China Manufacturing Decoded
 

China Manufacturing Decoded

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Join Renaud Anjoran, Founder & CEO of Sofeast, in this podcast aimed at importers who develop their own products as he discusses the hottest topics and shares actionable tips for manufacturing in China & Asia today! WHO IS RENAUD? Renaud is a French ISO 9001 & 14001 certified lead auditor, ASQ certified Quality Engineer and Quality Manager who has been working in the Chinese manufacturing industry since 2005. He is the founder of the Sofeast group that has over 200 staff globally and offers services (QA, product development & engineering, project management, Supply Chain Management, product compliance, reliability testing), contract manufacturing, and 3PL fulfillment for importers and businesses who develop their own products and buyers from China & SE Asia. WHY LISTEN? We‘ll discuss interesting topics for anyone who develops and sources their products from Asian suppliers and will share Renaud‘s decades of manufacturing experience, as well as inviting guests from the industry to get a different viewpoint. Our goal is to help you get better results and end up with suppliers and products that exceed your expectations!

Episodes

How To Validate Your Supplier's Factory's Production Capacity (From Abroad)?

Friday Jan 08, 2021

Friday Jan 08, 2021

In This Episode...

Adrian and Renaud kick-off 2021 with Renaud's thoughts on how the coronavirus pandemic will continue to affect manufacturing this year and how things might change once vaccine use becomes more widespread, and then get into the main topic: How to validate a supplier's production capacity, especially if you're a buyer abroad who isn't able to travel to China (or elsewhere in Asia) to do this on-site yourself.

Given that a supplier over-promising on their capacity could land you in hot water when it comes to delivery delays, quality problems, and increased costs, understanding if they truly do have the capacity to handle your order quantities before placing orders is a must, and since there are still tight restrictions for travelling to different Asian countries, not least China, being able to do so from abroad is very relevant for many buyers right now.

Show Notes

00:00 - Introduction

01:44 - Renaud talks about how the coronavirus pandemic may continue to affect buyers from China/Asia in 2021. How the vaccine rollout could improve things, certainly by 2022, and how in China the manufacturing industry continues to operate strongly for most verticals. Will the West start to perform better by Q2 of 2021?

07:54 - Why do we need to be able to validate a supplier's factory's production capacity before we start placing orders? When buying from a supplier you will fit into one of these 3 categories regarding your order quantity and their capacity:

  1. Your order quantity is in the supplier's sweet spot - there shouldn't be an issue with them making this without hitch and being attentive to your needs. This is where everyone wants to be.
  2. Your order quantity is very low and the supplier is quite large - they're unlikely to be flexible, offer special terms, and pay attention to your needs as much as you may like.
  3. Your order quantity is too large for the supplier - this is the danger zone. Some suppliers may accept an order even if they know they don't have the capacity, and this could lead to dangers such as unauthorised subcontracting, rushing to implement new machinery and onboard new staff, and other issues that can lead to delays and quality problems for you.

14:24 - Why in East-Asian cultures, 'yes' doesn't always mean 'yes.' Suppliers agreeing to orders they know they can't handle easily has a cultural factor. Yes, may not mean yes directly, rather it may mean, "I hear you and I'm thinking about it." Also, Chinese salespeople, for example, don't want to disappoint foreign customers so are likely to overpromise rather than say no in some cases.

16:22 - If buyers are unable to visit Asian suppliers right now, how can we assess them from afar? Renaud shares a number of tips, such as using factory auditors, and about how to question them and the kinds of questions to ask (if possible over the phone and with someone at a managerial level), including:

  • Getting an understanding of the supplier's number of employees.
  • Questions about what they buy from outside, such as components and if these are custom-made (more supply chain risk) or not, capacity per day, % of good pieces, etc.
  • Questions about what they actually do in their facility, such as their processes, daily capacity per process, defect rate, etc.
  • What their peak and slow seasons are - for instance, around CNY is a risky time to place orders.

24:35 - If it's possible to get truthful answers to the above questions that is good, but will many buyers get a better result by working with companies who are already on the ground in Asia and can perform due diligence and audits for them? Yes. If your main contact has no idea and their colleagues don't help answer them you may not have success with speaking on the phone, but it's easy to find companies like Sofeast who can go on-site perform due diligence on potential suppliers and validate a supplier's capacity.

26:14 - What actually impacts a supplier's capacity? It is a lot more than just the number of employees and machines that they have. Renaud suggests the following things have an effect on overall production capacity:

  • Staff numbers alone don't mean a lot with the exception of garment factories.
  • The equipment can lead to a lot of output if it's fast and well-maintained, but if there are bottlenecks around it then the output will be slowed down a lot, and the same can be said for equipment downtime.
  • The supply chain will affect capacity - so how efficient are sub-suppliers in the production and delivery of materials/components?
  • Quality has a large impact on capacity because reworking bad batches, for example, takes time away from making the product, thereby reducing capacity.
  • Material and production planning - if things are well-planned to make the operation flexible and optimised with little idle time, capacity also will be optimised. Many suppliers in China won't be this well-organised.
  • Staff training also has an impact, as mistakes lead to rework and operators will work faster, too.
  • Good process engineering makes everything run faster and improves quality.
  • Small tooling and fixtures and automation which is well-integrated can also help speed things up a lot.
  • The warehouse even has an effect, as if operators are waiting for deliveries of new materials/components to be delivered to the assembly line, for instance, this leads to idle time.
  • Engineering change notifications can have an impact, as can making prototypes and samples using the tooling which takes capacity away from production.
  • The mix of products being made at any one time, especially if it's high mix low volume.

35:13 - Is the best way to get a handle on all of this conducting factory audits? A technical process audit is ideal in this situation, as it will look into the real processes being used on-site and the auditor, who is accustomed to the processes being used and familiar with the product type, will be able to assess the supplier's capacity, key risks, ability to reach your quality standard, and much, much more.

36:27 - Wrapping up. Tell us how you've coped with assessing suppliers' capacities from abroad throughout the pandemic.

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Manufacture in China, Vietnam, India, or Elsewhere in 2021?

Friday Dec 18, 2020

Friday Dec 18, 2020

In This Episode...

Adrian and Renaud talk about the current trend of moving manufacturing operations away from China, either partly or completely. This really started to gain pace due to the US/China trade war and the punitive tariffs imposed by the US government on some 'Made-In-China' goods, and, in some ways, the coronavirus pandemic hastened it, too, as companies sought to diversify supply chains to reduce risk.

So is this exodus from China going to continue into 2021 and does it affect you? We discuss the trends and some of the realities of transferring some or all of your supply chain to other countries in this episode.

Show Notes

00:00 - Introduction / What has caused some companies to move operations away from China in recent years.

02:47 - Is the trend of moving supply chains out of China still realistic and ongoing? It's still a trend amongst many companies to be researching and planning to make this move in 2021 or beyond. How large companies have been most successful in moving, mainly, assembly out of China into countries like Vietnam up to now. 

04:44 - What challenges do smaller companies face when trying to make the switch? Smaller companies, such as many e-commerce sellers who private label products from an ODM or OEM, have been much slower to move operations due to their agreements with their manufacturer. They often have little say in what the Chinese manufacturer does, so, even if they want to diversify out of China, it's either impossible or slow progress if they can't find a similar manufacturer to work with in, say, India, who provide the same product. Also, smaller companies may not have the budget, especially after 202, to finance such a move of the supply chain overseas after working with an ODM/OEM, as this could include needing to pay for new tooling, product development, and more (which the Chinese supplier provided to them as a part of the package).

07:31 - Why companies who have designed and developed their own products are at an advantage when it comes to moving some of their supply chain out of China. If their manufacturing contract is written correctly they should own their molds and tooling and can transfer this from a Chinese supplier to another supplier either in China or a different country. But even if assembly can be done in Vietnam, for example, it may still be necessary to have some of the supply chain in China, such as certain component suppliers.

08:46 - Imports from Vietnam to the USA have increased by almost 40% in recent years. Does this mean that it's possible to do assembly and get components there, too? In fact, not really. Many of the facilities opened in Vietnam are either close to the Chinese border or in port cities where components from China can be readily shipped in. This may change in future, but, for now, Vietnam doesn't provide a full supply chain infrastructure in most cases.

10:52 - Is assembly and packing done in SE Asia a way to circumvent US tariffs? It depends on the amount of value creation in the final country, but it can sometimes be illegal. The issue is the lack of sub-suppliers for components and materials outside of China.

12:49 - Has India benefited from any companies moving some operations out of China? We discuss some Taiwanese companies moving to Chennai as it has an existing network of suppliers and workforce from its electronic and automotive industry there, although a lot of components still come from China. The conflict between India and China does not help matters in India right now, as the Indian customs are processing Chinese imports very slowly which increases risks for manufacturers there. So when you look at the costs of having an extended supply chain across China and India, does this make avoiding tariffs on China-made-goods worthwhile? It may not, so you have to research this.

16:21 - Foxconn's new factory in Northern Vietnam. Why is it here and how does it benefit Apple? How about components - are they still going to be coming from China? 

18:24 - What does a Biden presidency mean for American companies moving forward? Discussion on if the US/China trade war will continue and how it could change, if at all?

22:44 - How have Chinese exports to the US and other countries started booming in 2020 due to the coronavirus pandemic and how is the logistics industry struggling to cope with the strain? What types of sectors have really benefited, even with the US/China trade war in effect? 

27:08 - Are companies from other countries aside from the USA also trying to move supply chains out of China? If so, why? The US tariffs still affect companies who manufacture in China for the US market, too, even if they aren't American companies, so it's still a cause. The coronavirus shutdown of China's manufacturing sector in early 2020 also prompted many global companies to start the process in order to diversify and have less risk in future due to being less reliant on China. However, due to the inability to travel, many companies plan to move but have put the projects on hold for now which, of course, benefits China...for now.

31:02 - If your business sells in the China market, is it wise to move operations out of China? There is some debate about this point. Importing into China is complex and bureaucratic, so this could cause you a lot of hassle in future. It may well also be that the Chinese authorities will not take kindly to brands who are very active internally moving supply chains out of China. This is a source of risk to be aware of and assess if that's your company.

32:25 -Wrapping up and festive wishes from Renaud and Adrian! 🎄 

Articles about moving supply chains out of China to read next...

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Tips For Continually Getting Good Results From A New Supplier | Vetting Chinese Suppliers (Part 11)

Thursday Dec 10, 2020

Thursday Dec 10, 2020

In This Episode...

You've tuned into part 11 of our mini-series guiding you through effective vetting of Chinese suppliers that will help you to find the best possible manufacturer for your products (listen back to the entire mini-series on vetting Chinese suppliers here 👍). In fact, this is the final part of this mini-series!

In this mini-series, you will already have learnt about due diligence, factory audits and visits, exploring testing facilities, and much more when it comes to vetting suppliers. But how do you carry on getting the results you expect from your new supplier once you have been working together for a while?

In this episode, Adrian & Renaud discuss some of the common scenarios you may face in your new relationship, such as needing to switch from an underperforming supplier to a new one or facing an unexpected price rise, and what you can do to combat or overcome them.

Show Notes

00:00 - Introduction / Who needs to listen to the series on vetting new suppliers and why / certain things to be mindful of when working with a new Chinese supplier.

04:15 - How and why to develop a backup supplier. Benefits of doing so in terms of reducing the risk of losing supply of key products/components, how to manage a backup, who is and is not going to find keeping a backup appropriate, and much more.

12:45 - When to switch to a new/backup supplier if things are going wrong with your current one? How it can either be the buyer (didn't vet suppliers and chose a bad fit or didn't explain standards correctly and clearly) or supplier (simply not fulfilling what is expected from them or that they agreed to) that causes a situation where switching to a different supplier is necessary and examples.

16:27 - The typical 'vicious circle' a buyer can fall into with a bad supplier even though they should leave.

20:51 - Dealing with unexpected price rises. Having thorough data about material costs etc can help a buyer push back against a price rise. Having a backup supplier provides leverage if needed when negotiating, as it means you can leave the supplier if they don't modify costs.

22:45 - Developing suppliers based on their quality performance data. Assessing how consistent and reliable the supplier is and their quality systems. Small factories will need a lot more hand-holding and more inspections earlier in production. Larger manufacturers probably won't require such vigilance early on, and, if you're able to negotiate favourable payment terms where you pay after receiving items to your country, repeatedly running a lot of inspections may not make sense.

24:57 - Tracking supplier performance and reviewing it over time - Keep track of performance statistics such as quality inspection pass rate, average defect rate, on-time shipments, serious issues found after shipment, and more. This is also the case with lab testing, too. If a supplier shows that they can be trusted, reducing lab testing frequency may be possible, too.

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Why The Bill Of Materials (BOM) Is A Key Document For Importers

Thursday Dec 03, 2020

Thursday Dec 03, 2020

In This Episode...

Sofeast's CEO, Renaud, and Adrian from the team discuss the 'Bill Of Materials.' Why is this document SO important for importers, what does it contain, how does it help the development and manufacture of products, and why and how must it be kept confidential where possible? These questions, and more, are all answered in this episode! 

Show Notes

00:00 - Introduction.

01:22 - What is the BOM? A rough introduction to the document and its purpose. A list of the components/materials/accessories/packaging/markings/fasteners/etc that make up a product, each with its own row in the BOM. A lot of information about each individual part is included per row. Why it's a confidential document that some suppliers don't want to share (as it includes their sources and product development info) and how this can leave importers in the dark about what goes into their products and if changes have been made if they're not granted access.

06:39 - Problems that can occur if you don't have the BOM. OEMs and ODMs may make changes without telling you, this causes trouble with quality and compliance. It can also cause compliance issues because if they change the makeup of the product between batches, you could unwittingly be importing non-compliant products (we discuss product compliance here). If they commit to a BOM you're aware of these issues are less likely. 

10:46 - How the BOM evolves throughout the product development process & what's included. The BOM follows the new product development phases, going from concept BOM which is simple and gives a rough idea of what's included, through to a prototyping and manufacturing BOM which is complete and is continually updated with quantity, component status, price, testing results, issues, new requirements from the customer, product engineering info, CAD drawings, colour, texture, finishing, and more.

17:02 - The need for a review process on the BOM to make sure any mistakes are found. Mistakes with the BOM could lead to incorrect parts, quantities, or wrongly specified parts being purchased. Checking and updating the BOM accurately is also connected to traceability for if issues are found later on with products.

18:51 - What does a Bill Of Materials look like? A good resource here is Renaud's video walkthrough where he explains an example BOM row by row. A few words on BOM format.

19:50 - How and why do we protect the BOM's confidentiality? The BOM includes pricing and it is not ideal for everyone to get an idea of how much components or full products truly cost. No company wants to make their margin that obvious. Components may have their markings removed or obscured to stop competitors finding out your suppliers and being able to more easily replicates products and features, but if a BOM was to get into their hands this would allow them to skip many months of development immediately.
So, anyone receiving the BOM must be contractually bound by the same kind of manufacturing contract covering the final products, too.

26:57 - If a Chinese supplier doesn't want to provide the BOM, what can you do? This is a matter of leverage and negotiation. If the supplier is afraid you will leave they may relent and provide the BOM or at least a partial BOM which will give you a lot of the key information you require.

28:21 - Other reasons why a BOM is important to both buyers and manufacturers. A buyer will also find a BOM from the supplier helpful in order to track down quality issues coming from a sub-supplier which allows you to send an inspector to the sub-supplier to check on how they're working and push them to improve if problems are found. Without the BOM, of course, this isn't possible and improvements can't be driven.
A manufacturer will find an ERP useful in order to manage purchasers' practices (assuming they don't already use an ERP which most don't), as this will force purchasers to use a specific BOM per product instead of a collection of spreadsheets, contacts, and documents that only they have access to, and then management can check that they haven't overpaid, skimmed, etc, occasionally.

33:33 - Closing recap about the importance of the BOM, its function, and contents.

Extra information you may find helpful

A number of blog posts and resources about the Bill Of Materials here for you to digest:

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The Impact Of Chinese New Year On Importers & Tips To Prepare For CNY 2021

Wednesday Nov 25, 2020

Wednesday Nov 25, 2020

In This Episode...

Sofeast's CEO, Renaud, and Adrian from the team discuss the forthcoming Chinese New Year holiday which is officially between Feb. 11th to 17th 2021 (CNY day is Feb 12th). We'll look into how and why this holiday has a serious impact on lead times, quality, supply chain risk, and managing suppliers; greater than at any other time of the year.

Renaud also shares some tips and strategies that importers can implement to plan and prepare for CNY, as well as mitigating risks that may arise from your suppliers.

Show Notes

00:00 - Introduction.

02:18 - Discussing what the Chinese New Year holiday, or Spring Festival, is and some of its unique features. 

05:28 - What staff turnover around CNY tells you about the factory. A high turnover is indicative of an employer who has work to do with treating and/or paying staff well.

06:40 - Some problems which typically occur after Chinese New Year. If staff have left, new staff aren't as efficient which may lead to quality issues. Even new quality inspectors may not pick up problems as well until they're familiar with your requirements.

07:17 - Points of stress for importers before CNY. The pressure to clear a backlog of orders and staff starting to leave early for the holiday makes the pre-CNY period quite treacherous for importers. Orders may be delayed, quality may be affected, there is no time to rework defective batches, suppliers may not focus on future orders urgently, etc.

11:00 - The length of time that different factories may be closed for. Assembly factories will typically be closed for 12-15 days, a relatively short time. The problem is with component and material factories. These guys can be closed for up to a whole month.

12:32 - Summarising the problems and risks at CNY. Also includes shipping backlogs, where demand drives up shipping costs and there is enormous demand for quality inspections just before CNY, too, when everyone is (rightly) worried about poor quality.

13:42 - The dates for Chinese New Year 2021 and pre-CNY wind-down.

14:36 - An additional risk for importers: Supplier bankruptcy. It's at this time, the end of the year in China, that suppliers who have been struggling financially may decide to file for bankruptcy and shut down. They may or may not pay off outstanding wages and debts, but either way, it's going to leave you in the lurch. Due to the financial stresses of 2020, this could be a larger problem in 2021 than usual. Big tip: DON'T wire any advance payments for the period after CNY to a supplier just before the new year holiday.

16:31 - Preventive measures that importers should follow to navigate the CNY period securely. Plan ahead diligently, get inventory made Oct/Nov, avoid production too close to CNY due to quality issues, if things may be in a rush, negotiate with suppliers to have smaller orders made better (if possible) to release some pressure on them, arrange post-CNY orders with your supplier so they can coordinate with sub-suppliers in advance in order to get things running faster after the holiday, increase inspection work on products and components/materials pre and post CNY.

21:27 - Will CNY 2021 be any different to usual due to COVID19? At the moment, due to the very low cases of the coronavirus in China, it looks that it won't be particularly affected, unlike in 2020. However, importers should be aware that if the virus spreads due to the holiday, factories could be hampered or shut down in the new year if cases are found.

25:24 - Contingencies to deal with supply chain risks (such as viral outbreaks). Keeping some extra inventory if possible, having more than one supplier per product gives a safety net and this even better if they're located in different areas of China or even different countries (such as one in China, one in Thailand), suppliers can hold some stock or components, etc.

27:48 - Risks other than a pandemic to be aware of. This could be a fire in the factory that puts them out of action, financial problems causing them to go out of business, having IP stolen, disastrous manufacturing and quality issues, and more. Importers would be wise to consider arranging a backup supplier. Plan ahead and have a risk-based approach to cope with risks that you rank from worst to least if they should happen.

Extra information you may find helpful

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3 Types Of Quality Control Plans & Why They're Needed BEFORE Production

Wednesday Nov 18, 2020

Wednesday Nov 18, 2020

In This Episode...

Sofeast's CEO, Renaud, and Adrian from the team discuss everything buyers should know about quality control plans. A QC plan lists all the quality-related checkpoints to be passed during/after a production run. Depending on the buyer's situation (which include factors like order size and value), it can include process, product, or legal checkpoints. Approving QC plans is an essential step before production is allowed to start as you'll see as we go through the topic.

There are three types of quality control plans we'll be discussing:

  1. The product quality control plan to include in a contract with a Chinese supplier which demonstrates the buyer’s expectations for the supplier regarding quality, inspection, and production activities.
  2. The process control plan that decomposes production in each process step (often called control plan).
  3. The QC plan for a new product being brought to market which outlines in black and white the manufacturer needs to know in order to produce goods at the right quality.

You'll learn when these plans are appropriate, or, conversely, if there are buyers who don't require them.

Show Notes

00:00 - Introduction.

00:56 - What are QC plans and why are they important to agree on before production starts? A summary of QC plans and for which kind of orders they'd be most appropriate.

03:09 - Discussing the 3 types of QC plan and the different contexts they're used in.

03:48 - 1. The product quality control plan that makes up a part of the manufacturing contract. Defines legalities around access to the facility, testing, product compliance expectations, who pays for testing, what happens if products fail quality tests and don't reach the quality standard, and more.

07:18 - 2. The process control plan. This is a core tool for the automotive industry but can be used by any buyer if their orders are large or expensive enough to warrant a deep investigation into planned production processes in order to ensure quality throughout. Plan what is expected at each production step, how it can be checked, and what to do if an issue is found, and document all of this in the plan. This also applies to upstream suppliers if you're taking quality very seriously.
(Read this blog post for more info on setting up your process control plan: 11 Steps To Set Up a Process Control Plan)

13:13 - How to identify suppliers who are capable of adhering to a stringent process control plan? 2 ways, process audits and a tip from Renaud to do it in a simpler way.

15:02 - 3. The QC plan for when developing a new product. This clarifies your needs and takes the form of a number of questions, which we list and discuss in this section, about quality in a type of checklist that the manufacturer really needs answers to have answers to (or be able to answer) before proceeding. It forces both buyer and supplier to think deeply on how to assure the best quality possible when manufacturing a product which is new on the market. (You can see an example QC plan for a new product in this blog post which this episode is based on).

22:46 - How Chinese suppliers' culture can be to disregard planning ahead for quality and instead focus on fixing issues later as they occur. Hint - this flexible approach isn't a good thing, especially for new, complex products.

25:01 - The dangers of not going through the QC planning process with Chinese/Asian suppliers. They will be very encouraging which can lead some buyers to trust in their expertise, but this can be a trap because it's on YOU to define a quality standard and expectations for the supplier to follow, not to be led by them as their ultimate interests may not align with yours as less specific requirements give them more opportunity to cover themselves should they do something wrong.

27:35 - Are all 3 QC plan types appropriate for all kinds of buyers? The product quality control plan (1) should usually be implemented for any size of order if possible, as it's good to have quality expectations in your contract with the supplier. The process control plan (2) is usually more appropriate for buyers with high quality requirements who place large orders (in the tens of thousands of pieces at least). The QC plan for new products (3) is appropriate for buyers developing and launching new products onto the market. 

30:55 - Why buyers with large order MUST have a quality standard. For instance, POs in the hundreds of thousands of dollars.

31:12 - What should buyers of existing products (such as off-the-shelf items to be rebranded) be focusing on when it comes to quality? QC plan 1 for the manufacturing contract's terms is still helpful, as is creating a quality standard and documenting any quality issues from the supplier on an ongoing basis. But as a distributor, you will be unlikely to have much of a say about their manufacturing processes or new product development method.

Extra information you may find helpful

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Pricing, Negotiation, Contracts | Vetting Chinese Suppliers (Part 10)

Thursday Nov 12, 2020

Thursday Nov 12, 2020

In This Episode...

You've tuned into part 10 of our mini-series guiding you through effective vetting of Chinese suppliers that will help you to find the best possible manufacturer for your products (listen back to the entire mini-series on vetting Chinese suppliers here 👍).

If you've been following this mini-series, you will already have learnt about due diligence, factory audits and visits, exploring testing facilities, and much more when it comes to vetting suppliers. But if you're at the point where you are ready to start asking for quotations, there is still quite a lot to be learnt about the potential suppliers on your shortlist and that's what Adrian and Sofeast's CEO, Renaud, get into in this episode.

Show Notes

00:00 - Introduction and why getting quotations is a helpful part of the vetting process.

02:39 - When is the right time to start discussing pricing with a potential supplier and what can we learn from their prices? There's a difference between off-the-shelf products and more unique products that you're developing new for the market. For the latter, protecting your IP is important so that your product's unique features remain confidential.

05:41 - When to discuss pricing if you have confidential IP to keep secure. The risk of IP leakage (see additional resources below) here is a real threat. A useful strategy is to only release IP to properly vetted suppliers and hold off on speaking about pricing until this has been done (this means going through the whole vetting process outlined in this mini-series before sharing product details and requesting pricing).

You may also choose to omit the unique IP from your designs submitted for a quotation at an early stage in order to get pricing back which will be roughly equivalent to the true cost a supplier can provide when they see your complete product design - this helps you gauge market rate and get an idea of which suppliers are suitable on cost.

10:47 - What you should also discuss with a potential supplier when you're in a position to request pricing. Getting pricing means sharing technical information, but you should also be asking about business terms such as payment terms, incoterm, how shipping is handled, packaging, if the supplier stores your products in the warehouse and then ships them to different countries in batches, etc.

11:32 - How working with the wrong manufacturer on prototyping is a recipe for disaster. Worst case scenario for the maker of a new product is that by working with the wrong Chinese supplier on developing your product and creating its prototypes, you're effectively training them to become your competitor with your own product idea. This shows why vetting suppliers to select the 'right option' is so important.

13:47 - A summary of steps you can take to protect IP. Narrow down the right profile of manufacturer for your needs. Screen out poor candidates. For complex products and large orders, performing advanced due diligence is a must. For simpler products where changing supplier is easier and protecting IP may be less of an issue, some screening is still required. After this, have your one or two shortlisted suppliers sign an NNN agreement and make it very clear what is confidential and understand who works on it and is a party to this IP. Assure they don't share confidential IP with sub-suppliers unless they also sign the NNN agreement. Look out for telltale signs of suppliers who don't take IP security seriously, such as staff members sending important business emails from personal accounts!

18:06 - What can we learn to show us that a supplier is capable? How well does the supplier understand your requirements before quoting? Do they ask questions to get the right information that helps them provide a very accurate quotation and not surprise you with additional extras later on? You also need to make sure you give the supplier the right information to help them, though. So paying attention to what the quotation is based on (such as your quality standard, your intended warranty, etc) is a key indicator of whether the supplier truly 'gets' what you require.

25:03 - Mistakes buyers make when requesting quotations from Chinese suppliers. Negotiating a low price at an early stage before the supplier has all of the information they need may seem like you're locking a good deal, but if the supplier hasn't sourced components and don't know how long production will take, for example, price rises later are almost inevitable and will cause you a lot of trouble.

26:26 - Why doing product design and prototyping outside of China/Vietnam etc is a good way to protect IP and streamline the vetting process. Instead of vetting a supplier, then going through the product development and pre-production stages with them, you can do that abroad while you vet them and go to them with very specific designs and prototypes to get accurate quotations and start work quickly. This also means that the Chinese supplier wasn't involved with the design and there's less chance of IP leakage. This would typically be the model when using a contract manufacturer and such preparation helps show you as a serious and credible customer.

30:35 - Are the extra costs for developing products and prototyping abroad worth it? This depends on the expected volume and how much capital can be spent at this early stage. If you don't do this, working with a Chinese OEM could work, but assuring you own the IP is going to be a key concern before doing so, otherwise, you can go into partnership with them if sharing ownership of IP is acceptable and you're unsure if you can get investment elsewhere.

33:42 - How buyers need to be very clear when communicating requirements in order to help suppliers give them a solid quotation. Chinese suppliers may not be very organized, so you need to be sure to help them to help you by being very organized yourself - not sending them full information, or sending it piecemeal will definitely slow things down and cause misunderstandings.

34:50 - Closing tips for buyers who are new to manufacturing in China in order to have more success when negotiating price with suppliers, etc. Don't be tempted to try to drive down the price to the extreme, even if it makes you feel like you're a top negotiator (this will no doubt increase later or result in very poor quality).

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Exploring Good Manufacturing Practices (GMP)

Wednesday Nov 04, 2020

Wednesday Nov 04, 2020

In This Episode...

We're discussing GMPs (Good Manufacturing Practices). What are they? How are they useful for importers with suppliers abroad in countries like China? What is their relation to controlling your suppliers in comparison to activities like quality audits, social compliance audits, and process audits?

After listening to this episode, you'll have a grounding in what GMPs are and how to implement them yourself if you feel that they'll help you improve results from your suppliers.

Show Notes

00:00 - What are GMPs? A brief explanation behind the concept. What are the basic things that must be done well and carefully when it comes to manufacturing? This is the basic idea of GMPs. They can vary based on industry and are often grounded in quality and safety.

03:18 - What industries (aside from food, medical, and pharmaceutical) are particularly benefited by using GMPs? More relevant for any product type which has high safety and/or quality requirements. 

04:57 - Some similarities between GMPs and ISO 9001. GMPs may be insisted on when it comes to practical actions suppliers should focus on that an auditor will check on-site. This applies to the physical, whereas the opposite would be social compliance audits which focus very much on what people say, not necessarily what they physically do.

07:28 - Why focusing Asian suppliers on physical improvements is a good way to spur improvement. It's harder to fake - they either 'do something' better, or not. Costco is an example of a retailer who has a fairly simple GMP checklist that they ask their suppliers to follow for products which are not medical, etc.

09:14 - Are GMPs a part of the manufacturing agreement with a supplier? They may be, but can also be used during initial qualification of a potential supplier, too. Their improvement based on GMPs can be assessed over time and rewarded with more orders (or fewer).

10:24 - What list of principles might typically be included in GMPs? It will vary per industry, but for general consumer goods, it may include: How materials are stored. Segregation of conforming vs non-conforming material. Production equipment maintenance. Staff training and experience. During or after production checking schedule and method (includes sampling and testing equipment). Planning to avoid excess inventory. 
Some buyers may have specific requirements based on their industry, too, in a subset of the GMP checklist. For example, checking the material purity and the molds would be key for producers of die-cast products.

Any more specific and you go into the territory of process audits, but GMP checklists usually don't go that far.

16:15 - How GMPs are more superficial than process audits. GMPs are more generic, but they have a value in terms of making sure the basics are followed properly.

17:35 - Do suppliers keep records about following GMPs. Suppliers rarely admit to following GMPs, but it may happen in specific cases where GMPs are critical (such as from a safety perspective).

18:04 - What are the kinds of elements that make up the USFDA GMPs for medical devices? This gives an idea of the demands placed on suppliers of medical devices where safety is critical. Focus on documenting good manufacturing practices and quality system. This will include QC records, traceability information, preventive maintenance, images of the machinery and facility, how defective pieces are dealt with, BOM, pre-production verification records, and more. All of this goes into a technical file which is retained until required and can be updated when needed, also. For SMEs, following these GMPs would put you well above the average.

24:40 - Flexibility of GMPs for medical devices. The USFDA GMPs are purposefully flexible, as there will be a big difference in safety requirements and preventive thinking, for instance, between the production of a pacemaker and a head covering for hospital staff.

26:25 - Are such GMPs covered in ISO 13485 for medical devices? No, but a good auditor will consider them during the audit and ask questions about them. Also discussing how issues are minimized and tested for even after the product is on the market by reliability and quality engineers.

30:07 - What are food GMPs? No one standard, but a focus on hygiene is common. ISO 22001 food safety management system defines GMPs as 'prerequisites' as they are the basics that should be in place before foodstuffs are produced. They would include points like pest control, staff hygiene and controls on smoking, rubbish and waste disposal, correct water supply, and more which are specific to food production. Food GMPs often differ from one country to the next.

33:27 - GMPs' basis in common-sense. They are the basic things that no one can dispute need to happen.

34:15 - Wrapping up: How should buyers who want to implement GMPs get started? Think about your product categories. The approach will be different for general consumer goods in comparison to those that require advanced safety like food or pharmaceutical goods, for example. 
List the basics that you need your manufacturers to do to a good standard. Will they be used in your ongoing re-auditing program for suppliers or with a management system audit? Consider your objectives and scope. If you're concerned mainly about how materials are handled and manufacturing is done, then implementing GMPs is appropriate, but if you need to go deeper into a supplier's capability then a quality system and/or social compliance audit may be relevant.
Brainstorm and develop a checklist, organizing it by category. Audit based on the checklist and hone it over time. If you work over different product categories, the GMP checklist may need product-specific subsets added to it, too.

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How To Perform In-Depth Due Diligence On Your Supplier | Vetting Chinese Suppliers (Part 9)

Wednesday Oct 28, 2020

Wednesday Oct 28, 2020

In This Episode...

You're listening to part 9 of our mini-series guiding you through effective vetting of Chinese suppliers that will help you to find the best possible manufacturer for your products (you can catch up on the entire mini-series on vetting Chinese suppliers here 😉)

This episode (recorded in late October 2020) is particularly timely as many importers aren't able to travel to China to check on their new or current suppliers' progress, so getting an understanding of how their business is doing and if they're engaging in any practices which could cause risks for your supply chain (such as if they were to be shut down by the government for flouting certain regulations). Therefore, understanding how and why to perform in-depth due diligence is an important step to assuring supply chain stability and quality for those of us in who can't visit China yet and as a standard part of your vetting process to stamp out risks.

Show Notes

00:00 - Why is performing due diligence on suppliers in China so important at the moment? China hasn't been unaffected by the pandemic. Can you be sure that your supplier is going to stay in business, for example? This would be a big issue if a key supplier were to suddenly close down. Also, explaining why some manufacturers won't disclose if they are having some difficulty.

06:00 - Why the lack of travel to China causes trouble for buyers who lack visibility into their supply chains. Being unable to visit suppliers' factories blocks many buyers from making their own subjective evaluations based on what they see (👂 listen to this episode about On-site, Subjective Factory Evaluations), so a lot of buyers have no idea if their suppliers are in good shape or not and feel worried that they could be at risk.

07:54 - How even local buying offices with foreign staff in China may have limited visibility into the suppliers due to local COVID restrictions. 

10:03 - When performing due diligence, what are the points to focus on (modelled on what we do for clients here at Sofeast)? 

  • Checking on how are the real company owners
  • Looking into the financials of the company
  • Assessing levels of debts and who creditors are
  • Ownership changes
  • Has capital been transferred for new companies
  • Checking that in-house processes adhere to specific regulations

All of the above are best accompanied by an on-site visit where the operations are examined in detail in order to find out about company health. An example is given where the inspector sees that the company is now leasing out a part of their facility to a different organization where they used to occupy all of it. Is this a cause for concern that the company isn't doing so well?

15:38 - Checking that in-house processes don't fall foul of local regulations. How this can cause a factory to be very quickly shut down in China for this, losing you a supplier overnight! Checking relevant licenses for polluting processes etc is necessary.

17:38 - The differences between 'Old China' and 'New China' in terms of suppliers. With 'Old China' thinking factory owners are more likely to skirt certain rules and play fast and loose with the law (examples provided), and 'New China' where owners behave in a more sustainable way and follow the rules. The latter are far more risky suppliers to work with these days as government scrutiny and enforcement increases.

21:10 - Common strategies of 'Old China' manufacturers to be aware of. Is an owner sinking all of their money into real estate, or perhaps has moved their operations out of a major city into a more undeveloped area or province in order to reduce scrutiny? Buyers need to be aware of tricks like this which are possible red flags.

25:21 - How the culture is changing, leading to less risk for buyers. 

27:37 - Is there more transparent business information out there for buyers who are examining suppliers? The forthcoming corporate social credit system could be a game-changer here as it will show importers very transparent information about companies' health and affairs.

29:44 - Why financial information, such as accounts, don't give a picture of the present time + recap of the 'Big 2' due diligence points: Financials and respect for regulations. How all of this is industry and product-specific, so checking certifications and test reports is also needed.

32:15 - The serious risks you need to investigate when examining a potential supplier. Don't trust anything without confirming it. Focus on the key points of importance, such as:

  • Their long-term stability
  • Relatively healthy financials
  • Ownership and management
  • Stability of their suppliers (your sub-suppliers)
  • Processes and efficiency for cost-control
  • Experience in your product niche
  • Familiarity with standards for your country/market

36:25 - Should a backup supplier be planned for in order to switch if there are issues with current suppliers? Explaining how to organize this in order to guard against the discontinuity of supply.

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The Basics of Quality Management for Buyers

Wednesday Oct 21, 2020

Wednesday Oct 21, 2020

In This Episode...

Our CEO Renaud Anjoran (whose background is as a Certified ISO 9001 & 14001 lead auditor, ASQ certified Quality Engineer, and Quality Manager) discusses the Quality Management Process, including its 3 main sections: Planning, QC, and Improvement. This process allows buyers to plan ahead to assure good quality from the start of the project, use real data to pinpoint and eliminate quality issues they're getting from a supplier, and to stop issues from recurring in future by putting in place processes and systems that prevent the issues from reoccurring in future.

The takeaway from this episode is a proven QM process which you can use to improve your own quality, and it's based on this graphic which is referred to throughout:

quality management process

Show Notes

00:00 - Summarising the quality management process and its basis in the Juran trilogy, namely the planning, control, and improvement phases.

06:34 - What benefits do implementing such a quality management plan provide to buyers over those that don't pay as much attention to quality management activities? Instead of flying blind, the QM process allows improvement to processes which would otherwise keep throwing up quality issues. Measuring data also allows better control over component suppliers. Overall, poor performance across the supply chain has a negative effect on your business, not necessarily theirs.

11:04 - Best practices for getting started with quality management if you're starting from scratch. As a minimum, document your requirements (what you and your customers will or will not accept) as this allows you to point out if a supplier has done something wrong that deviates from them! Without this, you can see how improving quality may be an issue if a supplier disagrees with your assessment. 
Based on the requirements, the second key best practice would be to do some QC inspections (including product reliability & compliance) - fundamentally, do the products reach your expectations?

17:56 - Can 'small buyers' affect change? If you're a very small buyer, let's say 0.1% of a factory's output, for example, driving change in your suppliers may not be possible as they will not listen to you. However, if you account for 10, 20, or 30%, for instance, then it's a different story.

18:43 - Do quality recurring quality issues leave small buyers like some FBA sellers in a difficult position? What can you do to protect your business and improve quality? Would it be as drastic as needing to switch to a new, better supplier? Assuming the factory is capable, it may be a design, material, or component issue, so this is worth looking into when you have some quality and defect information.

***

Going through each step of the quality management one by one to illustrate the process that buyers can follow in detail.

21:59 - Quality planning

  1. Know your customer expectations (a good specification sheet and drawings will be helpful)
  2. Set objectives (approving samples is an important step here and boundary samples may be effective if you have a little tolerance between two points)
  3. Qualify supplier & sub-suppliers (we refer to this episode on different supplier types)
  4. Audit systems and processes, find risks (FMEA), plan accordingly

28:51 - Quality control

  1. Product/material inspections (product inspections can be before during and after production, although DUPRO is favorable as there is then time to make changes before all products are finished)
  2. Laboratory testing (some samples are sent to labs for reliability/compliance/safety testing, especially if they cannot be done on-site at the manufacturer's facility)

31:00 - Quality improvement

  1. Use problems found during auditing or QC to drive improvements
  2. Set controls on identified risks (this could be a preventive maintenance plan, for example)
  3. Keep updating the quality standard as and when new issues occur, also the risk analysis for when new risks are found, and feed back to the supplier if there are issues with materials or components coming from a certain sub-supplier

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