Doing a factory audit. More tips

I did a factory audit in China a few weeks ago. This was a fairly standard Chinese factory, located in the South of China. This factory does a lot of MDF product, mostly decorative boxes and storage containers. They have about 100 workers and the management is extremely friendly. Based on the management’s attitude it is a factory I would consider working with. I mean I really liked these guys. But there were red flags during my audit.

1.) Lighting in the factory was very poor. Lighting is very important especially when workers are doing detailed work as these workers were doing. Small factories tend to run budgets on a shoestring and often work without lights in daytime. I suspect this factory was no exception. But it is good to pay attention to this. Areas where touch up and QC work are performed should be well-lit, if not with fluorescent lighting then with natural light.

2.) The factory seemed to have no in-line QC process. When I asked about this I was told that there was a dedicated QC area. In fact it was the packaging area. QC at this factory was workers doing cursory inspections as they wrapped each product in EVA foam. I watched one worker QC several boxes and her MO on each piece was different. On one box she inspected the inside, on another box she did not inspect the inside, on a third box she inspected both inside and outside but didn’t even look at the bottom of the box. This told me that there really was no QC procedure to speak of. I would also add that a production schedule-board I saw – which outlined the steps of production from carpentry to packaging – had no mention of QC. A good factory will usually have QC procedures printed out and taped on a wall. At the very least they will be written on the wall.

3.) There was no dedicated area for storage of packaging materials. Corrugated cartons can pick up intense amounts of moisture in China – especially in the late spring and early summer – during rainy season. If they are not stored in a cool location then they run the risk of becoming damp and will damage easily during transit. All of the cartons I looked at were stored in one of the main workshops and were extremely damp. Most small factories, of course, do not have temperature controlled storage units but packaging should be stored in the coolest location in the Factory. In another factory I visited on this trip, this was the case.

In short, take your time when you are inspecting a factory. Look around, spend time watching QC, ask the tough questions, and take notice of small details. Small details can sometimes tell you a lot about a factory.

The Spring 2011 Canton Fair

After a three-year hiatus I was back at the Canton Fair last week. I could not get over how big the Pazhou complex is. The last time I was at Pazhou it was the inaugural year of the complex, although half the exhibitors at that time were still at the old exhibition center across from the Dong Feng Hotel. There are over forty exhibition halls at Pazhou and in each one there are an average of 300 exhibitors. Each hall is brightly lit, some of the booths equipped with television monitors that stream high-gloss infomercials. Walking through the fair, you could easily imagine you were in an upscale shopping mall in San Francisco. McDonald’s and Starbucks have replaced the Chinese noodle stands and soviet style kiosks that dotted the old complex across from the Dong Fang Hotel. Romance has given way to comfort and convenience. But make no mistake about it the Canton Fair is a much more pleasant experience than it used to be.

Still, vestiges of the old fair remain. One has to check booths and name cards carefully because vendors are wont to rent out their spaces to other vendors without changing the name on the booth. When I got back to my hotel each night and sorted through business cards there were always a few cards that did not match up with catalogs or booth numbers. Some vendors would have one booth in one hall under one name, and then another booth in another hall under a different name ( more often than not a trading co). Needless to say, Chinese vendors still play with mirrors.

I was at the fair to find woven bags for a customer of mine and I had to go through about 1500 bag vendors. There was so much to see that my own strategy was to walk the show from 9:30 am until 5 pm without taking lunch and allowing myself just one ice-cream break ( Hagen Dazs bars at the fair cost $ 8.00. Welcome to China circa 2011). After several hours of walking it began to feel like I was participating in a decathlon.

Depending on which taxi driver you talked to attendance was down slightly or a lot from years past. The Global Economic Crisis has taken its toll on Canton. I did notice that all the parasite fairs that used to spring up in Guangzhou at the time of the Canton Fair are all but gone. Those fairs sparsely attended as they were, were nevertheless something of a refuge from the big fair and the exhibitors always gave you the red carpet treatment once they saw that you had left the Canton Fair and walked across the street to see them. Costs were much better as well. Knowing China I suspect that these fairs will be back at some point – probably right down the street from the Pazhou Complex. It is only a matter of time. This is China.

Interesting currents in South China

I had some very interesting conversations about doing business in China during my trip there last week. On one day I paid visits to two Taiwan-owned factories in Dongguan and the factory owners in both cases lamented the challenges in finding labor in the Pearl River Delta region. The reasons are various including:

– Much of the labor force is young and workers are in many cases only children, the result of China’s “one child policy.” This is China’s “spoiled” generation. These workers weary easily of factory conditions in South China and want to return to their towns and villages where life, although harsh, is more familiar. Contrast this to the first wave of migrant workers to the South 20 years ago. These were workers who grew up during the end of the Cultural Revolution accustomed to deprivations and quickly embraced the opportunities that Reform and Opening ( as China’s open door policy is referred to in China) presented.

– As the interior of China developes there are more opportunities in the villages and cities that the laborers left when they came to South China in contrast to the shrinking opportunities ( many factories have closed) and rising cost of living in cities like Dongguan.

– Living off the land is much cheaper than living in the Cities where the cost of living and inflation are rising almost daily.

From my visits to these factories I could see that business was down considerably. One workshop I visited was half empty. I took a picture of this ( see below) and the owner of the FTY explained to me that 2 years ago every sewing machine was going. The other factory did not give the impression of being busy and the production schedule board had not been updated since early March ( my visit was the first week of May).

Both vendors maintained that the high end retailers like PB and CB were remaining in the South because of a well-trained labor force and overall higher QA standards while larger mass merchants where quality is not tied to brand e.g. TG, WM et al are heading up north to take advantage of cheaper labor. Many factories are following suit. I found these and other conversations fascinating.