In This Episode...

Join us as we continue our deep dive into the vetting process used when sourcing new Chinese suppliers.

We've already discussed quality audits and social compliance audits, and this time we're going to cover factory process & system audits. While this type of audit may not differ too much in terms of structure (an auditor still goes into the factory observes, questions staff, and takes notes), this time we're checking the maturity of the factory's systems and process controls with the objective of assessing how reliable they are, if they've put thought into how they manufacture, if they follow best practices, and, therefore, if they're going to be capable of fulfilling your expectations in the longer term.

As a part of the supplier vetting process, process audits give great insight into whether you're selecting a supplier who can fulfill their promises to you.

Show Notes

Start to 9:35 - What are factory process audits? A general explanation of what auditors do when they go into a factory. How many audits don't focus on production processes and the new product development side of things (which can reduce risks at an early stage). The auditor checks processes (for example, the cutting of materials) in detail and assesses them while considering if all possible issues are avoided. 

9:35 to 12:05 - Why it helps process auditors to have real-world knowledge about the production processes and products being manufactured, but that they also require an open-mind and the willingness to ask a lot of questions.

12:05 to 14:56 - What kinds of businesses will benefit from performing process audits? Order size and the nature of the products will impact if they're useful. Importers with a lot of money at stake or producing technical or high-risk products will find them useful for providing an in-depth analysis of the risks involved with dealing with that supplier.

14:56 to 15:36 - A quick definition of 'high-risk products.'

15:36 to 32:58 - What is usually checked in a process audit? A list and explanation of each point are given:

  • Management systems (16:30)
  • New product introduction (16:54)
  • Specific process controls that are relevant to your needs and product (using plastic injection molding as an example) (18:00)
  • Training & staff evaluation when hiring (21:12)
  • Equipment - funny anecdote about a factory doing CNC machining in a shocking way (21:50)
  • Predictive/preventive maintenance (24:22)
  • Mistake proofing for operators (26:13)
  • Statistical analysis of processes (27:13)
  • Measurement devices (27:42)
  • Environment - good anecdote about a kids' toy factory (29:41)
  • Office activities (32:15)
  • The shop floor - warehouse and suppliers to check components (32:28)

32:58 to 34:32 - GMP checklists - if the supplier is following this, it reduces the need for the auditor to be extremely familiar with the manufacturing processes in use.

34:32 to 39:05 - Can process auditors give advice to spur positive improvements? This is dependent on context - a 3rd party auditor is unlikely to do this, however, internal or 2nd party auditors may well do this.

39:05 to END - Outlining roughly what is in a process audit checklist - capacity / incoming material check / setup of processes / process controls / checking finished products / HR / Equipment (read this blog post for more details about audit structure).

 

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In This Episode...

We're discussing manufacturing contracts. These are an essential piece of the puzzle for buyers with suppliers in China or elsewhere in Asia as they provide you with a way to clarify your requirements with your supplier, outline your expectations and the penalties for if they aren't met, protect your IP from being used or distributed incorrectly, and provide a legal framework to take action if things go wrong.

Hopefully, if you have an enforceable contract you will never need to resort to litigation, but we do touch on this, too.

Show Notes

Start to 02:47 - Introduction & do buyers work with suppliers without a manufacturing contract? - this is fairly common, but the idea that contracts are not enforceable in China (which is fairly prevalent) just isn't the case.

02:47 to 05:30 - What makes buyers feel secure enough not to use a contract when dealing with Asian suppliers? - this could be down to a lack of awareness about the need for a specialized manufacturing contract that is enforceable in, say, China, because they're used to not requiring a new contract per project in their countries. They may not know about the risk-reducing benefits of a valid contract, especially where larger orders are concerned.

05:30 to 07:53 - Payment terms which can help mitigate your risks - exploring preferential payment terms which may be acceptable to suppliers if large orders are placed, such as paying by letter of credit or paying a 20% downpayment and the balance after delivery.

07:53 to 12:22 - What are the benefits of having a valid and enforceable manufacturing contract? - outlining key benefits. The number one is the ability to outline and clarify your expectations to the supplier and have them commit to it in writing. Using a clear quality standard as an attachment is also important here.
The second key benefit is the extra leverage that the contract provides to buyers in the event that something goes wrong.

12:22 to 25:45 - What is included in a manufacturing contract - there are roughly 3 elements to consider (although this will depend on your needs and the type of supplier you deal with) and we'll go through them one by one:

  • Confidentiality agreement - China NDA or more comprehensive China NNN agreement - this will prevent the supplier from sharing your IP, using it to compete against you, or reaching out to your customers behind your back. Note - keeping penalties sensible is important.
  • Product Development Agreement (PDA) – (if developing product/s with your supplier) - this controls who will own the IP and outlines who financed what, etc. This will help you to move to new suppliers and take tooling and designs with you if needed.
  • Manufacturing Agreement (MA) - this outlines what you want the supplier to commit to. Product, spec, quality standard, price, shipment date, etc. It takes away any ambiguity and makes your requirements 100% clear.

25:45 to 27:05 - Further discussion about when these 3 elements may or may not be appropriate - for instance, if a Chinese supplier has rightfully developed the product that you are, say, white-labeling, then it is not appropriate to insist on a clause of exclusivity for the design.

27:05 to 31:53 - What else should go into the manufacturing agreement? - you may include payment terms, a clause about access to their factory for audits and checking, that no sub-contracting is allowed, the inspection process, and when products will be allowed to ship (contingent on passing inspection), what happens if products are received, but many quality issues are found - Why many lawyers struggle to distinguish between manufacturing and design defects which can lead to conflict between supplier and customer if the wording of the contract is not clear on this point and defects occur after some time that the products have been in the field (which would usually indicate a design defect, not a manufacturing defect that the supplier would be responsible for unless they developed the product, too) - also clauses on when a supplier may be sued or termination of the contract can be actioned.

31:53 to 34:36 - Manufacturing contract templates and contract depth - the length and depth of your contract is influenced by the size and type of supplier you work with and your order size and complexity. A small supplier may not have the bandwidth to deal with a very long and detailed contract.

34:36 to 36:40 - The strength of the manufacturing agreement to remove ambiguity - how the contract keeps everything in black and white and prevents managing a project via skype, wechat, email, etc. This could cause problems if trying to find fault for issues, in comparison to a contract where everything is clear and simple.

36:40 to END - How realistic litigation is if there are problems - this will depend on the contract. If it's not enforceable in your supplier's country litigation will be harder, but holding the supplier accountable in general will be affected. The dangers of being 'too trusting' and not planning ahead for the worst-case scenario.

*Please note, we are NOT lawyers. Any information provided in this episode is of an casually informative nature, but we recommend contacting a lawyer who is familiar with China/Asian law to help you produce your manufacturing contract.

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This podcast uncovers everything importers are likely to need to know about management system standards. We'll discuss key standards, their benefits (for both manufacturers and buyers), good and bad ways to implement them, auditing them, and more.

What are management system standards?

Certifications of these standards are achieved by organizations to demonstrate that they're able to perform the tasks required to achieve their objectives or those of their clients and/or drive improvements in a certain area. An example would be the ISO 14000 family which relates to environmental management being adopted by a manufacturer whose factory must limit pollution and other negative environmental impacts in order to be able to work for an environmentally-conscious client. 

When a supplier is certified for a standard this will allow a buyer to feel confident in working with them if this standard is important to their business, therefore it's one factor to consider as part of the vetting process.

Show Notes

Start to 4:04 - Introduction - explaining why management system standards are important to pay attention to, especially when vetting new suppliers or auditing your own operations (as they can form the basis of an improvement checklist).

4:04 to 09:50 - Tying in management system standards to working with Chinese suppliers specifically - the difference between adhering to a standard and being officially certified. Where to check certifications if they're claimed. The role of standards in building client confidence. Warning about fake certificates and those provided by companies who are less credible.

09:50 to 14:07 - Key management system standards - all of these are sets of requirements with different purposes:

  • ISO 9001the basis for many standards due to its framework. Quality management system standard for an organization to adopt when focusing on its customer's needs and improving.
  • Other QMS standards specific to certain industries, like ISO 13485 for medical devices, IATF 6949 for the auto industry's components, and others such as for aerospace.
  • ISO 140001 - environmental management / friendliness
  • ISO 45001 - occupational health & safety
  • ISO 27001 - information security

In Chinese factories, ISO 9001 & 14001 are usually the most commonly adopted certifications as foreign clients often demand these before for working with them and so they are more appealing if they hold these certifications.

14:07 to 18:40 - Does the Chinese government's focus on the environment provide an impetus for manufacturers there to gain environmental management certifications? - discussing the government's environmental regulations and enforcement in recent years and how effective this has been. Why ISO 14001 certification would make sense for companies who are close to the limits of environmental regulations in China. Positive global recognization of greener companies, like Patagonia.

18:40 to 30:40 - Certifying to multiple standards - if a company wishes to certify to more than one standard it is possible to do this without an enormous amount of work as many standards are quite similar in many ways. Also, discussing the differences between good and bad implementations - explaining how you can save time and money in a 'good implementation.'

25:05 to 29:03 - Why and how certifying bodies and auditors often push in the wrong direction - how they can sometimes drive clients to do everything from scratch unnecessarily costing them extra money! What a good certifying process looks like. Being wary of being in a position where you're overpaying certifying bodies.

29:03 to 30:00 - Does the certification process vary a lot per certifying body? - why their similarities prevent this from being particularly problematic.

30:00 to 35:25 - The logical path for learning more about standards - the same bodies do the training and the certifications and often push companies to purchase a standard to learn from, then implementation training, and then learn how to do the auditing by doing internal and then lead auditor training. How all of these activities don't necessarily make sense and can be very expensive, especially if you have some understanding or past experience in implementing standards. It's also possible to find a lot of the information you need for free online in order to start the learning process.

35:25 to 46:21 - Why and how are audits of the management systems carried out? - explaining the difference between 1st (internal audit by supplier's own staff), 2nd (customer sends an employee or uses an external agency like Sofeast to go an audit the supplier), and 3rd party audits (auditor from a certifying body goes in to perform the audit sticking strictly to the standard's clauses), and their benefits and drawbacks.
Auditing will help buyers to vet new suppliers (a higher score than other options being favorable) or can help keep the pressure on current suppliers to assure that they maintain the standards you require.

46:21 to END - How auditors can help to suggest improvements for the future - this is especially the case when working with 2nd party auditors and using the audits as a part of an improvement program.

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Recently Renaud wrote a blog post on the 'China Law Blog' titled: Verifying and Monitoring Your Chinese Suppliers. In it, he discussed 7 challenges facing buyers with Chinese suppliers which stem from a lack of transparency. We'll discuss these challenges in today's episode.

When we speak of risks and challenges these days many buyers are thinking of the effect of the US/China trade war, the situation in Hong Kong, and other political issues on their business, but the risks covered here are related to the daily struggle that buyers have just to receive their products at the quality they expect and some of the steps you need to take to mitigate them.

Show Notes

Start to 4:35 - Introduction + what are the 'risks' and challenges facing buyers today that are NOT box-office news topics like US/China trade war, Hong Kong, Xinjiang, etc? The 7 situations where challenges occur due to a lack of transparency and how these are very damaging. Podcast episode on social compliance audits (referred to around 2:25)

4:35 to 12:17 - 1. Supplier screening & qualification - taking control of your supply chain and not letting the supplier keep sub-supplier information, etc, from you. 

12:17 to 18:33 - 2. New product development (manufacturing side) - includes how prices can be increased without warning and suppliers can skip pre-production steps like a pilot run.

18:33 to 25:54 - 3. New product development (design side) - including why you should expect to be given up-to-date designs for your product and not being sucked into losing the rights to your IP to OEMs who want to lock you in by holding your designs. Podcast episode on choosing the correct supplier (relevant to this section).

25:54 to 30:40 - 4. Confidentiality of information - how Chinese suppliers can play 'fast and loose' with information and IP that should remain confidential and how to safeguard against this.

30:40 to 37:29 - 5. Purchasing materials & components - being wary of counterfeit components and how to keep tabs on suppliers who may switch out components to improve their profits.

37:29 to 40:02 - 6. Manufacturing (Sub-contracting) - can you be sure that the production is truly carried out at your supplier's factory as agreed, or is it being subcontracted to a sub-supplier that you don't know about due to being too busy? Solutions to this issue.

40:02 to END - 7. Your supplier selling your products without permission - are you open to abuse by the supplier because they have your tooling and can use it to produce your products and sell to other clients or in your market against you? What to do to avoid this.

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In This Episode...

We continue our exploration of the vetting process when sourcing new Chinese suppliers in this episode. You can read more about this topic in the series of blog posts on QualityInspection.org which we refer to throughout - read all of those posts here.

Social compliance audits are the next factory audit type that buyers need to be aware of and consider, certainly if you're from a big brand or in a niche where social issues (such as child labor) are common, for example, apparel.

Ideally, using a social compliance audit to assure that your supply chain is free from illegal practices such as modern slavery is an important factor in vetting and working with a new supplier. Many large companies, like Walmart for instance, have their own standards that they insist that suppliers meet concerning employee welfare, adherence to local laws, and elements like environmental standards, too. Fundamentally, a social compliance audit protects you from being associated with things in your supply chain which could damage your company or brand.

So, let's explore what this type of audit is, how effective it is, and the drawbacks it has, too.

Show Notes

Start to 8:53 - Introduction + explaining WHAT a social compliance audit is. Some examples of the 3 'big' circumstances that importers want to avoid: Child laborforced labor, and dangerous working conditions.

8:53 to 10:24 - Does adding in the cost of improving working conditions increase costs overall for buyers? Why the costs associated with paying injured staff, negative government scrutiny, or reduced efficiency due to a shortage of staff put off by unsafe conditions can quickly escalate.

10:24 to 13:55 - Elements of a social compliance audit that are probably given too much importance, for example, working longer working hours and overtime. Even where hours worked are into an 'illegal' amount, this doesn't mean that abuses are occurring, especially in China with migrant workers.

13:55 to 17:20 - What does a 'dumb' importer do when performing a social compliance audit? The dangers of sticking rigidly to a standard in terms of forcing suppliers to lie in order to pass (this may be unavoidable if big customers demand certain things).

17:20 to 18:00 - How the 'smarter' importer approaches social compliance auditing with a selective focus. If the supplier is safe and improving, this should be the goal. Focusing on things like consensual overtime is a red herring.

18:00 to 20:30 - The different social compliance standards and how these have become a good business for large testing groups, to the point where it can be used by buyers and labs to profit from the suppliers who are forced to be audited in order to win business.

20:30 to 22:30 - How and why factories in places like China and Vietnam are improving over time naturally these days and why, therefore, many social compliance audits aren't helping other than for improving the buyer's image.

22:30 to 23:26 - The risks of social compliance auditors being corrupt.

23:26 to 24:45 - How buyers train their suppliers to lie by enforcing rigid social compliance audits with a lot of short-term pressure (pass or lose the order) and also possibly create corruption in the supply chain if the wrong auditor goes in.

24:45 to 26:52 - Why a rigid social compliance scale is good for a buyer's statistics, but not so helpful on the ground. Is it merely ass-covering?

26:52 to END - Exploring a better, more holistic way to approach social compliance audits which is likely to be less open to abuse and more likely to lead to positive changes.

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A lot of commentators are discussing what's going to happen to the manufacturing industry 'post-COVID19,' in fact, we've discussed it ourselves before here!

But one topic keeps coming up, JIT manufacturing and how it has been negatively affected by the virus and other circumstances.

So, let's explore this supply chain model - why has it been so popular, how has it come under strain this year, and what's next for importers who currently use it?

Show Notes

Start to 1:31 - Introduction

1:31 to 11:22 - Some examples of what JIT is and what it isn't. Discussing the dangers of holding too much inventory, especially where risk and working capital is concerned, and long supply chains.

11:22 to 12:51 - 3 benefits of JIT: Lower working capital, ability to be more responsive to the market by accelerating production of good sellers rapidly, and the ability to cut losses on poor sellers and halt production quickly in order not to hold stock of them.

12:51 to 16:00 - Why JIT (Just In Time) Manufacturing works well with a short supply chain with fast processing times, such as automakers.

16:00 to 23:05 - How and why is JIT susceptible to external circumstances, such as the coronavirus pandemic. Is it even JIT's fault that disruption from the outside can happen, or is it actually your supply chain's setup? 

23:05 to END - What's the scope for things to get 'back to normal' or will there be lasting changing to the way supply chains are structured? The role of the US/China trade war in spurring change in, specifically, American companies.

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We continue our exploration of the vetting process when sourcing new Chinese suppliers in this episode. You can read more about this topic in the series of blog posts on QualityInspection.org which we refer to throughout - read all of those posts here.

Now that you have done a preliminary investigation into your potential new Chinese supplier and perhaps even visited their factory to do a subjective evaluation, the next step in the vetting process is to perform a factory quality audit.

Understanding your manufacturer's grasp of quality and in-house quality systems means that you're able to assess whether they're going to be able to fulfil your quality needs down the line. Even if they're a legitimate company, this doesn't mean that they're able to produce your goods at the quality you need.

This is where an experienced auditor's keen eye and checklist can help you. A personal factory visit is useful, but do you have the expertise to look into the quality system (or lack of one) and root causes of quality issues?

So, this episode will give you a detailed introduction into how and why factory quality audits are a logical 'next-step' in your supplier vetting process as now you start to get a real understanding of your supplier's quality capabilities and reliability.

Show Notes

Start to 2:00 - Introduction + China/UK weather update (!). A reminder of the vetting new Chinese suppliers mini-series of episodes (here's episode 1 to get you started). 

2:00 to 9:00 - WHAT is a factory quality audit? Factory audits defined, different types, the difference between such an audit and a factory-visit where you form subjective evaluations.

9:00 to 12:15 - Talking about audit structure and standards, such as ISO 9001:2015.

12:15 to 15:33 - Explaining what a 'Quality System' is and why it's important to audit it. The effect that ancient Chinese wisdom from Sun Tzu, for example, still has on today's Chinese businesses and their approaches to quality.

15:33 to 19:15 - How the auditor will approach auditing your potential supplier. Importance of the checklist they need to follow and controlling the audit. What they do to cut through 'BS' manufacturers are likely to show or tell them.

19:15 to 35:47 - Renaud's TOP 8 CHECKPOINTS to focus on in a factory quality audit.

35:47 to 38:55 - Will potential suppliers be resistant to a factory audit which could be uncomfortable for them? How some suppliers can try to discourage visits by professional auditors.

38:55 to END - What can factory audits miss or what are their blind spots? Wrapping up the pod.

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What are the relationships between foreign importers and their Chinese suppliers like in 2020? Have they been negatively affected by the coronavirus pandemic or other reasons?

To find out, we sent a survey to both our Sofeast and QualityInspection.org readers to assess the state of manufacturing in China in 2020. 

The results are discussed in this episode. Listen in and you may get some helpful insights that could help you anticipate possible issues that we're seeing occurring this year.

Do any of our findings resonate with what you're seeing from your Chinese suppliers?

Show Notes

Start to 3:40 - Introduction. What was the survey and what were we expecting from it?

3:40 to 36:30 - Going through each of the survey's 7 questions one-by-one, providing the statistics, and feedback per point from Renaud.

36:30 to end - A quick summary. What did and didn't surprise us about the results of the survey?

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What is so useful about free trade zones in China?

Why should importers with Chinese suppliers consider utilizing them?

Sofeast has recently opened an RMA and fulfillment facility in Shenzhen's Pingshan Free Trade Zone, so, based on our experience there, we're going to explain the benefits.

 

Hopefully, after listening to this episode, so you will understand if using warehousing, RMA, and fulfillment in the FTZ is better for your business in terms of costs, time, and effort than in China-proper.

Show Notes

Start to 6:27 Introduction into what Free Trade Zones are.

6:27 to 9:01 - FTZ RMA facility is better than local ones (such as in the USA) due to far lower costs and proximity to your suppliers. 

9:01 to 10:42 What does the inspection, sorting, and repair/rework process that the FTZ is perfect for look like?

10:42 to 11:52 Rather than using a local rework company, sending defective pieces back to the FTZ means your supplier can take responsibility and send their own staff to do the repair/rework. How does this work?

11:52 to 12:08 There was a lack of repair services in China, until now..!

12:08 to 15:01 Suppliers deliver finished products/components to the FTZ and they have 'exported' - can apply for VAT rebate and request payment by customer - they like this and it can help you to have a better relationship with the supplier. Our FTZ facility can store your goods (it's cheaper than locally or even other places in China) and fulfill them as per your needs, so you rely less on the supplier to get things right or safely store your products (the supplier's warehouse may be damp, may not be insured against fire, etc). It's suitable for batches of products of a certain size, but not dropshipping piece by piece (we handle this from our Dongguan contract manufacturing facility)

15:01 to 17:00 If importers have the need to bring together orders components/products and ship them out from China in batches, using a FTZ fulfillment center can improve relationships and results from suppliers.

17:00 to 19:49 If you use a 3rd party (such as our company) to act on your behalf from the FTZ to deal with your supplier Chinese-company to Chinese-company - this allows easier payments, invoicing, and builds more trust with the supplier who knows that they can take legal action against us if we, say, do not pay them (much harder for them to do against foreign companies), therefore they are more likely to offer preferential credit terms and other benefits to you. Therefore using a dedicated 3rd party China buying office in conjunction with the FTZ location is helpful.

19:49 to 21:15 An FTZ location allows you to receive components and goods from different suppliers without letting them know important information such as your IP, product type, other suppliers, costs, your retailers, etc. Overall, this helps protect you against suppliers using your designs or undercutting you in your market by selling cheaper.

21:15 to 22:15 If some parts come in from suppliers in a foreign country, let's say somewhere like Vietnam, to be assembled with other from China, is it worth paying fees to import them to China and spending the time to go through Chinese customs? By utilising a Free Trade Zone facility, this cost can be avoided.

22:15 to 23:29 Customs clearance - are there tangible reductions to delivery times due to the FTZ's reduced bureaucracy in regards to customs clearance?

23:29 to 26:24 Do the Chinese FTZs eat into Hong Kong's status as a free port where there are also lower import/export duties and processes? Hong Kong still has benefits, but labor costs there are high.

26:24 to END Summarising the benefits of the FTZ - where is the Pingshan FTZ in Shenzhen located? Take a look at this map for a rough idea (you can see how close it is to Yantian port).

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In this episode...

This is the fourth part of our series on vetting Chinese suppliers which loosely follows the blog posts in this series that Renaud wrote before.

In this episode, we’re discussing your subjective impressions when you finally go out to a supplier and visit them (or the questions your factory auditor should be answering if you have sent them in your stead, which is perhaps more likely during the coronavirus pandemic when travel to China isn't possible).

So you'll want to use this opportunity to check the facts with your own eyes, and Renaud is going to give you a number of tips about this which are split into three categories:

  1. Factory fit 
  2. Factory management
  3. Factory setup and condition

Show notes

Introduction - This episode covers a fairly loose list of topics that you need to pay attention to when visiting a supplier. (START to 3:30)

Factory fit (3:30 to 15:40)

Factory size - Huge suppliers may have a good reputation, but if your orders only make up a fraction of their sales they may not provide you with the best service as you are not a priority, therefore finding a balance is needed. Size is the most important factor to consider when assessing a supplier's fit. (4:25 to 6:16)

Seasonality - If your supplier has many customers with the same seasonality (requiring products to be made at the same time), this could lead to delays and for your order being bumped in favour of larger customers. (6:16 to 7:07)

Focus - Who is the supplier usually dealing with? Their requirements have an impact on their focus - for example if their number 1 customer generally requires fairly low-quality goods, but you need them to produce goods at a very high quality, then their focus isn't a good fit for your needs. (7:07 to 8:36)

Keeping key processes in-house - if one production process is very critical to your products, choose a manufacturer who keeps this in-house instead of subcontracting it. (8:36 to 9:03)

The contact person - who will you be working with? If they're not experienced it could cause you trouble later. Don't base buying decisions alone on how effectively the representative communicates, as great suppliers may not always have staff who speak good English. (9:03 to 11:38)

Respect for IP - Does the supplier show you a showroom full of different designs? Did they develop all of these products, or are they 'touting' the designs of their current or former clients? If this is the case, how can you be sure that your product design and IP won't be next? (11:38 to 12:25)

The pros & cons of working with large or small suppliers - this is related to finding a supplier whose size is a good fit. Large = good resources and facilities, but a possible lack of attention. Small = good access to management, your order will be valued, but they may have poor structure and a lower level of experience, a poorer network for sourcing materials and components, etc. (12: 25 to 15:40)

Factory Management (15:40 to 23:00)

Are the managers/production supervisors/team leaders present on the factory floor? - why this is important in terms of how well the supplier has control over its production and can make improvements. Do they email instead of verbally communicating with the team? This affects productivity and shows poor leadership. (15:40 to 17:30)

Are any metrics displayed? - this demonstrates an overall understanding of the present performance and grasp of where the supplier is at right now. (17:30 to 18:20)

Are operators paid the piece or by the hour? - by the piece is a red flag as this pay scheme causes a lot of problems such as operators hurrying to produce quantity without being so concerned about quality. (18:20 to 18:52)

Hands-on management who look to improve things are positive - they're likely to be a sustainable supplier over a longer period. (18:52 to 19:45)

Management who show an interest in and understanding of finances and profit point to being a sustainable supplier - suppliers who try to make a sensible profit and understand their costs will have a more secure business and be more sustainable over time (19:45 to 23:00)

Factory Setup & Condition (23:00 to END)

This is what you should be looking for when in the factory:

Cleanliness - this reflects on how well the operation is run. (23:00 to 23:51)

Are products in contact with the ground? - shows how well your products may be respected, or not. Are electronic parts in contact with non-ESD surfaces or packaging. This demonstrates their culture of quality and how well they'll pay attention to your quality standard. (23:51 to 24:42)

How are the operator's toilets? Clean, have soap? - seems strange, but this speaks to the culture of the supplier and whether they're concerned with improving conditions for workers and are a forward-thinking supplier. (24:42 to 25:37)

How is the condition of the equipment? - again, this shows how concerned they are with the upkeep and maintenance, as newer or well-cared-for equipment will affect your product quality. (25:37 to 27:50)

Is the testing equipment maintained properly? - if the supplier truly pays attention to quality their testing equipment should be well-maintained. If not, are they capable of producing products which reach your expectations on quality? (27:50 to 28:28)

Is the owner's car very expensive? - it's normal to see fancy cars in China, but if the factory is relatively shabby and the owner is driving a Rolls Royce this could show that he is trying to suck the maximum cash out of the business and is therefore not necessarily in it for the long run. (28:28 to 29:20)

Organized factory layout & operator PPE - the management is serious about organization and safety which is a good sign. Safety goes hand-in-hand with quality and staff improvement. (29:20 to 32:15)

Safety and Social Compliance - personal safety is a bigger problem than child labour in countries like China and Vietnam. If your suppliers don't take it seriously, can this reflect badly on your brand were something to happen? (32:15 to 33:12)

Management style - how operators are treated and whether they're in fear of management, if they have younger staff who will be faster and more adaptable tells you how dynamic the company is, and is the work broken into very short cycles? If so, it's lazy management with little process-engineering and low efficiency. (33:12 to 35:16)

Their in-house capabilities - do they do a lot of the work in-house, or they're just packing boxes? If the latter they may a trading company! (35:16 to 35:45)

Check for shipping marks on packages - this will give you an idea of the kinds of customers they work with which can give you an indication of the level of price and quality they usually work with (35:45 to 37:20)

Summary - also mentioning how factory auditors can help answer these questions for you and take additional pictures should you choose to send them in instead of visiting yourself (37:20 to END)

*****

You will also find this long list of questions to ask useful, as well: 24 questions to ask during a Chinese factory visit.

 

In parts 1-3 of this series, we’ve covered what bad suppliers look like, how to verify their legitimacy & suitability with numerous tips and questions, and how and why to assess their engineering capabilities. 

Catch up with them here:

  1. 7 Ways Suppliers Can Cheat Importers Or Cause Problems
  2. Initial Vetting Process & Approaches To Weed Out ‘Bad’ Suppliers
  3. How To Evaluate Your Supplier’s Engineering Capability

All these steps take place before the factory visit, which we've covered in this episode. 

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