Best Practices for Choosing the Right Chinese Factory

Maybe you are looking for a new Chinese factory and you are not sure how to find a good one. You’d like to get inspiration from those companies that have THE BEST supplier screening process.

Well, look no further than the car industry. A car assembler, say General Motors or Volkswagen, has to decide on 1 supplier for each part of a new car — and then they CANNOT change that supplier for the life of the car in question.

Why can’t car manufacturers switch suppliers?

David Collins, consulting director at from CMC, explained to me why. Double-sourcing one part — let’s say buying a seat from two suppliers — would require so much additional work and testing that the final bill would approximate 500 million USD. Very heavy testing is required by law, and 1 new part in a car would make the whole testing process start again.

So having a backup supplier is impossible. That’s a very uncomfortable situation. When a manufacturer has quality or delivery issues, the implications for their customer (the car plant) are enormous. A downtime in a car factory costs tens of thousands of dollars per minute.

In this situation, qualifying the suppliers and approving their parts is a critical process. Picking a wrong supplier (which will deliver late, or deliver poor quality) is extremely costly.

How do car manufacturers select the right suppliers?

Car manufacturers use the PPAP (Production Part Approval Process) to quality each part coming from outside suppliers. The PPAP includes quality tools that are usually seen as particular to the auto industry, but that are applicable in any industry — electronics, furniture, etc.

Now, let’s be realistic. The PPAP process is very heavy and involves a LOT of documentation. It is very useful in bringing the risk of working with the wrong supplier down, but should you go through all these steps? No.

What you should do is the 20% of the work that will get you 80% of the results.

Here are the PPAP process steps:

  • Design Records
  • Authorized Engineering Change Documents
  • Customer Engineering Approval, if required
  • Design Failure Modes and Effects Analysis (DFMEA) applied in special situations
  • Process Flow Diagram
  • Process Failure Modes and Effects Analysis (PFMEA)
  • Control Plan
  • Measurement Systems Analysis (MSA)
  • Dimensional Results
  • Records of Material / Performance Test Results
  • Initial Process Studies
  • Qualified Laboratory Documentation
  • Appearance Approval Report (AAR)
  • Sample Production Parts
  • Master Sample
  • Checking Aids
  • Customer-Specific Requirements
  • Part Submission Warrant (PSW)

How can importers get inspiration from the PPAP?

Among the above list, here are the tools every importer should try to apply when selecting a new supplier for custom-made products:

  • Design Records
  • Authorized Engineering Change Documents
  • Design Failure Modes and Effects Analysis (DFMEA) if the design is a bit complicated
  • Process Flow Diagram
  • Process Failure Modes and Effects Analysis (PFMEA)

And, once an order has been issued and the factory is willing to invest time and energy in improving their processes and their organization, these steps generally make sense:

  • Control Plan
  • Measurement Systems Analysis (MSA)
  • Dimensional Results
  • Initial Process Studies (including running small pilot batches at the rate of mass production)
  • Master Sample
  • Checking Aids

What do you think?

What the Most Sophisticated Chinese Factories Do

Best Quality & Sourcing Articles

Here are some interesting or useful articles that I found recently.

The New Chinese Factory

This is NOT an article about the average Chinese manufacturer. It describes what one of the most sophisticated manufacturers does, and it should give us a taste of what is to come in the Chinese high-tech industry.

(I found this article via Etienne Charlier from Procur’Asia.)

Your Supplier Didn’t Sign Up For This….

Jacob Yount gives examples of the typical miscommunication that happens between Chinese suppliers and novice buyers. As Jacob writes, “in order for a project and continuous imports to be a success, the buyer has to take the bulk of the responsibility in control and in being proactive”.

Also don’t miss this article where Jacob gives advice on how to follow up on timing targets with Chinese suppliers.

How To Terminate Your China Supplier: Very Carefully

As Dan Harris writes, “it is fairly common for Chinese manufacturers to seek retaliation against their American product buyers if they cease buying product from them”. Dan proceeds to describe what what precautions importers should take in this case.

Why China isn’t losing its sourcing edge

This article is based on a conference that invited me to speak. Both I, and a consultant from AT Kearney, stressed how important China was, and would be in the coming years, in the global supply chain. Many products will still mainly be sourced in China for the next 10 years.

Preventing Corruption Of Purchasers In China

David Collins from CMC gives advice to reduce the risk of bribes in a purchasing department. The best approach is a mix of staff rotation, data transparency, and random auditing.

(This video is available on Youku at http://v.youku.com/v_show/id_XODA0ODE1MzMy.html.)

An Alibaba Gold Supplier Status Doesn’t Mean Anything

I regularly receive messages from importers who were cheated by a Chinese company and seem very surprised because Alibaba showed that supplier had a “gold” status.

So, what does that gold status mean?

Here is the explanation Alibaba shows on their website:

Gold Supplier is a premium membership for suppliers on Alibaba.com. Members are provided with comprehensive ways to promote their products, maximizing product exposure and increasing return-on-investment.

In other words, in terms of ethical behavior and quality level, it means nothing. A supplier that pays Alibaba gets that status and is given better visibility and a nicer presentation on alibaba.com.

From my experience:

  • Some very good manufacturers are “gold suppliers”. Some very good trading companies are “gold suppliers”.
  • A terrible factory that increases prices at the last minute and delivers substandard quality can be “gold supplier”. A couple of people setting up a trading company and renting an office can be “gold supplier”.

To drive my point, here are a few complaints I received from foreign buyers (naturally I erased all identifiers):

Complaint 1:

We had ordered one container of A4 paper from a gold supplier. They have cheated us and sent us substandard 70 gsm paper instead of 80 gsm as promised and sample. We won the case on Alibaba but nothing concrete. We are stuck with one 20 ft container in our store which we can’t sell becaue they have put the wrapping as 80 gsm when in fact it is not.

Complaint 2:

Unfortunately I have faced several delays with the factory in China and the communication has been very difficult with misinformation.  The factory claimed to be very experienced with producing [this buyer's product], but they have apparently had a lot of difficulty producing good quality samples with any consistency.
The factory is listed with Alibaba.com as a gold supplier, but that doesn’t appear to mean much.  I also tried to check references for the factory in advance, but was told that the customers’ contact information is confidential.

Complaint 3:

It says it is a gold supplier. I paid for a laptop, but now they are ignoring my communication. What can I do since they still have a working website and their email is still working?

Complaint 4:

WE IMPORTED 60.000 pc OF TOWELS HAND TOWELS AND BATH MAT FACE WASHES. THEY HAVE TAKEN 7 MONTHS. WHEN WE RECEIVED THEM THEY WERE FAULTY: GASHES, BLACK THREAD, UNDER WEIGHT, OVER WEIGHT…
WE SIGNED A CONTRACT WITH A GOLD SUPPLIER AND THE CONTRACT HAS A CLAUSE — IF THERE IS A PROBLEM AND WE CAN NOT AGREE TO GO TO ARBITRATION AND NO WE DID NOT INSPECT TOWELS BEFORE SHIPMENT BECAUSE THE SAMPLES WERE GOOD AND WE WERE BUYING FROM A GOLD SUPPLIER.

Nearly 4 years ago I wrote The real Alibaba fraud: not the one everyone talks about. At that time, Alibaba had just revealed a serious scandal. Here was my take on it:

[This scandal] is negligible, compared to the intellectual fraud committed by Alibaba in its marketing promises.

Inexperienced buyers get on Alibaba, find a “gold” supplier, and feel they can trust him. That’s the heart of the problem.

Why is it called a “gold” status? Because this marketing is actually directed at a Chinese audience. Alibaba gets its revenue from the suppliers it lists.

So, here it is. “Gold” means “paying”. It doesn’t mean “best” like in gold vs. silver vs. bronze.

Do you agree?

Tips for Sourcing Toys in China – Q&A with an expert

I had the chance to ask a few questions to Michael Blanc, the Regional Manager at Supply Chain Analysis Centre, Tradegood. Michael offers free sourcing services for buyers and bridge them to most matching suppliers. He focuses in toys and furniture industry.

Q: When you source suppliers of toys, what types of issues do you typically face?

I have several toys buyers from US, UK and France that request the factories to have strong design capacity (ODM), low MOQ, as well as high compliance level. It is sometimes challenging for me to match them to our suppliers.

Similarly, some factories prefer working with particular markets/type of buyers (e.g. retailers only). They specialize themselves as high quality products manufacturers with strong production capacity. However, I also meet some factories that offer very low prices with smaller production capacity and they usually like taking orders from large-scale retailers whose order quantity is large and whose price level can match. Some would prefer small companies instead. Factories with strong audits/record are most likely to work with European/US customers when low compliances factories look for other markets.

Q: When you source suppliers of furniture, what types of issues do you typically face?

Similar to toy industry, there are many challenges in matching furniture buyers to suppliers. I have met some buyers having requirements different to those offered by suppliers. In one case the buyer’s payment terms was not accepted by the supplier and in another case, the buyer’s order quantity was too low.

# Q: When you try to identify potential suppliers of a given product, and before you contact these suppliers, what type of information do you typically look for?

We have very close communications with buyers to understand both products and suppliers requirement so we can do initial supplier screening and recommendations for them precisely. Factories are researched and filtered according to the buyers’ needs. To give you some examples, I have met a French Retailer brand that emphasize the compliance level’s record of the factories, while some of my UK buyers pay particular attention to their exporting markets’ experiences or care about the production capacity.

In fact, each buyer has different requirements. Our job is to listen and understand their needs, and find what might fit the best for them among the Tradegood database.

Q: When you contact potential suppliers and ask for information, what indicators do you pay particular attention to?

When the buyer is a foreigner, it is, of course, essential that the Sales manager can speak English. In the same way, it is crucial that suppliers know perfectly their products and factory. Before each matching session with buyers, a training is provided to the suppliers to ascertain that he understands well what buyers requirements are.

I have one buyer that is in charge of Quality Assurance, and he emphasizes the verification regarding compliance’s record. When we are dealing with buyers like him, who is very much aware of all current regulations, certifications, norms and standards; this person will therefore pay a particular attention to the compliance record Tradegood can provide. What can be considered value-adding for him is to provide him with a list of suppliers than have valid certifications record. Also, he will pay more attention to the quality of the product itself than the factory. As they often tell, a good factory can produce low quality products, and a factory that doesn’t look great at first can produce good quality/price products.

In fact, the aim of our solutions is to give as much added value as possible to the buyers, to let them know which suppliers match (looking at their factory capacity) and according to our own expertise/opinion regarding a particular factory.

Switching from Acceptance Sampling to Process Control

Most importers who buy products in China resort to acceptance sampling — in particular, QC inspections based on AQL limits.

The main reason is, they can’t trust their suppliers. Actually, they often don’t even know where certain orders is made! This situation is not ideal (they’d rather avoid paying for inspections) but is manageable for certain buyers. Many importers are happy so long as they don’t receive a shipment with more than 4% of defective products.

Acceptance sampling is not suitable for certain importers

However, some importers have higher requirements. For example, we work for several companies that purchase precision machined parts that need to be assembled in another plant, or empty shampoo bottles that will be fed to a filling machine in the importing country.

In these cases, having 1% of products out of specifications results in high costs. So the question becomes, how to adopt a more mature and more pro-active quality assurance strategy?

3 solutions for ensuring better quality

Quality management system (QMS)

There are many QMS standards (ISO 9001 for most industries, ISO/TS 16949 in the automotive industry, etc.). A manufacturer that follows one of these standards seriously will become more reliable.

(Notice that I didn’t write “a manufacturer that got certified is more reliable”. I don’t give much importance to company certifications.)

The danger with a manufacturer that “wings it” and doesn’t put a system in place is that products are checked only when employees have time for that activity. Entire batches are commonly shipped out without any measurement or testing! No matter QC inspections are so frequent in China.

Once a supplier pretends to respect a standard, the main question is, “is it effective”? Most Chinese manufacturers are very cynical about management systems and see this as paperwork to prepare before the auditor comes. A good auditor will uncover that.

Statistical process control (SPC)

These days, in the US and Europe, SPC is seldom used as intended when Shewart developed control charts in the 1920s. The reason is, all these calculations are often embedded in modern machines, especially when it comes to mature processes. So why care about SPC?

Well, in China there is a habit of buying cheap machines and throwing them away after a few years. There is a lot of variation due to the machining & fabrication equipment, and good old SPC tools can help keep it under control.

Certain industries still use SPC data (for example, suppliers of car parts are often required to have a Cp of at least 1.33). Several standards explain how to correct and analyze SPC data. It only requires one person who understands how process control statistics work for maybe 1 day, to set a basic system up.

The analysis of the variations, for example in a few critical dimensions of a machined product, is the starting point of process improvements. See this video about SPC for a few pointers.

Proper calibration

Garbage in, garbage out… You need to make sure decisions are made based on properly collected data.

In theory, an ISO 9001-certified manufacturer makes sure calibration is done right. But I have yet to see an auditor go beyond checking if a sticker is on a few instruments and comparing that to a log. That is insufficient!

Very few Chinese factories evaluate the R&R (Repeatability and Reproducibility) of their gauges. If measurement/testing precision is very important, it is worth the buyer’s time to collect some data in the factory.

Here are two important things to check:

  • If the P/T (Precision to Tolerance) ratio is lower than 0.1, all is good. But most of the time if will be between 0.1 and 0.5!
  • If the primary standard is at least 10 times more precise than the measurement instruments, all is good. If it is the same precision, some variation due to the measurement method will be unavoidable.

Can you think of other solutions? What do you think?