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.

DSCF0133

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.” 

IMG_1498

 

 

 

 

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.

IMG_8225

 

 

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.

IMG_6684

When sourcing in China, find yourself a China expert

Most of the small businesses or micro businesses aka startups that come to me are on a budget. When I tell them what I charge for a sourcing project, a fraction of what other sourcing agencies charge, I am sure they are thinking “why should I pay this guy to put together a list of vendors for me when I can just go on Alibaba and find some vendors on my own. “ If I were starting a business that is probably how I would think as well, for Alibaba is just so easy to use when you are trying to find a supplier in China. In some ways I have no problem with this because when you are just starting out you need to be prepared to do everything yourself, to wear many hats as the expression goes. But let’s say I was sourcing something in Brazil. How confident would I be looking for a vendor in Brazil when I did not speak any Portuguese and could not even say so much as hello in Portuguese. The answer is not very. I would be limiting myself to a handful of vendors who spoke some English not to mention the fact that I would be doing business in a country whose language and culture I did not understand, which, common sense tells me, would lead to big problems sooner or later. I would have absolutely zero confidence placing an order with a vendor in Latin America without the expertise and advice of someone who had done business in Latin America. And figure that China is a hundred times more difficult a place to do business than Latin America. But I think the best analogy is buying a house. Buying a house is a complicated process and is often the single biggest investment in one’s life. And even if you know a lot about real estate it is probably not advisable to dispense with the services of a Real Estate agent when buying a new home. And most certainly not if you were a first-time home buyer. So if you want to start importing from China, find someone who knows China. It will cost you some money but it may end up saving you a lot of money over the long term.

DSC00465

Sourcing in China. Assembling in the US. An option for first time importers

I am working on a project now which has me sourcing component parts from two different suppliers. This is a new product and it has been a challenge finding a supplier who can do the entire product which consists of one fabric part and another molded part. In China textile vendors do textiles and plastic vendors do plastic and never the twain shall meet, as they say. One option would be to use a trading company but I never advise using a trading co for a product that is design oriented, as my client’s is in this case. So we have decided to source parts from different suppliers and then make a decision who will do the final assembly and packaging. One option would be for my client to do it herself. This of course will add to her costs but it will give her more control over quality. Since this is her first order and the QTYs are not large it is an option I like. My thinking is that once she has sales up and going and her product is established in the market she can then source the finished product in China. With the finished product in hand she could attend an industry specific trade show in China and find a vendor rather easily I would think. For one of the challenges finding a vendor for this product is that it is new and still coming together, and unable to see the end product and its packaging, some vendors have a hard time grasping the product and its utility.

.
In fact, I have had other clients who did business this way. Just starting out, they sourced the parts in China and did the assembly in the US. It was better for them because it gave them more control over quality and also they could market their product as “Assembled in the US.” They were able to do this because the QTYs were not large and they had the space to warehouse and distribute the product, another important consideration if you decide to go this route.

So this is something you may want to consider for your first order unless of course you have someone you can rely on in China to help you out including arranging a final inspection of your order for you before it leaves China. Another tip: no matter how small your order make sure you have a good logistics person on your team since there is plenty of documentation when importing products, or parts, from China, size of order notwithstanding.

DSCF0132

Some valuable lessons from a China sourcing project

I just finished a project helping a start up apparel company find a supplier in China. This company is showing at a trade show this month and they just received the show samples which they were very pleased with. The vendor I set them up with, a vendor I met in China a few years ago, has been great to work with. They have been very responsive and worked effortlessly to get samples to my client in time for her show. It was close though. My client did not communicate her show sample needs to me immediately the result being that we had to grapple with month delay because of Chinese New Year and ran the risk of not getting the samples in time.

Reflecting on the order yesterday I told myself, yes there are valuable lessons to be learned on almost every order it seems. Accordingly here are the lessons on this order:

1.) As soon as you know your show schedule and your sample needs communicate those to vendors or agents or anyone you are working with on the order. In general you should give vendors three months to get samples ready for you. That may seem like a long time but remember vendors are busy people and have other customers as well.

2.) Check the calendar of the country where you are sourcing and look for major holidays which might mean hiccups in production or delivery. In China, for example, you do not want to schedule anything, samples or bulk production, around CNY or National Day. These are not garden variety national holidays but major holidays that usually result in 2-4 week work stoppages. In the West, or Japan, a holiday means a few days off. Not so in other parts of the world.

3.) Don’t stop when you have found a good vendor. The client I refer to here is a small business. The vendor I have set her up with is a big factory that can count Disney and the Gap among their customers. I would not normally set up a small business with a big factory but this vendor is very responsive, professional and can give my client a good cost based on economies of scale. I have also met them and have established some rapport with them over the years. This is not the first project I have run by them. Having said all that I have told my customer that in order to keep the vendor’s interest she will have to increase her orders over time and establish a good working relationship with the vendor. Hopefully the samples she just received will go a long way in helping her do that. But at the same time she should be looking for other vendors in the event she is not able to increase her orders to the satisfaction of her vendor.

And this is the model you follow when you source in China. Always.

IMG_8691

200th Blog Post – China Sourcing for Small Businesses aka Mulberry Fields

I was wondering what to write about for my 200th blog post, a milestone of sorts. Since I was reading an article on Pu Dong today and thinking back to my own experience there, which is unique, I think I will make the 200th post about Pudong.

In the fall of 1990 I moved to Shanghai where I had been invited to be an instructor for the 1990-1991 academic year at the Shanghai Maritime Institute in Pudong. This was the institute where all of the COSCO (China Ocean Shipping Company) and Maritime industry executives were trained. There were 3 overseas lecturers at the Institute – myself and two ladies from New Zealand, Mick and Jenny. We were all pioneers for we were the only three foreigners living in Pudong at that time, what I was told by the school administration. This was after all Pudong in 1990, a year before Pudong was declared a Special Economic Zone by the Chinese Government.

Pudong was a wasteland in those days. It was countryside and there were no tall buildings other than drab grey Soviet era apartment blocks. There were no tunnels or bridges connecting Pudong to Puxi ( Shanghai proper ) and if you wanted to go into the city it took a 20 minute bus–ride and then an anxiety laden trip across the Huang Pu River on a dilapidated and overcrowded ferry. I remember how on those trips across the river I used to look at the half-submerged stern and think how fortunate I was that my parents had sent me to swimming camp when I was a kid. Those ferry trips were certainly memorable. For the duration of the 15 minute passage, I had to endure dumbstruck and not always friendly stares from peasants because this was a time in Shanghai when there were very few foreigners and anti-western sentiment was still widespread. 40 years of anti-Western Maoist propaganda does not go away overnight. I am sure that for some people I was the first foreigner they had ever seen, their absolutely agape expressions betraying that. If I was lucky enough to get a space by the railing, what I always aimed for in order to avert the curious and hostile faces, I could look into the river and always spot some interesting objects, what became my pastime on those river crossings: bicycles, appliances, shoes or other articles of clothing and the occasional pig carcass. You name it and someone had tossed it into the Huang Pu. When dead pigs were polluting the Huang Pu last year, a story which made international headlines, I could certainly relate. Shanghai in those days was not the sparkling, chi-chi international city it has become, pig strewn rivers notwithstanding.

There was little to do in Pudong back then so I spent my days studying Chinese, playing basketball or frequenting some of the local pool halls with my students who knew a thing about pool and also about drinking ( these were employees of COSCO not regular students). The restaurants we would go to were great. Authentic Chinese food for a couple of dollars. Some of the best food I have ever had. Chinese food in New York, Tokyo, San Francisco ? Forget it.

Pudong nowadays looks like Manhattan. The last time I was there, in 2011, I was absolutely astonished at the growth. It is unrecognizable from the place where I lived over 20 years ago and it has become the symbol for Shanghai and modern China. Pudong can boast now some of the tallest buildings in the world and there are now over 50,000 foreign residents there. Driving past the Mercedes Benz dealership in Liu Jia Zui which is probably bigger than the New York Public Library, I could think back to my early days boarding the Pudong ferry in Liu Jia Zui and at that moment I could see all of China’s potential. And I think back to those COSCO training classes that Mick, Jenny and I taught. Just the three of us in that vast stretch of land across the river from Shanghai.

Wow, I can’t believe I was part of all that.

kyotosf2003-046.jpg

From the archives: Evaluating suppliers, November 2010

One of the things I am going to be doing this year is going through some of my old posts and republishing those that I think are particularly valuable and still relevant. Here is a post I wrote in November of 2010 with some tips on how to evaluate a supplier. Evaluating a supplier is one of the most difficult things you will face when you source overseas and sometimes you should look beyond the obvious things, product quality and condition of the facilities, to look at less obvious markers.

Enjoy and Happy New Year !

Tips for Evaluating Suppliers

Some advice to a prospective client on Intellectual Property (IP)

This week someone was asking for my advice on filing patents and trademarks in China before they source there. Of course in an ideal world you want to afford your IP all the protection it needs to ensure no one can take your idea and profit from it. But sometimes the window of opportunity for a new product or design is open for a very short time only and you have to move quickly if you want to build your business. In short, how much IP protection you give your product depends on your resources and how you see your own business. Below is my response to the person who ran this question by me.

I can understand your concern because I sometimes come up with ideas for products which I run by vendors in China and I am always a little careful because I know there is the risk that someone will just take my idea and run with it before I do anything. And so I was thinking today what I would do if I had an idea for a product and all the time and money in the world to develop it. In other words, what if I were financially secure regardless of the product and I was pretty sure that no one would come up with the same idea as me in the near distant future. The answer is I would try to protect my IP as completely as possible before I gave the designs to someone else. This would mean registering all patents and trademarks in my home country and manufacturing country before I actually started sourcing. And I would wait a year or two for the patents and trademarks to be approved before I got started.. Again, this is what I would do if I really thought I had a unique product and I was in no hurry and facing no financial burden to bring it to market as quickly as possible.

If on the other hand I was operating on a tight budget and I felt the need to get my product to market quickly I would probably just secure all my patents and trademarks where I would be selling the product and not worry too much about registration in China. My thinking is that as long as I have products to deliver to my customers and build my business I don’t care what they do with my product in another country. At the most I might just file for trademark registration in China at the onset of sourcing, just to have something on file in the event someone took my trademark and attempted to block my shipments. I certainly would not wait a year for the trademark to be approved because in that time someone else may come up with an idea similar to mine. And that is a year of lost sales. However, as soon as I was in a good position, in other words when sales were strong and it was obvious I had a viable business I would take care of all the China registrations and do so ASAP.

But once again this is just me. I think you have to look at your product and your business and where you want to be a year from now, two years from now, five etc etc and make your own decisions accordingly.’ Know thyself ‘ as it is often said.
http://www.theeastasiaco.com

IMG_8718