When a sample order takes too long it is time to worry

A client of mine told me today that it took him a few months to get samples from a new vendor in China. The only reasons I can think of are that either the vendor was super busy and not interested in doing a sample order for someone who is not yet a customer; or the vendor was subcontracting the sample order.  In either case it is not a good sign that samples would have taken so long. Most samples take a couple weeks.  A long sample order would be a month.  3 months for a sample screams unorganized.

When I negotiated with this vendor a few months ago, I found them very responsive.  And my client said that the quality of the samples he has received has been good. The only problem is the sample lead time.  In a situation like this I think you have to proceed carefully.  If my client has it in his budget, he should have someone go inspect the factory and talk to the manger to find out why the samples have taken so long. A visit to the factory would probably answer a lot of questions.   If my client does not have a factory audit in his budget then I think I would be very reluctant to give this vendor an order, the good quality of the samples notwithstanding.

I tend to look at sample orders as not only for testing the quality of a product but also for testing a vendor’s responsiveness and reliability.  And I like to tell people that if they have a lot of trouble with a sample order, then imagine how difficult it will be when they have a production order shipping against a cancellation date.  That is when China sourcing threatens your business.

A last thought:  I have been in this situation before.  You have a vendor that delivers you good quality samples within your target cost.  Or you meet a vendor at a trade show with a great product. But they are unreliable in other ways e.g. not showing a particularly friendly or cooperative attitude when solving problems, not doing things when they have promised.   As reluctant as you are you really need to move on.  Because as I said above if the relationship has problems early on, those problems will only get worse later.

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Using an overseas 3PL to cut your international shipping costs

A couple former clients of mine have come to me recently asking me to help them find a 3PL, or Third Party Logistics, warehouse overseas. One of the clients is looking for a 3PL warehouse in China close to where they manufacture their product.  They have a lot of clients in Asia and are looking to cut their shipping costs. Currently all their product is shipped to the US and then they ship it out again to countries in Asia. So finding a warehouse in China that will ship their product directly for them is important.  The other client is looking for a contract warehouse in Europe.  They have been using one in the UK but that warehouse is closing so they are looking for another.  The interesting thing about this client is that their 3PL provider in the UK charges a percentage of sales and actually has an incentive to help my client drive sales.  This is a bit unusual as most 3PL providers charge based on volume and labor. But in reaching out to some 3PLs in Europe I did find a few who said they might be willing to work with this arrangement as well.

Needless to say, if your international customer base is growing enlisting the aid of a good 3PL can save you a lot in overhead and shipping.  However, you need to make sure you pick the right provider otherwise you risk an interruption in your supply chain.  If your 3PL suddenly goes out of business then you face a major problem with your customers, what has happened with my client whose UK 3PL has suddenly decided to close.  So longevity is a key here and you only want to pick a 3PL that has an established track record.  You also should ask for references.  Most 3PLs will be happy to pass these along.  And as you do when you look for a prospective supplier in China, there are a couple things to keep in mind:

  • Only approach 3PLs that service companies the size of your own. A large 3PL is probably not going to be interested in your business anyway.
  • Attach much importance to communication when evaluating 3PL providers.IMG_0064

Never let your guard down when you manufacture in China

There was an article in the Shanghai English Language paper recently about defective products being sold in Shanghai stores.  Apparently about 40% of the apparel sold in Shanghai area dept stores reveals defects, everything from excessive formaldehyde to misleading labels. A sweater, for example, was described as 100% wool but it turned out to have only about 20%  wool content. The same old China song and dance in other words.  Still I was a bit surprised to read this kind of story because over the years the quality of product made in China has gotten much better as overseas importers have imposed stricter requirements on their Chinese suppliers and as a growing and more affluent Chinese middle class has come to demand higher quality from domestic vendors.  The story illustrates however that the Made in China brand is still plagued by the quality problems that have been associated with Chinese products over the last 30 years.  In other words you can never take your guard down when you manufacture in China.   You still have to test your products at regular intervals and make sure your vendor knows your standards and is maintaining quality and safety standards.   Here is the link to the article

Shanghai Defective Goods

FOB vs CIF

I had an inquiry today from someone who wants to move their CPG ( Consumer Packaged Good) production from the US to China.  They want to ship CIF which stands for Cost Insurance and Freight.  In a CIF transaction the supplier/exporter is responsible for assigning a carrier/vessel and insuring the cargo.  Once the vessel lands at the destination port the buyer/importer takes possession.  The main advantage to doing a China order CIF, as opposed to FOB ( Free on Board) is that the supplier handles all the shipping arrangements for you.  You simply have to pick up the cargo when it arrives and arrange for transportation to your warehouse. In theory CIF reduces the work load on the importer and may seem like the ideal arrangement for a first time importer who has no experience with international shipping, which can be quite complicated.  The downside to CIF however is considerable.  Your product will cost more because you are asking your supplier to bear more responsibility and not surprisingly most suppliers will look at a CIF proposal as an opportunity to pad their margins. In addition, you lose transparency on the real cost of your product.  The real cost of your product is what it costs to make and package your product.  Not what it costs to ship your product ( which is landed cost and which varies depending on a number of factors). You will also have no control over shipping.  If yours is not a time-sensitive order then CIF might be OK.  But if you need your product shipped on a timely basis, to fulfill orders, you will be taking a big risk because you will have no control over transit times and carriers.  In fact, your supplier may not choose the best carrier but the carrier who offers them the most preferential terms.  Your supplier will act in their best interests, not yours.

With an FOB order, on the other hand, the importer, working with a Logistics company, has complete control over shipping.  If problems arise you can work quickly with the carrier directly to resolve them.  The downside to FOB is that, yes, you need a Shipping or Logistics Company to help you arrange shipping. This is of course another cost, one of the hidden costs to overseas sourcing.  But you have to look at it as one of the necessary costs and you should be prepared to bear it.

In the end your expenditure will probably be the same, whether you allow your supplier to arrange shipping, resulting in a higher unit cost for your product, or whether you enlist the help of a Logistics company to help you arrange shipping and handle documentation.   It is when problems arise that you are far better off with your own shipping agent as opposed to trying to resolve problems with an anonymous shipping company that has been selected by your supplier.

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Check your orders before they leave China NOT after

I have had a lot of requests lately from people asking me to help them source in China, everything from kids clothing to electronic toys.  I do not take on just any product and usually if I am not interested in a project then I just point the person to a sourcing company in China who might be able to help them.   And the other day this was the case with a person who came to me asking me to help them source some smoking paraphernalia in China.  Not only am I opposed to smoking but I know nothing about it and for this reason I was not interested in accepting the project.  But the guy seemed nice enough and judging by the drawings he sent to me he is far along in his product development and is very serious about taking his product to market. So I gave him the name of my contact in China but I also gave him some parting advice. That advice was simply to inspect his orders BEFORE they left China.  This is the advice I give everyone but it occurred to me in that instant, when I was just thinking about one piece of useful advice I could offer someone who was about to start sourcing in China, that, yes, checking your orders before they ship from China is the only way you can guarantee that your vendor is delivering to you what you have paid for.  If you inspect an order in China and you don’t like what you see you can ask the vendor to redo the order or you can just walk away.   The most you stand to lose is your 30% deposit.  The analogy I always use when explaining this to people is the shoe analogy.  When you buy a pair of shoes the last thing you do at the register, before the sale is rung up and you take the shoes home, is to open the box to make sure the two shoes in the box are the same size, and that you have one left shoe and one right shoe.  And this is exactly what you have to do when you have an order shipping from China:  Verify.

The one caveat is that small companies or start ups operating on a budget do not have 5K to spend on a one week trip to China to inspect an order.  Or they may not see it as good business sense to spend 5K to go inspect an order, the value of which may be less than the cost of the trip to China itself. This is understandable until you figure that if that order goes badly then you will not only lose your investment but may lose customers and your business as well, assuming you have taken orders that you will not be able to fulfill.  I have one on and off client who got a bad order from China and four years later he is still selling off the defective product after repairing everything himself, piece by piece. I imagine it has also cost him a little money to warehouse the product, one container’s worth, in that time.  And this is what I mean when I tell people to take the broad view and to always see China sourcing as a long term strategy.  You may operate on razor thin margins at first or may even lose money but if this helps you get quality product to your customers and build your business it is probably worth it.

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Using mock-up prototypes when approaching new vendors

I had an email from a former client this past week.  She is the founder of a company that makes a popular line of kids bags and she is looking for new factories in China.  She had a strategy question for me as follows:

“I am sending samples for pricing from a factory that came highly recommended and of course they are asking how many SKUs etc. I have not actually revealed my brand as yet because I don’t want them to base their pricing by looking at our website prices. Do you think that this is wise? Or should I send them our catalog so they can see all of our SKUs and then give them target pricing ? Which do you think is a better strategy? “

This is a good question and I replied to her as follows:

“It is always a fine line to tread between being paranoid about things and being careful.  

I personally never recommend revealing your brand until it is absolutely necessary and I usually advise people to have mock ups without branding to submit to prospective vendors.  But if you feel they may know who you are already since you have been communicating with them or because you came recommended from someone else who has used them, then it is probably not a good idea to try to conceal who you are. 

But this leads me to a good point and that is that I think it is a good idea to have some mock ups made up from your current vendor so that in the future you can approach prospective vendors without revealing your company and retail pricing.   First costs from new vendors are important because those costs serve as the basis for your first few orders.  If they are high to begin with then when your vendor starts raising costs on your 2nd or 3rd orders ( as often happens) you may be priced out of doing business with them quickly.    If on the other hand you can negotiate a low first cost to begin with then even when the cost goes up you may still be able to hit your margins while you fulfill orders and look for a new vendor.  Making sure your vendor does not know your retail pricing goes a long way in keeping your first costs low. And mock-ups will help you achieve this.” 

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If you want to source in China, be prepared to take risks

A friend of mine reached out to me recently asking me to help him apply for China patents for a new product.  Apparently someone had approached him because he used to work for a FORTUNE 500 company in China and wanted to enlist his expertise. So my friend came to me, thinking IP protection was the place to start.  I told him what I tell a lot of people, namely if you are going to be paranoid about losing your IP in China then you shouldn’t be doing business over there in the first place. It is simply one of the endemic risks of doing business there, much as mosquitoes are one of the endemic risks when you go camping.

My friend left China in 1997 and since his return to the US he has worked in Silicon Valley, doing non China-related stuff.  I think he has forgotten that when you do business in China you cannot expect Western principles of transparency, accountability and integrity to apply there, because they often do not.  In other words, just because you apply for and are granted a China patent does not mean that you will be home-free to manufacture your product in China without problems.  Someone will always come up with something similar to your product and exploit a loophole in the Chinese patent application (which is a complicated and time consuming process)  and there would be little you could do about it,  short of costly international litigation.  Are you going to be able or willing to do this?  If you are a small business with a limited budget the answer is no.

I gave my friend the advice which I always give to others, namely to focus on securing IP in the country where you will be selling your product so as to protect your own market.  If you have registered trademark and patent here in the US no one can sell your product but you.  If you want to take your designs to China then don’t be overly concerned about IP and take refuge in the fact that unscrupulous individuals in China who are bent on appropriating someone else’s IP are usually focused on bigger companies where the payoff is much larger.  When you grow that is the time to start worrying about IP and taking the necessary steps in China to protect yourself such as Trademark protection.

I have written a lot on this subject.  Here are some other posts you will find useful.

China’s Great Leap Forward with IP

Trademarks in China

Some advice on IP protection in China

What should you budget for a first-time order from China ?

A woman emailed me recently asking me if I could help her with sourcing.  She has just started a company selling fashion accessories. In our email correspondence I sensed that she may not have given the business the thought that she needed to, in terms of how much it costs to get up and going with a China order, for there are hidden costs that people often ignore focusing only on the seductively low first costs that they see on alibaba or other popular sourcing websites.   Accordingly, here is what I think it would cost to get a first order from China.

Sample development.  You have to assume you will go through a couple of rounds of samples with a few vendors before deciding on a final vendor.  There will be sample charges and express courier fees ( you cannot send samples via regular air mail because they often get lost) .  Assuming you have a product that does not require a special mold, you are probably looking at $ 200-300.00 per vendor for sample charges and courier fees.  So figure $1000.00 just to get some good samples from a few prospective vendors.  If you have molds figure a few thousand dollars just to get samples from one vendor.

Testing:  If you sell any PCG (Packaged Consumer Goods) then you will most probably need some kind of testing for your product as per CPSIA ( Consumer Protection Safety Insurance Act).  Figure $500.00- 1000.00 for product testing.

Consultant:  If you are sourcing a product overseas it behooves you to retain a consultant or sourcing agent to help you get started.  Sourcing agents or consultants charge anywhere from $300.00 to 5K for a sourcing project.  So figure $500.00-1000.00 for a reasonably priced consultant/agent.

First Purchase Order:  Depending on the unit cost and MOQ ( Minimum Order Requirement) figure $3000-5000.00 for a first order.  Of course I am just throwing this number out there but a good rule of thumb is that China vendors are not really interested in orders under 5K.

Inspection:  To have an order inspected in China costs about $300.00 per day, not including expenses. But inspection is the only way you can make sure you are getting the quality you have paid for. Figure $1000.00 to have an order inspected.

Shipping:  Vendors quote you FOB which means they only deliver the goods to the port It is up to you to arrange shipping. You will need to use a shipping agent because the documentation is far too complicated to do on your own.  Figure $1000.00 to ship a small order from China going LCL.

When you add all this up you are looking at an initial investment, on the conservative side, of close to 10 K, just to get a first order out of China.  If you have a design oriented product for which the vendor will have to create special molds then figure 15-20K for that first order. And this does not include what it costs you to set up your website, establish your company, obtain product insurance and copyright your designs. That right there may cost you and additional 10 K.

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Toy testing requirements for US importers – an overview

I had an email from a Chinese testing lab the other day that outlines all the testing requirements for Toys sold in the US. I thought it was a pretty good summary of where you need to be as far as product testing goes depending on your product and so I thought I would post it here this week (edited and posted below).  Just an FYI, under the Consumer Product Safety Improvement Act of 2008 all toys sold in the US must comply with certain product safety regulations. The section of the Act that covers toys is known as ASTM F963. ( American Society for Testing and Materials) If you are reaching out to Chinese manufacturers with a toy design make sure you know the testing requirements for your product and pass these on to your prospective supplier.

After reading the list below to see where your product falls, you should  spend some time on the ASTM website ASTM website to read more about the safety standards and see what you need to do to get your product in compliance.  Testing labs in China also know the standards ( since they are the ones testing the products) but it is  a good idea to make 100% sure you know as much as they do and that you neither overlook something you need to test for nor have superfluous and costly tests done.

Here is the overview:
ASTM F 963-11 Requirements
When you certify in a written Children’s Product Certificate that a product meets ASTM F 963-11, you must include the specific sections to which you are certifying compliance.

Also, toys may be subject to regulations enacted under the Federal Hazardous Substances Act (FHSA), such as requirements for small parts, pacifiers, rattles, etc., many of which are cited below. Check the list of products requiring third-party testing and regulated products to ensure that you are in compliance with all applicable regulations. Yes indicates the product must undergo testing; No means testing is not required.

Group 1: Sections Applicable to Most Toys

As mentioned above, the following requirements must be met for most toys. All toy manufacturers should review these sections to ensure that their products are in compliance.

Section Title Requires Testing at a CPSC-Accepted Laboratory

4.3.5.1 Heavy Elements: Paint and Similar Surface Coating Materials Yes
4.3.5.2 Heavy Elements: Substrate Materials (Note: Many toys intended for children under 6 and all toys intended to be mouthed or contact food and drink are subject to this requirement. See the standard for more.) Yes
4.3.6.3 Cleanliness of Liquids, Pastes, Putties, Gels, and Powders Yes
(Except for cosmetics and tests on formulations used to prevent microbial degradation.)
4.6 Small Objects  Yes
(Except no third party testing is required for labeling and/or instructional literature requirements)
4.7 Accessible Edges Yes
(Except no third party testing is required for labeling and/or instructional literature requirements)
4.9 Accessible Points Yes
(Except no third party testing is required for labeling and/or instructional literature requirements)
5 (Entire Section) Safety Labeling Requirements No
6 (Entire Section) Instructional Literature No
7 (Entire Section) Producer’s Markings No

Group 2: Sections Applicable to Specific Types of Toys 

The following set of requirements is for specific types of toys or toys with specific attributes. All toy manufacturers should review these sections to ensure that their products are in compliance.
Section Title Requires Testing at a CPSC-Accepted Laboratory
4.1 Material Quality No
4.2 Flammability Excluded by CPSIA No
4.4 Electrical/Thermal Energy** Electrical Toys. See 16 CFR 1505.
Yes, to 16 CFR 1505
4.5 Sound-Producing Toys Acoustic Toys Yes
4.8 Projections Sharp Points Yes
4.10 Wires & Rods Sharp Points Yes
4.11 Nails & Fasteners Sharp Points Yes
4.12 Plastic Film Yes
4.13 Folding Mechanisms & Hinges Enclosed/Hinged Toys Yes
4.14 Cords & Elastics in Toys Corded/Elastic toys Yes
4.15 Stability & Overload Requirements Ride-On Toys and Toy Seats Yes
4.16 Confined Spaces Enclosed/Hinged Toys Yes
4.17 Wheels, Tires, & Axles Yes
4.18 Holes, Clearance, & Accessibility of Mechanisms Enclosed/Hinged Toys Yes
4.19 Simulated Protective Devices Yes
4.20 Pacifiers Yes
4.21 Projectile Toys Projectiles Yes
4.22 Teethers & Teething Toys Yes
4.23 Rattles Yes
4.24 Squeeze Toys Non-Rigid Toys Yes
4.25 Battery-Operated Toys Yes
4.26 Toys Intended to Be Attached to a Crib or Playpen Infant toys Yes
4.27 Toy Chests (ASTM F 963-07e1) Enclosed/Hinged Toys Yes
4.27 Stuffed & Bean Bag-Type Toys Non-Rigid Toys Yes
4.28 Stroller and Carriage Toys Labeling requirements only No
4.30 Toy Gun Marking Projectiles Yes
4.31 Balloons No. Label in accordance with 16 CFR 1500.19 and 16 CFR 1500.20.
4.32 Certain toys with Nearly Spherical Ends* Spherical toys Yes
4.33 Marbles Spherical toys. No. Label in accordance with 16 CFR 1500.19 and 16 CFR 1500.20.
4.34 Balls Spherical toys. No. Label in accordance with 16 CFR 1500.19 and 16 CFR 1500.20.
4.35 Pom Poms Non-Rigid Toys Yes
4.36 Hemispherical-Shaped Objects Spherical toys Yes
4.37 Yo-Yo Elastic Tether Toys Corded/Elastic toys Yes
4.38 Magnets Magnets Yes
4.39 Jaw Entrapment in Handles and Steering Wheels Yes

Other Requirements
Section Title
4.29 Art Materials (16 CFR 1500.14(b)(8))
Yes, to 15 USC 1278a(Total Lead Content).
4.3.7 Stuffing Materials Yes. Stuffed toys with all new stuffing must meet 4.1, no testing at CPSC-accepted laboratory required to this section.

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Three useful tips on doing business in China

I was reading the China Business Review the other day there was an article about protecting one’s IP in China.  The article was written by the founder of a small company who took his production to China in 2009 and who has experienced the ups and downs of overseas manufacturing. Although the article mostly details the challenges in finding a Chinese partner who is going to respect your IP, there is a lot of useful advice that pertains to sourcing in China as well.   Among the valuable lessons imparted in the article are as follows:

  • Confirming that your partner has the expertise to do your product. I think this is good advice. Too many people just assume a vendor can do a product because the vendor has assured them they can.  And how do you confirm ? Of course samples are very important and you never want to go with a supplier that cannot give you a near perfect sample.  But you also need to visit your prospective supplier’s facility to make sure they are not simply subcontracting your order out and that they have the capacity to do your orders.  And remember good samples is only a start. You need to ensure that your vendor will sustain your quality standards during production. And the only way to do this is with an inspection of the goods before they leave China
  • Clear and frequent communication.  The author of the article details how some of the poor prototypes he ordered early on were not as much the fault of the Chinese factory as they were the fault of his company who often provided insufficient product details.  This rings very true.  In fact, most small companies that source in China tend to omit important product details, simply because they do not understand their own products and/or are assuming that vendors will fill in those gaps on their own. As I often advise people, never make assumptions when you are doing business in China.  Tell your vendor everything.  And regard communication with your vendor as perhaps the most important aspect of your relationship, equally as important as cost and quality.
  • Have someone on your team who understands Chinese. The author hired a translator for their meetings in China. However, when 20 minute conversations in Chinese on technical and legal issues were being reduced to 30 second summaries they decided that far too important content was not being delivered to them.  They saw the need for a company employee who understood Chinese.

Here is a link to the article. China Business Review article 

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