You Don’t Have to Use an Incoterm when Buying from China

Incoterms are standard terms that help two parties (a buyer and a seller involved in an international transaction) determine precisely who pays for transportation, who pays for import duties, who manages documents, and who takes what risks.

They are part of the standardization efforts that made international business easier (along with shipping containers, letters of credit, etc.).

Wikipedia outlines the incoterms and explains them one by one. Most importers who buy full containers choose FOB rather than CIF or EXW terms, usually for good reason.

However, what many companies don’t realize is, incoterms are just tools that are SUGGESTED to them… And customizing the commercial terms is possible.

Here is an example. The customer wants to receive the goods in their warehouse and have the seller pay for import duties, BUT the customer wants to control the transport (because they know they are more efficient than the supplier when it comes to transportation). So they want DDU except for the transportation aspect, which should be similar to FOB.

Writing this into a contract is not really complicated, and a logistics professional can help you both in opening your eyes on the opportunities and in ensuring your contract includes all important provisions.

If you purchase small quantities from a Chinese or Indian supplier, they might not be open to customizing the shipping terms. But if you represent a certain size of their business, they will usually listen to you and show some flexibility.

Again, my point is to avoid thinking “so, which incoterm to choose?” without looking at alternatives.

Defect List vs. Checkpoint List

I noticed many people confuse two things: the list of potential defects, and the list of checkpoints to follow during an inspection.

What I see very often is a list of potential defects, but no list of checkpoints.

There are 2 mail problems with this:

  1. The inspector has no structure to follow.
  2. When random sampling is used, the inspector should NOT count every problem he finds as a defects. If he checks a point on the full sample size (for example on 200 pcs), that’s fine. But this is not valid if he only checks a few samples for a certain point. It would mean the statistics are twisted.

Here are a couple of examples to illustrate this second point:

  • The export carton weight is usually checked only on a few cartons. Not on all selected cartons. If a few cartons have the wrong weight and it is not conform to the buyer’s specs, no need to check all cartons. The inspection result is “on hold” or “failed”.
  • Setting an electrical widget on and then off can usually be done on all inspected samples. So it makes sense to count every non-functioning widget as a defect (usually with major severity).

What is a list of potential defects?

  • It is a reminder for the inspector when it comes to the visual check.
  • It sets the quality standard and reduces the probability of a heated conversation between the factory and the inspector. A good defect list shows the severity (critical / major / minor) of each type of defect. And the best defect lists also illustrate (with photos if possible) what the limit is between a defect and a non-defect.
  • It cannot be exhaustive. There might always be new types of defects.
  • The inspector sums up the defects he/she has found. For random inspections, he/she compares them to the AQL limits.
  • It usually looks like this:

List of quality defects

What is the problem if you only prepare a defect list? You leave a lot of room to the inspector to decide how he is going to organize his inspection and how it will be performed in the details. And you are fooling yourself if you imagine he’s going to check the weight of every carton (for example)!

What is a list of checkpoints?

  1. It guides the inspector step by step. It is a kind of to-do list.
  2. The inspector has to tick each point, as he goes through the inspection. There is no way to forget one point, and no excuse should problems be found later.
  3. It carries more information than a defect list. It specifies what to do, with what settings, what exact result is expected, what equipment to use, etc.
  4. A point can be checked on the whole sample size (especially if it takes little time and it is very important) or on a smaller sample.
  5. In case a point is checked on the whole sample size, a problem can be counted as a defect. There is overlap here between the two documents.
  6. In case a point is NOT checked on the whole sample size, a problem is simply counted as critical. That checkpoint is failed or on hold, and the whole inspection report is failed or on hold for that reason.
  7. It usually looks like this:

On-site tests

Or it can be a very simple checklist, used over a number of different products, that looks like this:

Simple_Checklist

Some inspection companies try to apply the AQL tables to everything they can, including to the size check of garments. It is possible but I am not a fan of that approach, as I wrote here.

What is the problem if you only prepare a list of checkpoints? You leave a lot of room to the inspector to decide on the severity of the defects he finds.

I hope I made the difference clear. Any questions or remarks?

Template for Design Sheet and Testing Plan for China Production

Last week we published advice for sending the right information in your design file to a Chinese manufacturer. But, to be really helpful, we should have prepared a template like the one we did before for spec sheets.

So here you go — here is a Word format template: Design Files Template.

We also thought we should add information about the testing plan. In the past we drew a nice infographic about setting up a checklist, but it is very general and doesn’t go much into details.

We made a list of tests that make sense primarily for electronic, electrical, and/or mechanical products:

  • Compatibility testing – Is a non-functional test conducted on the application to evaluate the application’s compatibility within different environments.
  • Conformance testing (also known as compliance testing) – Is a methodology used in engineering to ensure that a product, process, computer program or system meets a defined set of standards.
  • Functional testing – Tests the functions of a component or system and refers to activities that verify a specific action or function of the product, process, computer program or a system element.
  • Pre-build testing – Involves testing critical components or sub-assemblies prior to any build or assembly process to ensure correct functionality.
  • In-process testing – Is a practical approach to finding and containing defects where and when they occur within the build process.
  • End-of-line testing – Involves ensuring that the integrated components of an application function as expected. The entire application is tested in a real-world scenario such as communicating with the database, network, hardware and other applications.
  • Load testing – Is the process of putting demand on a system or device and measuring its response. Load testing is performed to determine a system’s behavior under both normal and anticipated peak load conditions.
  • Performance testing – Covers a wide range of engineering or functional evaluations where a material, product, or system is not specified by detailed material or component specifications: rather, emphasis is on the final measurable performance characteristics. Testing can be a qualitative or quantitative procedure.
  • Regression testing – One of the main reasons for regression testing is to determine whether a change in one part of the software affects other parts of the software
  • Stress testing – Involves testing beyond normal operational capacity, often to a breaking point, in order to observe the results.
  • System testing – Is testing conducted on a complete, integrated system to evaluate the system’s compliance with its specified requirements.
  • Unit testing – A unit test is an automated piece of software code that invokes a unit of work in the system and then checks a single assumption about the behavior of that unit of work
  • User acceptance testing – In engineering and its various sub-disciplines, acceptance testing is a test conducted to determine if the requirements of a specification or contract are met. It may involve chemical tests, physical tests, or performance tests.

You can download our Test_Plan_Template.

Any feedback is appreciated!

Are there Many Fake ISO 9001 Certifications in China?

I saw several people mentioning fake certificates recently in the context of Chinese manufacturing. While I know there are many fake product certificates, I don’t think there are many fake ISO 9001, ISO 14001, or ISO/TS16949 certificates.

My point of view is simple. There are many registrars, and many “consultants” that “guarantee a pass” and that know which registrars are very lax. It means factories simply pay and get the certification. It is not much more difficult than faking it.

The advantage of a “real but undeserved” certificate is that a real registrar’s name can be shown. And potential customers can even call the registrar and ask if that company is certified.

Does it mean that you can visit a factory and then call the registrar to check the certificates’ validity? It is not that simple for two reasons:

  • The official company name is in Chinese. And I guess many local registrars won’t have an English speaker respond to your inquiry.
  • In China a factory boss often has several companies, and tracking who is who is complicated. The business environment here is opaque.

Rather than checking if a certificate is genuine, I would encourage buyers to check if it is deserved. I listed some points that can easily be checked here. And many companies, including mine, make a living of checking just that. It is not expensive.

Do you agree?

How to Send Good Design Files to Chinese Manufacturers

In the past I explained how to structure a product specification sheet to ensure the supplier knows what is expected regarding the finished product.

However, proper communication with Chinese manufacturers should start much earlier. If you have designed your own product and you want it to be made in China, make sure you follow some best practices when sending the technical design files to the supplier.

We guess that 50% of the issues related to China manufacturing come from unclear requirements up front. In other words, poor quality design files.

Below is an outline of what we include in a design file when we help a client in this exercise.

1. Product Description

The product description is a high level overview of what the product is intended to be. It also allows anyone who studies it to obtain an understanding of what is involved in order to make that product. The product description should include the following elements:

  • Why is it needed?
  • What is it made of?
  • What will it look like?
  • How long should it take to create?
  • What are the acceptance criteria?
  • How will those criteria be met?

One common issue is the color description — even a white might have variation! It is better to use Pantone reference in China and leave no margin for error.

2. Product Functionality

The product functionality is a description of how the product should function in operation as well as including the limitations of the functionality.

If you are referring to an individual component that is manufactured in China, you still need to describe the functionality of that individual part. An example of this could be a drive shaft. The functionality is to have a specific fit into a bearing and a gear — the gear will be driven via a key located in the shaft and must be able to exceed a specific amount of torque. The specific information would be added to the technical drawing, which is discussed later in this article.

3. 3D CAD Files

The majority of hard goods being designed today are designed using 3D design software such as CATIA, Pro/ENGINEER, and SolidWorks just to name a few popular ones. When creating your design file that is intended to be sent to your sub-contract manufacturer in China, it is important that you understand the formats your supplier can use and what they require.

Different file formats are also required for different processes. For example, if you need a prototype produced using Stereolithography (SLS) then you will need to send the supplier the STL file format. If you require a machined component that will be generated on a computer numerically controlled (CNC) machine, you would need to send the IGS file format. The IGS file format is based on the IGES (Initial Graphics Exchange Specification) standard. This standard is used by a variety of CAD (Computer-Aided Drawing) applications.

The key point here is: understand what format your supplier needs.

4. 2D Technical Drawings

The 2D technical drawings are an important inclusion to the design file. These documents communicate the finite details of how each component is manufactured. The technical drawing communicates all the needed information from the engineer who designed the part to the supplier who will produce it.

A technical drawing is actually a legal document because it communicates the needed information about what the buyer wants to the supplier who will provide it. In conjunction with the purchase order and any other documentation (e.g. change order notices), buyers are advised to make it part of the contract.

Getting the right information included on a technical drawing is paramount to the success of producing your product.

There are five basic elements that need to be included on all technical drawings:

a. Title Block information

This is where the key information is provided about the product

  • Company that owns the design (legal owner)
  • Designer’s Name (at least initials)
  • Drawing checked by name (at least initials)
  • Identification number (or “part number”)
  • Product name (or “part name”)
  • Date of release
  • Revision level (important for change control)

b. Product drawing

This is the drawing of the product itself and should show a number of different views from different projections or viewpoints. It is also required to show sectional views that provide more detailed information where required.

c. Dimensions

A dimension controls the feature-of-size which might consist of two parallel surfaces, a cylindrical surface, or a spherical surface, in each case defined with a linear size. The limits-of-size controls only the actual local sizes (two-point measurements) of a feature-of-size, and not its deviations of form, for example the flatness, the roundness or the straightness of the feature.

d. Tolerances

A tolerance that is applied to a dimension shows an upper and a lower limit for that dimension. The accuracy of the dimension is determined by the number of decimal places. A dimension that has a tolerance applied shows a specific requirement for that feature-of-size and can look something like this:

25.4 +/-0.01 which shows an upper limit of 25.41 and a lower limit of 25.39,

e. Critical to Quality (CTQ) Information

This can either be in the form of geometric tolerancing or CTQ notes. Geometric tolerancing adds a layer of tolerance on top of the standard limits-of-size dimension and adds that tolerance to the form.

Geometric tolerancing specifies the tolerance of geometric characteristics. It uses a universal language of symbols which allows a design engineer to precisely and logically describe part features in a way they can be accurately manufactured and inspected, including Straightness, Perpendicularity, Flatness, Angularity, Roundness, Concentricity, Cylindricity, Runout, Profile, True position, and Parallelism.

CTQ notes should include surface finish, color, heat treatment, and any other specific attribute that is critical to quality that is not associated with a dimension.

The important point about CTQ information is that it is highlighted in some way on the technical drawing. With a dimension, this can have a circle around it, for notes, they can have a symbol attached to them. Whatever identification system you use, make sure you include a key on the drawing that shows the system which highlights all CTQ information.

5. Test Requirements

It is important to understand what testing is required not just after the product has been finished, but potentially there could be the need to test sub-assemblies or at semi-finished stages throughout the production process. Whatever testing your product requires, it needs to be specified accurately and clearly.

Pre-build, in-process test, end-of-line test

An example of pre-build testing could include checking that LEDs function and that they are the correct color, or checking the functionality of a sub-assembly including printed circuit board assemblies or mechanical sub-assembly operations.

In-process testing consists of testing a product that is partially built to check functionality at critical stages in the assembly process. The idea here is to ensure the product functions correctly before adding more value to the product by additional assembly and the cost associated with that assembly process. If errors are found, the partially finished product can be removed from the line for analysis, rework or scrap, depending upon the cause of the failure.

End of line testing is there to test the completed product as the last stage of assembly or production. This test will determine if the product passed the acceptance criteria and therefore is often used as the final quality check before the product is packaged and shipped.

Every manufacturing operation adds value to the part. Waiting until the end of the line to check whether these operations were done properly means wasted cycle time and materials if there are defects. Also take into consideration that rework of fully assembled parts takes more effort than correcting the flaw right away, at the point where it was introduced.

The earlier you catch issues, the cheaper it is:

Catch problems early

6. Certification requirements

If you have a product that requires certification to show it has met the relevant country or product regulations, you need to ensure you understand what these requirements are so that you can plan for product testing at the appropriate time.

7. Inspection pass criteria

Whatever your product is, it is vitally important to document all the specific pass criteria for each of the tests you have identified to be carried out. If you find it difficult to describe something, add a photo or an image showing the desired criteria.

Remember, all your instructions should be clear and easy to understand. Simply said, the criteria should be what will allow you to judge good quality products when you receive them in hands.

Conclusion

When generating your design files, do not take shortcuts. Make sure all the information required to produce your product is included within the design file. Include additional notes to help explain key areas of importance and critical-to-quality aspects. Do not be shy to ask and ask again to ensure your supplier understands each and every detail.

If you have a complete and comprehensive design file, you make the job easier for the manufacturer to produce you product right the first time round.

Maybe some readers have other good tips?