China Manufacturing Decoded

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:

• China Supplier Vetting, Part 1: Background Checks
• China Supplier Vetting, Part 2: Questions to Ask Before a Visit 

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7 Ways Suppliers Can Cheat Importers Or Cause Problems | Vetting Chinese Suppliers (Part 1)

In this mini-series of podcast episodes, we will explore the process of what it means to work with the right Chinese supplier and how to qualify them effectively, screening out the bad options and focusing only on the one or two best choices.

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.

When starting to source new suppliers, you need to be aware of the risks, and these bad behaviours are what we focus on in this episode - the 7 ways Chinese suppliers cheat or cause trouble for customers.

Show Notes

Why is vetting new Chinese suppliers so important? (Start to 1:45) - the topic is drawn from this blog post which you can read for extra information.

Introduction to the components of trust between supplier and client - firstly, do you trust them their character and truthfulness and secondly, do you trust them to be able to actually fulfil your orders correctly? The need to be careful not to put yourself in a situation where you rely too much on one supplier who may not have your best interests in mind. (1:45 to 7:38)

7 ways Chinese suppliers can cheat you!

The 5 bad behaviours

1. The supplier disappears after a deposit, or a fee for samples is wired. (7:38 to 11:25)

2. Price increases unexpectedly after a deposit is transferred and you're 'hooked.' (11:25 to 16:33)

3. Price increases from one order to the next, without relation to production cost increases. (16:33 to 18:55)

4. Lack of respect of IP rights (selling the buyer’s design to other customers). (18:55 to 25:05) - you may also enjoy this blog post related to IP theft in China, too.

5. Lack of transparency (subcontracting outside of an approved facility, changing a component without notice, etc.) includes a discussion about how face is gained when you get away with things and also the concept of chabuduo (more or less). (25:05 to 31:24)

2 lacks of competency/experience

6. Lack of reliability: late deliveries, inconsistent communication…why over-promising and underdelivering has become common among Chinese manufacturers. (31:24 to 34:50)

7. Inability/unwillingness to reach the desired quality standard. At what point do you 'pull the plug' on a supplier who is unable or unwilling to produce goods at the quality standard you are expecting? (34:50 to 37:55)

Previewing the next episode  

In part 2 of this series, we will move on to discuss how to screen out the 'bad' suppliers who are likely to cause you the problems discussed in this episode? This will include tips for better vetting, such as background checks and smart questions to ask that will help you quickly identify which candidates aren't right for your needs. (37:55 to END) 

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Get even more great content or assistance with your own project

• Visit our website at Sofeast.com
• Subscribe to our YouTube channel

 

Choosing Suppliers: OEM, ODM, Contract Manufacturer?

In episode 9 of the podcast, Adrian and Renaud discuss the different types of suppliers you may encounter in China (and Asia in general), their pros & cons, and what to look out for when sourcing suppliers.

Show Notes

We react to the worrying news coming out of Beijing about new clusters of coronavirus infections. How could this affect manufacturing in China? (Start to 3:45)

As the disputes and rancour between China and the USA rumble on, how are the trade war and the recent push to 'reshore' manufacturing going? (3:45 to 7:10)

Moving onto the episode's main topic, Renaud defines OEM and ODM - what these suppliers are, their features, and pros and cons of working with them. Factory audits are a useful tool here to help assess if the supplier is right for your needs. (7:10 to 23:50)

ODM - Expanding on some of the benefits and possible risks of working with an ODM specifically, such as their failure to alert you about who really owns the IP of the products they're suggesting they can produce for you, and also the need for a watertight Chinese manufacturing contract. (23:50 to 25:45)

OEM - Similarly expanding on OEMs. What are some of the key benefits (fast to market) and risks for importers when working with these suppliers? Such as being locked in with a supplier who won't produce the quality you need or the risk of losing your IP to them and finding your products on the market later on at a much lower cost! (25:45 to 32:56)

How to keep an OEM in line when working with them? Including arranging a suitable agreement with your lawyer and what it must contain in order to hold sway over the supplier. (32:56 to 36:05)

The rules of thumb for choosing suppliers - What production volume of yours would be best served by hiring an OEM, ODM, or CM (or even setting up your own manufacturing facility)? (36:05 to 37:25)

CM - What are contract manufacturers in more detail. Benefits of working with them and a number of best practices to make sure the production runs smoothly. Why CMs are less likely to play tricks than OEMs and ODMs and want to get to mass production and for it to run very smoothly. (37:25 to 45:10)

"Famous CMs produce products for HP, Apple, etc, so if I work with them I'll be guaranteed great quality products, too, right?"  Why this is not necessarily the case.
We also mentioned our own Contract Manufacturing subsidiary, Agilian Technology, at this point, which is one of the 'smaller alternatives' mentioned that will provide a better service for buyers who don't bring enormous orders to the table. (45:10 to 50:00)

The dangers of dealing with trading companies who may be leading you to believe that they are a manufacturer or who cannot handle the manufacturing project as capably as you need (due to not being particularly involved with the factory amongst other reasons).
In this section, we also mentioned due diligence and how we provide solutions like an affordable legal records check to help weed out trading companies or bad apples when sourcing suppliers. (50:00 to END)

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• Connect with us on LinkedIn
• Send us a tweet @sofeast
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Get even more great content or assistance with your own project

• Visit our website at Sofeast.com
• Subscribe to our YouTube channel

Supply Chain Risk Management & Reduction

In episode 8 of the podcast, Adrian dials in with Renaud to discuss supply chain risk, how to manage it, and some of the tools that can really help make a difference for importers.

 

Section 1: Supply chain risk, Black swan events, & VUCA (Start to 25:00)

• What is supply chain risk
• Real-life instances where this has negatively affected businesses
• Black swan (unpredictable) events
• VUCA (Volatility, uncertainty, complexity and ambiguity) and some examples
• Performing due diligence on suppliers (Sofeast can help with this)

We follow the topics of this blog post: Supply Chain Risk Management, Part 1: What are VUCA and Black Swans?

 

Section 2: The Business Continuity Plan (25:00 to 37:00)

• Explaining what a BCP is and its benefits
• The dangers of 'swimming naked'
• How to build and complete the plan (including Issues/Risk dimensions/Action plan)
• The role of planning in an organisation that wants to take action to reduce risks

This section focuses on the topic of this blog post: Supply Chain Risk Management, Part 2: The Business Continuity Plan

As promised, you can get Renaud's BCP template and configure it for your own needs should you wish to undertake your risk analysis for your own business here: https://bit.ly/BCPTemplate

 

Section 3: The Supply Chain KPI Scorecard (37:00 to End)

• Why most purchasers pay too much attention to the price of what they buy but fail to take risks into account such as too much complexity, unreliable suppliers, etc
• Examples of the negative consequences of focusing primarily on price
• How completing a supply chain KPI scorecard can help reduce risks and the key KPIs to include (such as quality, cost, on-time delivery, and certain risks, too)
• Summing up and closing remarks from Renaud

This section draws on this blog post: Supply Chain Risk Management, Part 3: A Purchaser Supply Chain KPI Scorecard’s Benefits

******

If you have any questions about the topics discussed in this episode you can get in touch with us and we'll do our best to answer them and also remember to subscribe to Renaud's blog at QualityInspection.org and visit Sofeast if you need assistance on the ground in China or SE Asia with your supply chain, quality, product development, and much, much more.

How Manufacturers & Importers Can Prepare For A 'Post-COVID' World

After reading IndustryWeek's article: What Will Manufacturing’s New Normal Be After COVID-19?, Adrian and Renaud discuss the topic with a special focus on China.

If you have a supply chain or factory in China, how might things change for you in the future and, if you're in lockdown right now and cannot travel to China, what kinds of activities can you do to keep making progress in 2020?

The message is that things don't need to be on hold! There are useful activities that importers and manufacturers can perform right now that will help you hit the ground running post-COVID, and the use of technology may spur this even more.

 

Today's topics

In summary, we cover these topics:

• Remote activities importers and manufacturers can do, such as product development.
• Which industries are thriving during the pandemic and which are negatively affected.
• What kinds of safety measures have been brought in to factories in China?
• Is productivity being affected by this?
• Can manufacturing be returned to the West 'easily' if automation is factored in?
• How likely is it that companies can 'decouple' from China post-coronavirus? What challenges exist for reshoring or near-shoring and what are the benefits?
• Is digitization going to increase in the future and how can it be helpful?

 

Show notes

• Bringing an IoT Product from Concept to Market: Case Study
• Our hardware startup client's new product development case study video
• A blog post about why you need a backup supplier in China
• An article about digital transformation
• We mentioned the SynControl quality inspection software which helps importers manage their inspections remotely and in real-time

Get even more great resources from us at Sofeast.com, and if you have any questions, please contact us any time.

Hot Topics In China Manufacturing Spring 2020

In this extended episode...

Renaud is interviewed by CMC (China Manufacturing Consultants) about the hottest topics in China manufacturing in Spring 2020. 

These topics are covered:

• If there is a global recession/depressed demand, what are the effects of this on manufacturing?
• Why the bargaining power of buyers will increase and how it's the time for buyers to seriously evaluate their Chinese suppliers for a better future supply chain (including the kinds of activities you might perform).
  
  
• How to spur Chinese suppliers to make positive changes if it's found that they need to adjust.
  
  
• How short term thinking is affecting long-term improvement projects in Chinese manufacturers (we blogged on this here) which negatively affects quality, delivery, efficiency. How consultants can come in to assist with this.
  
  
• Who should Chinese factories be hiring internally to complement consultants to make long-term improvements?
  
  
• The advice to PPE & medical supply manufacturers and buyers - this industry is booming due to the coronavirus pandemic causing unprecedented demand, so there are certain things that both parties should consider which Renaud explores, such as selecting the right kind of equipment to cope with a temporary increase in demand.
  
  
• What can buyers of high-demand products such as PPE do to assure that their customers will get the right quality products on time? This includes production planning and more.
  
  
• How has factory relocation from China to other countries been affected by the pandemic? Some useful tips for manufacturers who still intend to move, such as how to plan ahead and why starting small is a good idea.
• The top 3 things a big buyer (30-50% of output for a supplier) should be doing right now.
  
  
• The 3 things that buyers of medical supplies and PPE should be conscious of in the current environment.

Show notes

As promised here are the links from today's show.

• China Manufacturing Consultants website
• Sofeast.com
• Medical products and PPE were mentioned quite a lot, so our coronavirus medical supplies resources hub will help you if you're in that market.

If you have any questions arising from the pod, please contact us and we'll be happy to help if we can.

Tips for Buyers of Coronavirus Medical Supplies from China

As the world battles coronavirus, there is an increasing number of buyers rushing to buy coronavirus medical supplies such as masks, gowns, face shields, ventilators, test kits, and more from China.

The situation is fast-moving and the market is risky. So when lives are on the line, what can buyers do to assure that the products they're importing are safe, high-quality, and permitted to be exported from China and/or imported into their countries?

Adrian from Sofeast and our CEO, Renaud Anjoran, discuss this topic today.

Show Schedule

• What is the situation on the ground in China now regarding the manufacturing of PPE/medical supplies to deal with coronavirus? 
• Has China implemented any rules to improve quality?
• Loopholes, risks, and importing to the West.
• Renaud's main TIPS for importers.
• If buyers can't get the products they need from China, what other options do they have in Asia if any?

Resources for coronavirus medical supply buyers

• Various resources and solutions for buyers
• The minimum buyers should do is undertake supplier certificate verification
• Risk Reduction For Buyers Of COVID-19 Medical Supplies With Existing Suppliers - YOU manage the purchasing, WE work with you to reduce your risks

If you have any questions or need help with buying medical devices or PPE, please feel free to contact us. We're already working with clients worldwide to help support them during this difficult time.

The Relationship Between Factory Audits, Product Inspections, & Lab Testing

This episode focuses on factory audits, product inspections, and testing in laboratories, are really important for importers, and how they fit together! It's a must-hear if you're buying from China!

We discuss the elements in order:

1. Factory Audits - We cover popular types of factory audit, what's included in them, and why they're helpful, especially when working with new suppliers. Without auditing supplier's factories, it's very hard to know if they're reliable and capable of providing you with conforming products. We also share tips on how often to audit and how to handle regular auditing in China if you have a buying office there, for example. (Start to 13:55)
   
   
2. Product Inspections - We'll talk about why inspections provide a safety net before your products are shipped, as they allow you to head off quality issues before they become serious or you receive defective products. I explain why inspections during production and before shipment are two of the most popular product inspections, and what you need to think about when deciding to conduct inspections in order to get best results for a reasonable budget, such as using correct sampling. (14:00 to 27:00)
   
   
   
3. Lab Testing - 3 occasions where lab testing should happen. First, when a manufacturer is developing its own product and needs to guarantee its compliance before production. Second, when a buyer wants to check if a new supplier's product reaches their country's certification requirements before placing an order. Third, a buyer who has an order being produced sends some random samples for lab testing before shipment.
   I also share some tips on choosing the right testing lab and working with suppliers to get the testing done to prove product safety to your satisfaction, and deciding which tests to carry out. (27:00 to end)

If you have any questions based on this podcast's topics, please let us know by contacting us.

What Buyers Should Look At When Visiting A Factory in China

In this podcast, Renaud and Paul Adams (Sofeast senior engineer) discuss everything that buyers need to know to get a lot out of factory visits to their suppliers' factories.

They cover checking:

• The basics that buyers need to be looking at. A selection of things you need no special training to check, such as the general state of the factory (is it dirty, etc).
• Quality Control basics. What you should look out for regarding the supplier's grasp of QC, such as the tracking of data, etc.
• Documentation. If documentation is in Chinese you may be prevented from checking certain things like procedures, so what can you do in this case?
• Inventory. Is it 'good' to see a busy factory with lots of inventory? What can we learn here?
• Production speed. This affects lead times, so how to check this? How about a production planning system?
• Social compliance. There are audits for CSR, but when sourcing you can evaluate basic supplier compliance, such as fire prevention, emergency exits, etc.
• Engineering capabilities. Why a focus on new product development is important. Can the supplier help you with development? Can they understand your product and blueprints?

 

10 Elements of a QA Strategy in China (Part 2)

In part 2 of this podcast series, we continue to discuss the 10 elements of a strong quality assurance strategy in China.

In part 1 we went through elements 1-5: 

1. Background checks on the potential supplier
2. Reliability audit on factories
3. Evaluating the fit of the new supplier
4. Fair payment terms 
5. Contracts

Quality Control

6. Product Specification Definition - a common mistake of new importers is not defining their specifications in great detail. Your supplier needs to be reminded about your requirements, which can include materials, design, quality, and even packaging. The specification sheet acts as that reminder.

 

7. Quality Inspections - another error is rushing to get the products shipped without performing quality inspections. Having been to the supplier's factory and even seeing that some of the first products off the line were fine is not enough - some buyers have received their goods to find that 40% or more had to be scrapped due to poor quality. By performing inspections, it allows any issues to be solved in the factory before shipment and the payment of the balance- after shipment and when you've paid 100%, anything like that becomes 'your problem' in most cases.

Buyer/Supplier Relationship

8. Building Long Term Business Relationships - you need to find a way to be seen as a long term, stable customer who won't shop around to save a small amount. Chinese suppliers may not believe any claims you make about being a good customer, so the best way is to walk the walk with a clear roadmap, purchasing plan, inspection policy, etc. This professional outlook gains you respect. Fulfilling your promises also gains you a lot of credit, so placing orders when you promise to and being upfront and honest about changes of the plan also helps win hearts and minds, as does not negotiating too hard on the price to the point where you put them in a jam.

 

9. Regular Face-To-Face Meetings - you need a contract and procedure in place before placing orders, but buyers should actively go to China and visit suppliers regularly. Buying from China can't be done remotely forever, you need to call in and keep an eye on things. Also, it is not necessary to be drawn into big dinners, socialising etc, this isn't advantageous unless you want it to be - they will respect professionalism and your stable business more than socialising.

 

10. Improvement of factory operations - you should find out what suppliers have been doing and see if there are opportunities for improvement. If you're a reasonably large customer you will have the sway to push them to improve. The message here is not to hesitate to make the suggestion even if it is 'their factory,' as if you can help a Chinese supplier improve without costing them a lot of money (which is often possible) they will like you even more as a customer.

 

You can look at the overall strategy in more detail in this blog post from QualityInspection.org: https://qualityinspection.org/quality-assurance-strategy-china/