5 Tips for Negotiating and Dealing with your Suppliers in China – 2

Tip #3. 鈥淯nderstand perfectly the production process鈥

Here I鈥檒l tell you one of my horror stories:聽 A supplier started giving me excuses and delaying production. He claimed he had some issues with his glue supplier and the glue was not reaching him鈥. Later on, I realized he did not need any glue in the production process! The part for which he claimed he needed glue had to actually be sealed with heat. That time I believed it!

My lesson: You need to absolutely understand the production process. 鈥淗ere you cut, here you paint, here you glue鈥nd it comes out from that machine over here鈥. It sometimes helps to 鈥渢rain鈥 yourself with suppliers that are not your main choice. That way you get to see the machinery, understand the processes, and once you sit in front of the one you are really interested in, you have already developed the know-how on that product, can show expertise and build good credibility.

Tip#4. 鈥淎lways be ready with back up options鈥

I once had a confirmed order for which all the negotiation and product sampling had been done. It needed to be produced immediately as we had a tight deadline with a shipment the following week. When I arrived to the factory the supplier said he couldn鈥檛 start. I never found out what the problem was. 鈥淢y boss is not here, the price is not right鈥濃 all type of excuses, the clock ticking and no production starting鈥.

My lesson: Always have back up options identified. 4 to 5 suppliers that you have already visited and that you have ensured are capable of producing the product.

Tip#5. 鈥淏e very strict with your quality control. You will annoy them but the loss is on you if something goes wrong鈥

I always go to the factory when my products are being made. I don鈥檛 tell them what day or what time, I just show up.

When production has finished I personally inspect the product. I randomly inspect 10 to 30% of what has been packed. I make them open the boxes and I check the product is complying with the agreed specifications. I once made them open 300 boxes because I was not completely confident about the supplier.聽 They obviously don鈥檛 love it, it has a cost for them, but I don鈥檛 care. The loss is on me if something goes wrong.

I also wait till it has all been packed in pallets just as it will be supplied to the forwarder. Some suppliers don鈥檛 understand that the pallet may move 20 meters in the ship. It needs to be absolutely secured.

5 Tips for Negotiating and Dealing with your Suppliers in China – 1

Tip #1. 鈥淵ou need a native speaker in your team (even if it is part-time!)鈥

You need to look for the information in Chinese! I initially searched the internet looking for suppliers in English, but you miss lots of interesting information. You need somebody who is a native speaker (or can perfectly read and speak) because not only do they find better information, but they also interpret it, they have the 鈥渇eeling鈥 to be able to assess when a supplier is worth pursuing.

It also comes in very handy during the negotiation process. We usually have in the meetings our suppliers鈥 sales & production guys. As most products need a bit of customization they are working together on setting a quote for us, so it is good having somebody with you who can capture nuances and what鈥檚 going on in general.

It is also cheaper to have your own Chinese interpreter or team member. This is like 鈥淲orld Link鈥, if you want it in English the suppliers are gonna make you pay a lot for it.鈥

Tip#2. 鈥淎LWAYS visit the factory鈥

You need to know who they are, to ensure they can actually make the products and that you are not really looking at some intermediary.

I once got samples done by a supplier. I sent them to my client and they got approval and were registered in their systems. I subsequently realized they had been made manually and that the guy couldn鈥檛 actually manufacture the product.

My lesson: before you send anything to a client, go to the factory, check what machine is producing the product and make sure it is working. If the machine is not functioning that day I ask them to produce a few samples for me right there. If the manufacturer has good will he/she will do it. It may not have your exact specifications, but you will at least know the capability is there.

4 Ways to Prevent the War with your Chinese Supplier

1.Inspections by external inspector(s) in the factory
Pros:
The final random inspection is the 鈥渟tandard鈥 way of checking quality. Suppliers are used to it.
It is easy to set up and relatively inexpensive, even with many different suppliers in many different places.

Cons:
The supplier might interfere in several ways: only showing a part of production (usually because they are late), bribing the inspector, or shipping other products if the inspector does not stay until the container is sealed.
If the purchaser only sends an inspector after production is over, and if the inspection is failed, the supplier might refuse to rework the goods. He might wait until the purchaser is obliged to deliver his own customers鈥 orders.

2.Final inspections on a platform
This solution is popular with some large buyers.
Pros:
Inspectors are more productive (no need to travel), and the goods can be shipped immediately after acceptance.
No risk of supplier interference.

Cons:
Suppliers often resent this solution. If the inspection is failed, they have to pay for the transport back to the factory, sort & re-work the goods, and submit them again.
Not suitable for small and irregular volumes.

3.Piece-by-piece inspection in the factory -If you want to check 100% of production
Pros:
The defect rate in the shipment is very close to zero after this 100% check.
The manufacturer sees what is rejected and needs to re-work it.

Cons:
Suitable only for large and regular volumes in one geographical area.
Can be expensive, depending on the number of inspectors to station in the factory

4.Training & auditing internal inspector(s) in the factory
Pros:
Much lower cost than sending third-party inspectors
In addition to controlling the products鈥 quality, the inspector can report on production status

Cons:
You need a high level of cooperation from the manufacturer (no interference at all)
There might be many complications if you purchase through a trading company

Top Legal / Regulatory Challenges in China

AmCham Shanghai has released its China Business Report, a detailed and comprehensive report that covers major issues companies face in China. The report reminds us that China is not an easy place for business, and one of the reasons is the fact that the country鈥檚 legal framework is still in the process of being built. Even if the law is fully developed, the application and enforcement can be uneven, especially in areas outside Tier 1 cities (Shanghai, Beijing and Guangzhou). Bellow you may find the key legal/regulatory challenges identified ( % indicates that a challenge 鈥渟eriously hinders鈥 or 鈥渟omehow hinders鈥 business).

Key legal/regulatory challenges in China

1.Bureaucracy (74%)

2.Unclear regulatory environment (72%)

3.Lack of government transparency (67%)

4.Tax administration (66%)

5.Customs clearance delays (62%)

6.Customs and trade regulations (61%)

7.Difficulty enforcing contract terms (61%)

8.Obtaining required licenses (58%)

9.Difficulty in litigation (50%)

10.Domestic protectionism (between provinces) (49%)

11.Legal restrictions on market access (49%)

The list is topped by the same challenges we have seen in previous year麓s reports: bureaucracy, an unclear regulatory environment and a lack of government transparency. It is important to highlight that 71 percent of respondents say the regulatory environment in their industry has either 鈥渘ot changed鈥 or 鈥渄eteriorated鈥 over the past year.

Responses to legal/regulatory challenges vary by industry but the less affected one seems to be the auto industries. As a well established industry in China ( and a welcomed one) it does not so much perceive regulatory challenges as a major issue (it scores lower than any other on the question about challenges seriously hindering their business).

Tips on How to Deal or Negotiate with your Chinese Suppliers – 3

PRODUCTION & SHIPMENT
25. Make sure you visit the factory during product development. It will speed the process, as nobody will tell you on the phone when they鈥檝e got stuck with something (especially if the product is technically sophisticated)
26. Visit the factory during production & for quality control
27. If you can鈥檛 visit factory send an inspection company or somebody you trust (and is qualified for the job)
28. Don鈥檛 pay till you are sure all the product is in good condition (make sure the contract is draft that way)
29. Never relax! Even with good suppliers. 鈥淨uality Control: Always, even with good established suppliers鈥
30. Always be ready with back up options- you would be surprised about how many last minutes surprises happen
31. Expect Delays in your Supply Schedule (power shortages are common, national holidays鈥)
32. 鈥淧roblems don鈥檛 finish after production. Supervise Logistic Paperwork! There are often mistakes that will get your shipment stuck

ON-GOING RELATIONSHIP
33. Payment Terms鈥 Some buyers feel that, once you build the business relationship,聽things get easier (ex. Not requiring advanced payments)
34. Get rid of unreliable suppliers A.S.A.P. If they trick you once, it will happen again
35. Take care of good suppliers, they are not easy to find. Look for win-win when problems come up.
36. 鈥淩enegotiating conditions鈥 is quite common. Your Chinese supplier sees the contract as the 鈥渂eginning鈥 of the relationship. If you follow tips 20 & 21 (track commodity prices & know suppliers cost structure) you will be able to assess if there is a fair reason to give in.

Tips on How to Deal or Negotiate with your Chinese Suppliers – 2

NEGOTIATING WITH YOUR SELECTED SUPPLIERS
11. If you are not a fluent Chinese speaker, bring聽a native Chinese speaker to the negotiation- he/she will be a valuable support
12. Understand perfectly the production process
13. Be very clear on who is going to be making decisions
14. The best way to do business in China is face-to-face鈥澛燭echnology is great, but I do not think it is the way Chinese people are wired to work
15. 鈥I can鈥檛鈥 is not in their vocabulary, so be wary if you get silence for an answer鈥
16. Make them recap the agreements, do not assume they understood just because you feel you were clear enough鈥
17. Give realistic purchase estimates. If you promise 10 more times than you are planning to buy, they will cut corners to meet their profit so it will hit you back with poor quality (they work on small margins)
18. Expect long negotiations: even points that have already been agreed will be raised again in the future
19. Pricing: Do not get obsessed with the cheapest deal. Quality has a price and you should also consider that.
20. Track commodity prices used in your products
21. Learn about your suppliers cost structure (how much goes into labor, materials cost),
22 . If your IP is involved, make sure they agree to sign a good non disclosure agreement, with non use / non circumvention聽 provisions

23. Make sure you have good contracts in place. It will be a good use of your money to get a China knowledgeable lawyer to draft them (so that the terms are enforceable and it covers all the points you need to cover- IP, stocks, product quality, product specifications, penalties, etc)
24. Ensure they have the machinery & capability to produce your product. Ask them to produce a few samples in front of you, even if they don鈥檛 match your exact specifications.

Tips on How to Deal or Negotiate with your Chinese Suppliers – 1

LOOKING FOR SUPPLIERS鈥

1. Initial Search for Suppliers: directories, trade-show directories and internet
2. Not all good suppliers have English websites; get on board somebody who can help you search in Chinese
3. Existing (good) suppliers may be able to help expand your supplier network in non-competing products
4. If there is any IP involved, register it in China before you approach anybody
5. Consider registering your IP for categories similar to the one you manufacture

SHORTLISTING SUPPLIERS
6. Approach them first with an introductory email presenting yourself, your company and detailing as much as possible the product you are after
7. If they do not answer fast (1-3 days) move on, they will give you trouble in the future
8. If you have a good number of suppliers to choose from, create a 鈥減re-selection system鈥 that helps you shortlist: level of response to your introductory e-mail response, telephone check (do they exist?), factory address provided, factory license, and any certification your business requires, quality certifications

9. Ensure you are not dealing with the middle man (I): Visit the factory鈥 ALWAYS!
10. If you can鈥檛 visit the factory, get an Inspection Company to do it for you. It is not that expensive.

How to define defects during Inspection

1. Introduction:
One of the most important parts in a Quality Inspection is the AQL Inspection where need to list every defect that found on a sampling-size of the inspected products.

2. Standard definition of the 3 defect categories:

There are three types of defects on a product. It could be聽CRITICAL, MAJOR聽or聽MINOR. It is really important that you clearly know the differences between them. Here is a definition for each one:

-聽Critical: A product has a critical defect when the defect is聽dangerous for the user or聽reject by import custom聽and聽against the law of import country.
For example:聽Electric leakage聽is a critical defect because it means that the product鈥檚 user could be electrocuted so it is really dangerous for him. Warning label missing聽can also be considered as a critical defect because the product will be considered as against the law of import country.
Some defects that could be considered as聽potentially critical will also be classified as critical聽because they will not cause direct hazard but potential risks for the consumer. For example: the language used for the instruction manual is not correct.

-聽Major: A product has a major defect when it is not dangerous, but聽cannot be sold because of this defect.
For example:聽Product broken聽is a major defect because it is聽not dangerous for the user but the product can not be sold. Important scratches聽can also be considered as a major defect because the client can not sell the product.

-聽Minor: A product has a minor defect when it is not dangerous and can be sold, but has lost some of its initial value.
Example: Poor stitching聽is a minor defect because it is not dangerous, it can be sold but it has lost some of its initial value.聽Dirt marks聽is also a minor defect because the product can be sold but not at the same price due to the lack of quality.

This classification above is the standard we used for our Inspection.聽If the client wishes to classify defects in another category聽(for example dirt marks as major) then we will follow the client requirement. Indeed, some clients want us to focus more on some defects because those are more important for their products.

How to Develop a Quality Control Plan

A quality control plan offers a method for ensuring products have reached a specific standard. Quality control is usually the last step a product goes through before being sent to the customer and consists of a series of systems and procedures to ensure the highest standards have been met. Quality control is in place to make sure the customer is satisfied with the final product and a company’s reputation remains intact. It also determines the root source of problems and helps to fix them and ensure the corrections are permanent.

Instructions

Developing a Quality Control Plan

1.聽 Evaluate how you plan to test quality. Consider factors such as how often you plan to test, where along the assembly process you will test, how long the process will take and any resources required. Major phases or checkpoints of a product鈥檚 creation need to be tested before moving forward.

2.聽 Reference your company鈥檚 mission statement, business plan or overall vision to determine your end-goals for a product. Use these resources to help you decide what need to be tested to meet quality assurance.

3.聽 Create a step-by-step process for testing a product. Identify the different aspects of the product. If necessary, consider different scenarios for the use of your product and test as many as possible to ensure quality through each.

4.聽 Experiment with the quality control tests. Revise the process as necessary. If a product requires more testing in one area, add this step to the quality control plan. If a test is noted to be unnecessary, remove it and continue to refine the process.

5.聽 Revise and review the quality control plan to continually pinpoint problem areas. With every new product, add a new sub-test to the quality control plan.

Quality inspection china is one of the most important ways

In this post we鈥檒l examine the benefits of working factory direct, as compared with a buying agent or trading company.You鈥檝e probably heard it from your associates, if not directly from your boss: 鈥淕o factory direct and save money!鈥 (or some variation of this exclamation. While there are serious costs savings to be attained by working direct with a China manufacturer, it is definitely NOT the right move for everyone. And, I must tell you, that in more cases than not clients of mine who come to China with the intent of working factory direct would actually be better served, and better suited to succeed in business, but working with the right buying agent or trading company.
Quality inspection china is one of the most important ways of quality control. With more and more international business happened in China, most of the small buyers which purchase products from China, they will contract the quality inspection services to the 3rd parties which located in China with china inspection services. China Inspection Service Co., Ltd. is one of the leading company providing the quality inspection services for those small purchasers over the world.
By far, most factories in China are in no way sophisticated enough to do business with overseas buyers. Remember, this is coming to you from someone who has visited literally thousands of factories in China 鈥 I know. Most factories here have little English-speaking staff, don鈥檛 understand the intricacies of shipping and working with overseas companies, and most importantly, don鈥檛 understand the quality requirements and expectations that you probably are expecting. Such factors, if not clearly recognized in the beginning of your relationship, will only multiply and compound other issues involved in sourcing as you go forward.