Critical defects vs acceptable defects. Giving vendors a break is good for buyers too.

What people are saying about Mulberry Fields
“I have already learned a great deal about China and your business through your website and blog posts. Very impressive. ” – A Company in Toronto.

A client of mine is about to give an order to a vendor in China. I have advised him to give the vendor a QC checklist as well as adding all QC points in an appendix to the Sales Contract. QC points should also go on all product spec sheets submitted to the vendor. The idea is that whenever that vendor is looking at your order, your QC points are going to be reinforced.

At the same time you should establish in your own mind what are “critical” QC defects and what are acceptable QC defects. Critical defects are things that would make the product unsellable or returnable by your customer. For example on a wooden picture frame a “critical” defect would be a broken clasp, a cracked frame or glass. An acceptable defect might be a shade of color lighter than specified, a streak in the velvet fabric on the picture frame backing, etc. These are things a customer might notice but would not likely result in a return or lost sale.

In your discussions with your vendor on the QC checklist you should make sure you tell your vendor which defects are going to be considered “critical.” And give these points special emphasis. This is not to say you should not make equal mention of acceptable defects. You should but the tone of your directive should be “please try to avoid these problems” instead of “we will not accept product with these problems.” The idea here is to cut your vendor some slack so that they can feel confident in making your order and to avoid confrontations about quality unless it is your perception that the issue clearly jeopardizes sales of your product.

As I always say “Work with your vendor. Not against them.”

Here are some related posts that will help you work with your vendors, and not against them.

Setting tolerances for production
Being on the same page with your vendor
Inspections are good for your vendor
Give your vendors specs ASAP

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China’s rising labor costs and how this affects you.

What people are saying about Mulberry Fields
” I REALLY do enjoy your posts and find them informative and helpful.” – a Wal-Mart supplier

I had an email from a client this morning asking me about China’s rising labor costs. He simply wanted to know what I thought. I told him that I covered this in my Feb newsletter. So I am posting that here today.

One of China’s biggest challenges these days is how to spur more domestic demand for its goods and services. This is necessary as orders from overseas slowed dramatically following the Global Economic Crisis and have not yet recovered. It is also a long term goal of the Chinese Central Govt to build an economy that is driven more by domestic demand – a market driven economy – than by overseas demand – an export driven economy. To this end the Central Govt. has encouraged provincial governments to raise wages so that Chinese consumers will be able to afford more Chinese products. At the same time local governments have seen that rising wages will attract more migrant labor and this will keep their local economies healthy. For the above reasons minimum wages in China are rising at steady levels. From 2010 to 2015 minimum wages across China are expected to show an 84 % increase. This is why you often see headlines nowadays about overseas companies moving to other countries in Asia or even back to the US or Canada. Even some Chinese companies are beginning to outsource orders to offset rising costs.

In most cases suppliers try to offset rising wages with energy saving measures in their facilities but inevitably some of those higher costs are passed on to the customer. Those cost increases may or may not be substantial depending on where your vendor is located. Vendors in the well known coastal areas, Shenzhen, Xiamen, Shanghai etc. have to offer much more compensation to keep workers in place than vendors in, say, Henan or Anhui Provinces. Another thing to keep in mind that rising wages really have the biggest effect on low end/high volume manufacturing where the unit cost is low. A $ 0.25 cost increase per unit that your vendor passes on to you so that he can hire and retain skilled workers may make your project untenable if your target landed cost is just $ 2.00 to begin with. In short, rising wages in China and how this will impact your business there really depends on what product you are developing in China and, again, where you are developing it. Finally you have to remember that even with rising wages across the board in China the “China cost” in some areas of China is still well below what it would cost you to make your product in the US or other developing countries. In other words, don’t pay too much attention to the headlines about rising costs in China.

The real lesson here is to familiarize yourself with the province(s) where your products are going to be made. Do keyword searches for all your China provinces with terms like “rising wages, “migrant labor,” “labor practices,” “energy shortages” etc to anticipate what the potential hurdles would be were you to do an order with a vendor in that province.

Here are some other posts about changing conditions in China and how they affect you:
Job mobility in China
China’s newfound global status
Outsourcing within China
Rising raw materials costs

www.theeastasiaco.com

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What doing business in China and baseball have in common.

What people are saying about Mulberry Fields
“I have read through quite a few of your blog posts and have enjoyed them very very much. We do business in China and face many of the challenges you describe. Much of what you write resonates with me and there are some very helpful tips” -a kid’s apparel company in Utah.

I have been doing a lot of reading on China blogs and in periodicals this week. As is frequently the case I see a lot of articles about how to effectively do business in China and examples are always provided about China ventures gone wrong. In all these examples the root problem is that the person did not know anything about China and just assumed that because they were successful in their own country they could duplicate their success in China. For example, there was an anecdote in a Harvard Business Review article this week about a successful NYC real estate developer who thought he could sell some high-end property to investors in China. After all China is now home to some of the world’s wealthiest individuals. The developer spent thousands of dollars on PR and even rented a large hall in Shanghai so that he could host a sales presentation. He then flew to China to make his pitch. Well, something went wrong because on the day of his presentation, only eight people showed up. Smart in NY did not translate to smart in China.

But it got me to thinking, why is it so hard for people, even really smart people, to understand and succeed in China? When I thought about this question the other day, the thought occurred to me that it is simply hard to comprehend something that you have little or no experience with. Even if that something has been described to you over and over again in the minutest detail, and you kind of grasp the concept, you really have to experience it yourself to be able to process the complexity and plan accordingly. There is a good baseball analogy for this. When you watch baseball on TV or in person you can effortlessly follow the trajectory of the ball as it leaves the pitchers hand all the way to the plate. It looks like the baseball is easy to hit. And I am sure many people who watch, but who have never played baseball, are thinking, “geez, that looks easy, why can’t he hit it ? “ But far from it. Hitting a baseball thrown at 90 MPH is generally said to be the hardest thing to do in sports. I believe it because when you are standing there at the plate that ball sometimes comes in so fast you literally won’t even see it. Belying its casual pace. baseball is in fact an incredibly difficult game.

And doing business in China is not an easy game either. I know that because I have been going there for 25 years and have the first hand experience of going to trade shows, meeting good vendors who turned out to to be very unreliable, meeting vendors whom I was not impressed with at first but who turned out to be solid, supervising production, inspecting orders, sourcing, getting good orders, getting bad orders, having vendors change prices after they have signed a sales contract, doing karaoke in Chinese with vendors, arguing with vendors, sitting for a factory for 3 days waiting for the rain to stop while a cancellation date on a PO slowly creeped up, etc etc. But there are many people who do not have this experience and, therefore, try as they might, they simply cannot comprehend the complexity of the culture and the sheer difficulty of the endeavor. When they do business with a supplier they met on a B2B site but have never met in person, and they fail to do any due diligence on this vendor and they do not inspect their order before it leaves China, it is just like they are watching baseball on TV and thinking it is an easy game.

So what is my advice to them? It is simple: go to trade shows in China, meet vendors in person, supervise your orders, inspect your orders, line up back-up vendors, get good orders, get bad orders, drink with good vendors, drink with bad vendors, argue with vendors, meet your vendor’s families, learn some Chinese, learn how to cook some Chinese food etc etc. In other words, get the experience. Or as the Great Helmsman himself used to say: 要想知道李子的滋味必须亲口尝一尝 ( yao xiang zhidao lizi de ci weir bixu qinkou chang yi chang) Trans: if you want to find out what a pear tastes like, you have to eat one.

I sometimes have what I call a “China Zen Moment.” This is when I see beyond specific topics like auditing vendors, product testing, trade shows, communicating with vendors, doing spec sheets etc etc and I am able to reduce China Sourcing to its simplest terms. Here are some of those Zen moments
How to win in China
China quality is not that bad
Doing business in China is easy
Don’t expect perfection
Locals too find the going difficult

http://www.theeastasiaco.com

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Product safety standards – do your homework and due diligence

What people are saying about Mulberry Fields
“What you say is absolutely true about what you need to do in order to succeed in China.” – a company in Italy

There are many safety standards that a product must conform to if is sold in the US, Canada or Europe. Depending on your industry, your product and your customer’s specific requirements you might be doing any number of tests e.g. flammability testing if you have apparel or upholstered furniture, small parts testing for baby and kids items, lead, cadmium, phthalate tests for kid’s items and food related items, testing or fumigation for wooden product or palletized orders. And the list goes on and on and on.

When you are developing a product, make sure you know what the testing requirements are for that product and then pass on these requirements to the vendor early in the game so as to give them all the notice they need to get in compliance. Because China does not have the same strict consumer safety regulations that the US and Europe have your vendor may have to go outside his own network of suppliers to find an environmentally friendly supplier. This may take time and will cost more. A couple of years ago I was working on a kid’s bag and the PU straps on the bag had to be phthalate free. The vendor I was working with explained to me that not all the PU vendors he dealt with had phthalate free PU and that the minimums for this material would be higher than for regular PU. It was an obstacle but it was good to know this early on when we were still in the prototyping stage.

It is also important that you get your samples tested both in China and locally. Don’t rely on vendor assurances that their products are compliant, or that they have been tested. And don’t consent to use vendor designated product testing labs. Do it yourself. There are several big international testing agencies in China e.g. BV, SGS, Intertek and you can arrange with your vendor to have your product sent to the agency you choose. But also test product on your side with local product testing labs (most big cities have them). Make sure you tell your vendor that you are going to have the samples tested and that if it fails you will just lose more time. That should give them the incentive to do it right. Needless to say, all testing requirements should be spelled out clearly on spec sheets and sales contracts.

http://www.theeastasiaco.com

The importance of sending your China vendors samples when asking them to quote.

What people are saying about Mulberry Fields
” I REALLY do enjoy your posts and find them informative and helpful.” – a Wal-Mart supplier

I have said this many times before but the best way to get an idea of your “true” production cost is to send the vendor an actual physical sample of what you are asking them to quote on. Product descriptions and images are helpful in giving vendors a general idea of what you want them to do and depending on the product in question may get you pretty close to the “true” production cost ( in some cases it will not). But there is just no substitute for sending the vendor an actual physical sample.

Sending vendors actual physical samples is a good idea for the obvious reason: the vendor can see immediately what you are asking them to do, something that is not always apparent from a photo and desc. But there are two more very important reasons why you want to send your potential vendor a sample:

1.) Seriousness of purpose. Sending a vendor a sample tells them you are serious enough about your inquiry that you are willing to spend $50.00 to send a package to China. Vendors are very busy people and they are probably asked to quote on multiple projects every week. If you throw a big project at them and ask them to quote on it they probably want to make sure that before they invest considerable time doing so you are serious about it. In fact, I have such a project now. It is a huge printing project and I have been reaching out to vendors with just specs and images (because of my customer’s budget and the sheer scope of the project he cannot afford to send samples to any but the most promising vendors. Perfectly understandable). Although my specs are very comprehensive – down to the gauge of paper and type of printing – I have already had six vendors ask me to send them some samples. I think they are looking at the QTYs – which are not huge – and telling themselves that before they do all the work that is involved they want to see how serious I am. So I have had to go back to my customer and advise him that we really need to send vendors something just to show them we are serious. I would add here that in fact one way I tell how serious people are when they come to me with a project is when I ask them to send be a sample. When they do send one I know they are serious in their inquiry.

2.)Respect. When you send vendors pictures and descriptions only, you are asking vendors to do a lot of work. They have to translate everything for engineers and then explain things to people and ask you for instructions as they build your quotation. Depending on the product in question it can be a laborious and very timely process. If, on the other hand, you give them a sample, they don’t need to translate anything. They can show the product to an engineer and there is immediate understanding. When you send them a sample you are telling vendors that you respect their time and want to help them out.

Of course it costs money to send samples to China while it costs nothing to email your vendor and attach some pics. But you should see that as one of the added, but necessary costs of doing business in China.

Sampling is such a critical part of the product development process because it tells you a lot about your vendor and also about your product design. I have written at great length on sampling. Here are some of those posts.

Paying for samples
Working with your vendor on product design
An overview of the sampling process

http://www.theeastasiaco.com

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Setting product tolerances – look before you leap

What people are saying about Mulberry Fields
Your blog speaks to the many issues I have experience with when doing business in China” – a company in California

Anytime you have a product that being manufactured in China that relies on human labor or natural materials you need to give your vendors tolerances. If you are making a willow basket in China, for example, you cannot expect that each basket will be done to exactly your specs because willow is a natural material and the basket is woven by hand. Ditto for many textile products where natural fabrics are concerned and there is significant CMT ( Cut/Make/Trim) involved. And then you have to take into account product color. Natural materials react with and hold dyes unevenly and it is sometimes very difficult to match a color on a swatch. In short consumer goods are inherently imperfect. Because of this it is unreasonable to demand or expect perfection from your vendor or to impose excessively rigid production tolerances.

When you set tolerances, you should check to see if there is an industry standard. In some industries where many parts are made by automation there are globally recognized tolerances. In other industries there are no tolerances and tolerances will be set by the buyer. For example, going back to our willow basket, if the basket is meant to fit into a retail display box the overall product tolerance would pretty much be the inside dimensions of the box. As far as interior dimensions, assuming it is a gift basket, the tolerance would be the minimum which would allow everything to be fit into the basket. That that would be a reasonable product tolerance for a gift basket.

But setting tolerances is an art and should not be taken lightly. You have to find a tolerance that allows you to maintain your product integrity but at the same time a tolerance that is fair to the vendor and does not ask them to do the impossible. If you have extremely rigid tolerances, you run the risk of putting a strain on your vendor that will only have a negative impact on your production. Vendors will become frustrated, angry and at some point might just give up. For this reason if you do have a product that is handmade – or even partially handmade – do some research on tolerances. Don’t just throw out a number to your vendor without acknowledging the difficulty of the endeavor and a justification for your standards.

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Doing business in China is easy.

What people are saying about China Tips for Small Businesses

” A very interesting blog..”   – a company in France

BLOG POST

 

Every so often I have an enlightened moment where all my thoughts on China coalesce and I can see things more clearly than I saw them before. And this happened this weekend. I was thinking about some of my own projects and also about the “China chatter” that I read on other China blogs and Linked In – much of which has to do with how difficult it is to do business in China – and I realized that doing business in China is not difficult at all as long as you practice three things.

Patience
Common sense
Due diligence

If you can do these three things ( and 2/3 is not good enough) you can succeed in China. But what do I mean when I say patience, common sense and due diligence ? Here are some examples.

Patience: Many people try to source in China and after a couple bad experiences with vendors they met on alibaba, but never in person, they swear off on Chinese vendors and Chinese quality. This is not being patient. In fact there are a lot of bad vendors in China but also a lot of good ones. Sometimes you have to spend time, burning through a few vendors before you find one you can work with. It may take you a couple of years. But this is what I mean by being patient.

Common Sense: I have worked for companies and have had among my own clients individuals who just ignored the alarm bells and who insisted working with vendors who were not interested in working with them. Mr. F is a good example. Mr. F really liked the product of a certain vendor in Shandong Province. But the vendor did not seem to be interested in Mr F’s QTYs and felt his target costs were much too low. The vendor was simply not interested in the business Mr. F was offering them and this was quite clear in their emails. But Mr. F insisted on pursuing the vendor because he liked their unique product designs. Common sense, at least to me, says that you do not want to do business with those who do not want to do business with you. Another example of common sense is checking your order before it leaves China. But many people just don’t do this or they allow the vendor to do it. Common sense tells me that vendors are not going to QC your orders like you or an objective third party would.

Due Diligence: I can never get over how many people give orders to China vendors they have never met and know very little about. They trust the vendor because the vendor has given them a good sample and seems easy to work with. And most of all they like the cost. In short, you need to find out as much as possible about the vendors you are going to do business with even if that means paying 3K for a plane ticket and getting on a plane to China so you can meet the vendor yourself. This is an example of due diligence.

 

www.theeastasiaco.com

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Cost should not be the most important factor in vendor selection

I had a conversation on the phone last night with the client  who sent me to Zhejiang recently to check on her production. She just arrived at the FTY yesterday with a colleague and told me that the problems I had outlined in my report are exactly as they found.  She is at the crossroads whether to accept the order late or just cancel it altogether.  Either way, this order of seasonal product will result in significant lost sales for her company.

The lesson to be learned here is that it is not always a good idea to partner with the FTY that gives you the lowest price, what had been one of the main selling points for this particular FTY.  Equally important factors are quality, timely delivery and communication ( in all fairness to my customer, the vendor’s communication had been pretty good and this was one reason she had decided to give them some business ).  Of course, you can never be sure of a vendor’s reliability until you have done some orders with them, but a rigorous sample order or small pilot order – time permitting – should at least give you an indication of what they are like to work with and whether they can deliver a quality product to you without significant hiccups in a short time.  In fact, I would say the best business decision is to select a supplier who can do this even if their prices are higher than the competition. My reasoning is simple:  if you can’t get quality product to your customers on time it doesn’t matter how cheap it is;  you will lose sales.

This is what I have advised another customer of mine who is grappling with price increases from her vendor. The prices the vendor is quoting her are high and becoming higher with each order she puts in; for her latest order the vendor’s prices are double the quotations I received from other vendors for the same product. Yet my customer admits that her current vendor always makes good on their delivery dates and replaces defective product at no cost to her. Overall quality of the product is good. For this reason, I have advised her to accentuate the positive with her current vendor – good lead time and quality – and at the same time to begin ASAP developing a couple of back up suppliers. The idea is to find a few vendors who are 85-90% as competent as her current supplier in lead time and quality but who are significantly cheaper and to gradually move production to the new vendors so that the current high-priced vendor at some point assumes a back-up role.

One has to remember constantly that doing business in China is as much about strategy as it is about price. The best strategy is to evaluate a relationship with a potential vendor from all angles:  cost; quality; lead time and communication/customer service.  If you are solely focused on low cost, aka “the China price”  then you risk losing sales and, more importantly, your customers.

Working around sampling fees

I have recently been working on a project helping a customer source acrylic trays for kids. Many vendors I have talked to have told me that because these are injection moulded custom pieces I would have to pay a mould fee to get a sample. This is very reasonable until one considers that in China mould fees for injection molded or machine tooled product ( simple products) can run anywhere from $ 1000.00 – $5, 000. The average seems to be about $ 3000.00. Vendors usually say that they will return the mould fee if your order hits a certain QTY ( one FTY told me the sample fee would be refunded after an order of a mere 80,000 pcs.) but this does not diminish the fact that you are being asked to pay several thousand dollars for one sample.

There are a couple of ways around this as follows:

1.) Tell your vendor that you cannot pay a mould fee and ask them if they have any product similar in size to the one you are looking for. Many vendors have hundreds of moulds so it is possible they will have a mould that will be very similar to the one you are sourcing, maybe off by just a few cm ( of course this depends on what you are looking for) . Just make sure to tell them that you are prepared to move on if they don’t have the mould you want. If the vendor wants your business they will do everything possible to accommodate you.

2.) When you are making contact with factories ask them up front if they can do prototype moulding – which typically costs a few hundred dollars or can effect a mould by hand. This is a process whereby hard plastic is cut by a machine according to a CAD and then spray painted. Samples done this way can be a little rough but they will nevertheless give you a good idea of the FTYs craftsmanship. Many big plastics factories in China have this capability. When you let a vendor know right off the bat that you are aware of prototype molding and are looking for a vendor who can offer this service, you are effectively telling them that you do not wish to pay a lot for a sample and they may be willing to work with you on this.

In short, it is always a good idea to question your vendor if they want you to pay a mould charge because many vendors, as one would expect, are simply using the mould charge as a pretext for getting a payment from you (in fact, one vendor I approached told me the mould charge would be $ 6000.00 and when I balked at this they promptly reduced it to $ 2,000.00 which just told me this was a vendor I wanted to avoid).

Remember, if a vendor really wants your business the mould charge will not be an issue.

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.