frequently leads to quality disasters.

Don’t get me wrong, I am not suggesting that you choose the most expensive offer either (except if there is enough value behind it).

In most cases, the majority of quotes will revolve around a certain price. It is the “market price” in China at that point in time. You should avoid the outliers that offer prices 20% below that price. If it is too good to be true, a degree of deception is probably involved.

Even if you place one-shot orders based on pricing, the lowest quote will often be more expensive than the average quote.

Anybody disagrees? What do you think?

Today I was in a factory of silicon products (cookware, phone covers…). My client was buying the cover for a TV remote control. Production started earlier this week, and I was called in urgently to find solutions to production quality issues.

The defect rate was roughly 40%… Because a world-class product designer came up with a cool-looking 3D blueprint, because a TV network operator approved it, and because the importer confirmed it could be done.

The beauty of China is that one can get a production running with very cheap moulds, which allows for a lot of flexibility and lower quantities per design. The drawback is that these moulds require lots of manual operators, which means more opportunities for defects.

The factory put in place a complex process:

• Injecting liquid silicon in different colors in one mould;
• Heating the liquid silicon to get it into a solid state;
• Cleaning throughly around the silicon by rubbing and by blowing air;
• Putting another piece of solid silicon on top, and doing the compression/moulding operation;
• Getting the piece of silicon out of the mould (it was basically all around the mould).

Each operation creates its own defects. And some defects simply cannot be avoided. For example, the liquid silicon is not hard enough (in my opinion) and gets spread around a little with the solid silicon is compressed.

How to sold this issue? The temperature can hardly be modified (below 210 degres is not advised for silicon), and the warming time cannot be increased (or some pieces don’t “stick” to the mold any more).

All I could do is reduce some opportunities for defects by correcting some behaviors (and I am not even sure what they will do once I am gone) and by doing some tests.

But the fundamental issue is that such a design cannot be done properly in China. One needs highly automatic molds that cost many times more money.

This type of problem is no doubt encouraged by the distance between a French product designer and a Chinese factory that will be sourced after the project is approved. It is just not the way to proceed… The best designers, in my mind, should be familiar with the production constraints, or at least have a dialogue with factory technicians.

In some industries, so much has been achieved with such cooperation… They usually call it DFMA (Design For Manufacturing and Assembly).

I just found an article on supplychain.com entitled Buyers find pitfalls of China sourcing (h/t to @MaxHenry). It is based on a survey of importers by a consultancy (Gartner). I listed below the main frustrations that were mentioned:

Vendors using fake certificates

Sometimes Chinese suppliers bought fake certificates attesting to ISO quality standards, Six Sigma and social compliance, which prove hard to detect.

This is a classic. Don’t trust any paper here–everything can be faked. Buyers who need to know have to pay for it (e.g. paying for third-party lab testing, or conducting a factory audit).

Price increases

Some manufacturers accept orders, receive deposits, and then ask for a price increase. Sometimes they simply want to make more margin. Sometimes they notice the products are more complex to make that they thought. And sometimes they are very busy and they don’t want the order.

How to react in this situation, if you really need the factory to produce that order for you? See the last post on the SRI blog to see how some real professionals do.

Reducing production quality over time

Many Chinese suppliers reduce product quality over time in order to increase their margins and profits. Typically this happens after the first few orders, whereby a product’s ingredients or subcomponents are altered without changing the outward appearance, making it difficult to detect.

That’s exactly what Paul Midler calls quality fade. Sometimes it is deliberate, other times it is a natural degradation in the quality standard.

In any case, experienced purchasers keep inspecting and testing their products over time, not only for the first order.

Ignoring delivery times and patents

Gartner also found little or no respect for sticking to delivery times and the violation of patents which can result in lawsuits for infringements.

These are two separate issues, calling for different solutions. Penalties for late shipment can help reduce delays. And a good “NNN” contract can reduce intellectual property violation risks.

———

I would add one more frustration that I hear all the time: the unwillingness of Chinese suppliers to be responsible for quality issues in their past shipments.

Any other problem that keeps bothering you?

The quality assurance programs of most importers, when it comes to their China purchases, are far from being fool-proof.

As Richard Brubaker wrote (in “20 Things I Have Learned About China”):

There is no “Poorly Made in China”. There is only poorly understood, badly planned, and horribly managed.

And I found an excellent illustration of this principle: a newspaper article about tainted children jewelry that points out the holes in quality assurance programs:

So far this year, 20 different children’s jewelry items have been recalled in Canada for being packed with lead, nowhere near the maximum allowable limit of 0.06 per cent.

Health Canada product safety officers test suspicious products that they find in stores, but most faulty jewels are probably sold without being tested.

Without a government-mandated testing and certification program requiring manufacturers, importers or private labellers to test children’s products at accredited laboratories prior to stocking store shelves, it’s up to the private sector to run its own quality assurance system.

The problem is, this system is generally not adapted to the tactics of some Chinese suppliers.

What does the importer say, to his defense?

Montreal-based Dollarama Inc. knows which factory in China is responsible for making the Valentine charm bracelet sold exclusively at the discount chain that was recalled in the spring after Health Canada tests showed the item contained 92 per cent lead.

“It’s a simple human error in the sense that without talking the exact details, there’s a process in place under which we have quality controls and we do inspect the factories and we sample products. And in this case, there’s been a mistake at this stage of sampling the product”

What does the supplier say, to his defense?

Hong Kong-based Betawin Enterprises, when pressed by Canwest News Service, implied a subcontractor may have made the goods instead of its own “mainland bureau” — a small factory on the third floor of Tower C, Area A in the Longquan Technological and Industrial Park, an industrial park just outside Shenzhen, China’s city centre, where about 60 workers make cheap jewelry for minimum wage, $142 a month.

“As you know, we are a trading company. We placed the order to the factory to produce the goods and we would ask the approval samples for testing and quality before shipment released always. During the process, everything was OK and we hadn’t found any problem. But we fall into a trap and we believed that the maker was dishonest to ship us the goods with different materials between the approval sample and shipment.”

What did the manufacturer probably do?

Midler, based in Hong Kong and a frequent visitor to Chinese factories as a troubleshooter for companies that source their products in China, says it’s not unusual for factories to be responsible for choosing the sample sent to be tested. This means a manufacturer can make a substandard product while providing an acceptable sample for testing.

Another issue, in other cases, is that many factories provide a fake test report. This is very, very common. Especially in the Guangdong and Zhejiang provinces, where exporters are particularly savvy.

What should the importer have done?

1. The importer should have sent an inspector in the factory to check the workmanship, but also to pick up some samples and send them to a testing laboratory.
2. The lab should be chosen by the importer, and provide all test results directly to them.
3. And the importer should insist to customize the products in a certain way, to make it impossible for the factory to switch them, i.e. to make good products and ship them to another buyer (and ship substandard goods to this importer).

————————–

For further reading:

Transferring the responsibility onto the exporter