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Sourcing from China (Part 3): Project management & checking quality early in production. [Podcast]

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Sourcing from China (Part 3): Project management & checking quality early in production. [Podcast]

In this episode…

We continue to explore what importers who’re new to outsourcing manufacturing to suppliers in China need to be able to handle themselves when sourcing, developing products, and manufacturing there.

In part 2 of the series (episode 75), we went through the terms you need to negotiate with your chosen supplier, how to keep leverage over them, and how and why to clearly describe what you actually want from them at the pre-production stage.

As pre-production is done, we’re now ready to start production. But before you go ahead, how should you manage the project (your order) to make sure it runs smoothly, and why should you be considering doing inspections early on after production has started instead of waiting until later?

 

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🎧 Sourcing from China (Part 3): Project management & checking quality early in production. 🎧

 

Show Sections

00:00 – Introduction. 

02:51 – When we’re working with a Chinese supplier, will they provide a dedicated member of staff to manage your order/project?
For most ‘smaller’ buyers (entrepreneurs, SMEs, etc), their point of contact with the factory will be a salesperson on commission. This salesperson can speak Engish, that’s their number one skill. They are often inexperienced and only really there to take an order. There may be no processes or project management software in place for them to use and keep things up-to-date (common in many Chinese factories). Most companies with under 200 staff you find on Alibaba, for example, will have internal processes in place to purchase materials and start production, but they do little in the way of planning and project management. Your contact in sales may ask production for updates and follow up if they’re very diligent, but probably won’t ask detailed questions, and in most cases, they switch their focus to new customers in order to get more commission rather than spending time on following up on your order.

10:07 – What can very large companies like Apple expect from their suppliers in China?
A very different experience from that of small buyers. A chief engineer may be assigned who updates you with very detailed information about the development process, the process we follow during production, etc. It’s very clear throughout what’s happening. Software is also used that provides a dashboard of information available at all times.

12:40 – Why it’s YOUR job to drive the project and get your contact to follow up.
No matter if in China, Vietnam, India, etc. When you start to outsource production there it’s your job to follow up and not rely on the supplier.

14:05 – What penalties can be enforced to keep suppliers in line?
Penalties are usually for late shipments and certain mistakes. It is possible to go too far with them to the point where the relationship between you and your supplier is ruined, causing more problems. It’s hard to penalize late shipping today with the freight issues we’re experiencing in late 2021, however, some buyers focus on the late end of production. It is common to add a percentage of the order value that is deducted for the late end of production after, say, 10 days late, and increases little by little until you have to insist on air shipment. However, it’s prudent to make this enough for the supplier to pay attention to it (1-2%), but not so high (10%+) that they will dismiss it as being unreasonable and, potentially, refuse to release your products if you refuse to pay the order value.

Penalties can help protect you in the case of where they have a larger customer who’s pushing them hard for their order and the supplier is looking for other orders to push back to accommodate them. If you have an enforceable manufacturing agreement with penalties for late end of production in place, your order is less likely to be the one they push back.

A negative effect of penalties could be the supplier rushing production. This could result in all kinds of problems, especially quality issues, so it’s a real danger.

The supplier should be aware of chargebacks your retailers may give to you for issues in advance, too, and should be prepared to pay them if they’re the cause.

22:10 – What are the production tracking best practices that professional buyers follow?
Technical and quality factory audits should be used to make sure that the supplier has the capacity to make the number of products you need in the time window you have before the order is placed. If they don’t, there’s an increased risk of them rushing orders (bad news as we already discussed) or subcontracting to a supplier you may have no knowledge of (also bad news as you have no control over them and their practices, quality, etc).

Start the clock at a precise time. If you have agreed to 45 days for production, be clear on what day 1 is. Maybe it’s the day that your 30% ‘deposit’ is received, for example.

Add some padding to your internal schedule to the end of production and delivery time. With today’s shipping issues, you may need to wait for an available container. Also, certain suppliers are always late. So the extra time in your plan accounts for this.

If you’re producing a new product or working with a new supplier who’s unfamiliar with your product the risks are higher, so to mitigate them it is wise to inspect quality during production (more on this later). If the product includes particularly risky components or those that have proven to be problematic before, it is good practice to plan to check these individually before assembly.

Putting milestones in place and keeping track of when the supplier hits them by following up is another good practice. Typical milestones might be first payment, components and accessories purchased, receipt of them by the supplier, released to production, first finished product off the line (FAI inspection to be done), 50% of production done, shipment date. If the supplier is given this plan in advance they can agree on dates, then you can follow up weekly to track the order’s progress. The data you gather might be the number of days late for each step, for instance, and this can be a KPI that, when provided to the supplier, puts them under a little more pressure to improve performance if need be if things are behind.

30:44 – Are WeChat/Skype/Email effective for managing projects?
Any app or email is OK for daily communication and pushing suppliers, but it’s unstructured. If a decision is made or you confirm something email is a must as it can then be kept as a record of this communication. Set up a document where you keep track of dates and comments from the supplier, otherwise, it will be very difficult to go back through all of your various apps, etc, to find a specific conversation and so things may be missed and it will be harder to make the supplier accountable for issues if you don’t have the evidence to show them of what was said or agreed earlier in the case of mistakes or poor performance.

32:04 – What issues can be found and fixed if you perform quality inspections early on in production?
Problems can be found early and it gives the supplier time to solve them before most of the products have been manufactured. Inspections at this stage help reduce even more risks:

Reducing the risks of other customers’ orders being prioritised over yours because the supplier knows your inspector is coming and, therefore, will be pushed a little to work on your order.
An inspector visiting reduces the risk of unauthorised subcontracting to someone else (especially if the supplier is in a rush), often a small local workshop. This will be cheap and fast, but there may be little follow up on the processes, materials, and testing done, giving you serious quality and safety risks.
The supplier will be more likely to study and follow your quality standard and specifications if they know an inspector will come and hold them accountable for product quality.

34:54 – When can we send an inspector during production and what difference does the timing make?
For hard goods, performing an FAI (first article inspection) on some of the very first pieces off the line helps to confirm if all is well or if changes are needed to the processes, assembly line, fixtures, work instructions, component quality, etc. It gives initial guidance for changes early on if they’re necessary when it’s still convenient to make them. For large production batches, performing subsequent random sampling inspections after perhaps 10%, 20%, 40% of production will give you a good idea of the average quality and proportion of defectives.

For clothing, the same logic can be followed, but for larger orders, it’s also worth checking how they cut the fabric and when the bundles first go to the sewing lines to confirm that the line leader is onboarding everything well. It may take time and several operations for finished products to start coming off the lines, so an inspector checking during will help find and stop issues.

In the case of special operations, such as powder coating on metal products, having an inspector there to confirm that the supplier is doing a good job is a good way to mitigate risks in areas where issues could most commonly occur.

40:04 – What happens if a problem/s is found?
There are any number of issues that can be found by inspectors. Make sure that you can provide evidence that the issue found is outside of your quality standard/specifications, etc, by showing the supplier evidence of that. Issues coming from testing mistakes, poor equipment maintenance, bad inputs being provided by sub-suppliers, and more. Basically, the inspector and good planning will help uncover damaging problems before they become too serious.

43:48 – How is the 1:10:100 ratio related to taking action on problems early?
Costs and time to fix product issues scale up rapidly as you get closer to production. When developing a product, finding an error on a CAD drawing and correcting it in the software is fast as well as being low cost to put right. If they’re missed you will probably find them during the prototyping stage, so another round of prototypes will need to be made after the issue has been located in order to iron it out, that’s perhaps 10x the cost and time of correcting it in CAD. If a prototype with issues is approved and goes into production, that’s a huge problem. Stopping production and going back into prototype testing and validation could be another 10/15x the cost and time. If products get into the field and are found to be faulty, the cost and time to fix the issue could be vastly more again, especially if users are injured, there’s a lawsuit, or a 100% product recall is required. A good example is structural steel. What would happen if the wrong steel were used in the construction of a bridge or skyscraper? This shows how valuable design reviews and the careful planning and testing of prototypes are in reducing costs and saving time by nipping problems in the bud at an early stage before costs and delays balloon.

49:20 – Wrapping up. 

 

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