July 6, 2020

Initial Vetting Process & Approaches To Weed Out ‘Bad’ Suppliers | Vetting Chinese Suppliers (Part 2)

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

In Episode 10 we explored the bad behaviours or trouble that the wrong supplier can cause, such as scamming you, raising prices dishonestly when they know you have little choice but to pay, or just not being competent enough to be able to produce your products correctly.

Now that you know what you don't want from a supplier, what are some of the first steps you can take to weed out suppliers who aren't suitable? Adrian and Renaud discuss this initial vetting process, approaches, and some actionable tips here...

Show Notes

Introduction - we'll be discussing questions to ask and actions to take that can help avoid red flags when sourcing new Chinese suppliers (START to 2:40)

The following tips are fairly unstructured, but can all be helpful as a part of your preliminary supplier vetting process...

Test the water with a factory audit - a supplier should be secure enough to accept a factory audit. If not, then what are they hiding? Either way, conducting an audit teaches you a lot about your potential supplier's ability to do the job you need them to, and audits are affordable (2:40 to 6:20) - learn more about factory audits.

Do a search engine search for the supplier - if they have behaved badly in the past, it's likely that there might be some articles or news about them online, so search their company name and see what you can find (6:20 to 8:45)

Is the supplier's online information consistent? - a red flag is where the supplier has different information on Alibaba, Global Sources, etc. If they don't match, why not? You can also see verified information about the supplier on these platforms, so it's a good place to see what they're offering very quickly (8:45 to 13:07) - For anyone thinking of sourcing suppliers based on Alibaba's recommendations alone, Renaud wrote about 'Why An Alibaba Gold Supplier Status Doesn’t Mean Anything' here.

Has the supplier consistently participated in trade shows? - if they have it is evidence that they are a legitimate supplier as trading companies, very small, or unprofessional businesses may not do this (13:07 to 13:45)

Try purchasing a sample and insist on paying to their company account and collecting the sample from their address - by doing so you can confirm 2 things: 1. That they are who they say they are because you collect from their address (is it a factory, apartment building, office downtown? If it's the latter two you could have an issue). If they do request you to pay to a personal bank account, or maybe one in Hong Kong, this is a red flag, too - as a legitimate company should be able to provide a real business bank account (13:45 to 17:30)

Check the business in the Chinese government database - you will need the company's Chinese name and address, but with this (and the ability to read Chinese) you can learn a lot about the supplier, such as their company size, the scope of work they do, the investment capital (a low amount suggests they aren't a manufacturer), and any past or present court cases and decisions against them and the reasons, too (17:30 to 20:02) - performing a legal records check on the supplier is a fast and inexpensive way to check for this helpful information.

Check if the company holds any trademarks or patents in their own name - if it doesn't look like they do a lot of R&D but they have trademarks, patents, etc, this is a possible red flag. Have they been taking IP from past customers and registering it in China under their own name without their knowledge? (20:02 to 21:34)

Request the supplier's business license - it will be in Chinese, but it contains a lot of the useful information listed above if you can read Chinese. If not, get someone knowledgeable to analyze it (there should be a QR code on them which shows the registered info online). A good point is to check if they have an export license, too. If they do not, they'd have to deal with an intermediary which can add some risk of IP-leakage, etc (21:34 to 23:48)

Check their ISO 9001 certificate - this is common in China now, but you should ask for the certificate which you can verify with the issuing body and also the manual which should list the quality objectives and scope of the Quality Management System is - this is not suitable for people with no understanding of it, but at least be aware of this certificate's veracity if the supplier claims to hold it (23:48 to 25:53)

Question them about how they protect your IP - do you have a standard agreement for customers like us? How do you protect my IP? Many importers do NOT ask these questions! If they do provide an agreement, get you lawyer (familiar with Chinese law) to check it and assure that it's enforceable (25:53 to 27:56)

Ask for reference customers - who do they work with? You can learn a lot from this, although it's not always practical for suppliers to give too much of this information away (27:56 to 31:00)

What is the typical order quantity and quality standard? - if they deal with huge companies who place much larger orders than you will, you may have to expect a lower standard of quality than you're expecting. So the supplier's 'level' should be appropriate to where you're at as a business (31:00 to 32:30)

Familiarity with export standards - if they are unaware or lack understanding of the standards surrounding the products they make (such as UL standard for batteries), this is a red flag (32:30 to 33:19)

How is their communication? - real manufacturers may not have the best communication. If they do, you may be dealing with a trading company. However, don't discount a manufacturer where their English isn't perfect, as it is fairly normal (33:19 to 34:50)

Conclusion - Buying in China for the first can be confusing, so talk to other importers or find someone with experience who can provide some advice - keep eyes open, do due diligence, gather intelligence - these are three key takeaways (34:50 to END) - We also mentioned the book, 'Poorly Made In China' - this is a modern classic that gives great insight into the (many) things that can go wrong when you start manufacturing in China!

The advice you've been listening to draws on these 2 blog posts:

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