Many importers lament that Chinese suppliers don’t take any responsibility when quality issues are found after shipment. Ten years ago, I would have confirmed that it happens less than 0.1% of the time. These days, it seems to become more common.

I talked about this with a client last week, and here is what came out of our discussion. I listed 5 ways to increase your chances, as a buyer.

1. Work with a manufacturer

Again, ten years ago, I would have suggested to work with a trading company — they often try to do everything they can to keep the customer happy. But, as their margins eroded, they can’t play that game as well as in the past.

In contrast, manufacturers value their ‘direct’ customers (those they work with without any intermediary in the middle) more than indirect ones. And they understand more and more that saving a little money in the short term is not in their long-term best interest.

2. Maintain a long-term relationship

Do you show your suppliers that they are constantly at the risk of losing your orders? Do you switch to a competitor to save a few cents? In that case, suppliers might not value your business. They know they are always on the brink of losing it.

If you have purchased from the same source for 5 years, and if you run into quality issues, they will think twice before refusing to give you a rebate or a reimbursement for a mistake they have made.

3. Go and see them face to face often

If all your suppliers see is your emails, they don’t feel they know you, which means they don’t necessarily trust you or value your relationship. This is true in many Asian cultures.

So, go and meet with them face to face 4 times or more every year. Take a little time out of the meeting room. Eat lunch with them and talk about non-business subjects. Have dinner with them (a good tip: tell them you have a call at 9:30pm in your hotel).

On the other hand, don’t let them give you such a nice treatment that you feel obliged to you. They need to keep in mind that, should they make an expensive mistake, you will get back at them immediately.

4. Compare findings to agreed-upon specs

Hopefully you have a solid and detailed specification sheet that includes tolerances for acceptability.

(If you deal with soft goods, it might be an approved sample, along with boundary samples where needed.)

Make the problem obvious. Remind the factory people what standard they promised to comply with, and show them precisely how production is noncompliant.

5. Translate the issue into facts they can understand

Extra points if you understand where the issue comes from and you can point to what exact mistake they have made. Factory salespeople and managers often need to be shown what happened before they start to react.

For example: “you cut this part a bit too small, and now it doesn’t fit that other part”, or “die casting was done at the wrong pressure, and your mold can no longer close properly”.

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I hope it’s helpful…

Obviously this is more true in consumer electronics than in footwear, for the simple reason that factories make more margin. Also, if the buyer has invested a lot of time developing a new product, the supplier knows he is captive to a certain extent, and this can be a positive or a negative. Take this as very, very general advice!

I have recently published the 15-part series for new buyers who are starting to work with Chinese suppliers (and for more experienced people who want to double-check whether they are working in a smart way).

The 15 articles are listed below:

1. Do You Need a Sourcing Agent?
2. How to Identify Potential Suppliers?
3. How to Verify a Manufacturer
4. Second Choices vs. “Never Again”
5. Negotiation: The Terms you Need to Discuss
6. Keep Some Leverage with Suppliers
7. Pre-Production: Describing What You Want
8. Project Management of Your Orders
9. Check Quality Early in the Manufacturing Cycle
10. Always Verify Quality Before Shipment
11. Build Good rapport with Suppliers
12. How Closely Do You Follow Your Productions?
13. The 5 Steps to Developing a Chinese Supplier
14. How a Factory Can Improve Quality
15. How a Factory Can Improve Productivity

I hope it’s been useful. Obviously, I didn’t cover 100% of cases and i have left many things outside of this guide. Any comments are welcome!

Up until now, I have written advice that is targeted at certain types of importers. I call them the “hands-on buyers”, and I know them well because many of them are our clients. They tend to follow productions closely.

However, let’s not overlook a good half of the buyers — the “hands-off buyers”.

My point here is really this: there is no one set of “best practices”. As far as importers are concerned, there are at least two types of buying strategies that can make sense.

First, let’s examine what hands-off buyers do, and why it makes sense in their situation.

1. The hands-off buyer

Let’s take an example. You purchase promotional goods that are then given away.

One day a customer will ask for a bottle opener. The next, you will need to look for caps. Then paper bags, and then pens, and so on.

All these products are made in different factories. As your business grows, you end up with tens of suppliers and tens of products!

It means you can’t get familiar with all your suppliers. You can’t become an expert in every product category.

(By the way, promo item buyers are not the only ones in this situation. Think of mail-order companies or retail chains that deal with thousands of SKUs!)

2. Why it can make sense to be ‘hands-off’

Buyers who place one-shot orders are forced to take high risks. They can only focus on a few risk mitigation strategies.

If we revisit the advice I gave you since the first part of these series, here is the typical hands-off buyer’s sourcing strategy:

1. Supplier identification and screening: Buyer becomes expert at completing this stage efficiently.
2. Factory verification: Very light. Buyer is not building a long-term supply base.
3. Cultivating backup suppliers: Only possible with off-the-shelf items.
4. Negotiating the right terms: Very important for the purchaser to get this right.
5. Keeping leverage in your hands: Buyer becomes expert at managing financial risks.
6. Writing detailed specifications: Not realistic. Buyer has insufficient product expertise and little time.
7. Following up on production schedules: Always a challenge, especially with small suppliers.
8. Checking product quality early: Only realistic if the amount is very high or if the customer cannot be disappointed.
9. Checking every shipment in the factory: A must. Manufacturer is not trusted at all.
10. Building good rapport with suppliers: Not realistic. Relationships are often adversarial.

3. When does it make sense to be hands-on?

If you can work with a few manufacturers, it makes sense to spend more time and effort developing the relationship. You can spend more time in the due diligence phase, to ensure you work with good partners.

It reduces your risks in two ways:

1. You work with better-qualified suppliers who understand the relationship might span five or ten years.
2. You probably deal with one or two product categories, so you know your product and its production processes better. It allows you to distinguish good manufacturers more easily, and to understand what might go wrong in the manufacturing stage.

4. What do ‘hands-on’ buyers do that is special?

Being hands-on is the only option for buyers who need bespoke or heavily customized products. It forces you to work closer with the supplier, and to commit to longer-term business.

There is a risk to watch out for. You might get “locked” in a relationship with one manufacturer, who knows it will take you 6 months to ramp up another source and get good products. They might become less serious about quality or deadlines, or they might increase prices too fast.

This is why a backup manufacturer is so important. It allows you to keep pressure on your current supply base, and it gives you a good option out if required.

Another special characteristic of hands-on buyers is that they push their suppliers to improve. And, in most cases, they are frustrated by the resistance to their suggestions.

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For many importing companies, pushing key suppliers to improve has become more critical over the past 5 years.  And this trend will only get stronger. After all, if they don’t become more efficient or if they don’t improve their quality, most Chinese factories will have to close!

That’s why I will cover this topic in the next 3 parts of this series.

Up until now, I have written lessons about “hard” issues: screening suppliers, writing specifications, negotiating the right terms, and inspecting quality.

But I feel I should take a moment and focus on “soft” issues, and in particular, how to build good rapport with suppliers because it is so important, while at the same time so difficult to get right.

First, let’s look at what specialists call the “inner circle” and the “outer circle”.

1. Some background: the inner and outer circles

I might be guilty of grossly over-generalizing here, but I feel that the Chinese are still very close to the village community system, where anyone from a different town cannot be trusted.

They care a lot about their family, their close friends, and some of their colleagues or customers; however, they don’t care about what happens to people who are outside their circle. When I say “they don’t care” it is more like they do not want to get involved with anyone outside their circle regardless of the trouble or danger those outsiders could be in, they would rather turn the other way and walk past instead of helping.

What does it mean for the foreign buyer?

Should you try to make friends with suppliers’ salespeople and managers?

It can help but this is a fine line.

It means you should spend quality time with them outside of work – for example joining them for a group meal.

You should talk about you and your family, and inquire about theirs. Show photos of your city, bring specialties from your country, teach them a few funny words, and so on. It will all help you get closer to their inner circle, and your orders will get a higher priority in their minds because of the relationship that is being built.

It does NOT mean that friendship comes before business, though. Here are two examples:

• If they produce inferior quality or they ship goods late, they should expect that you would act tough.
• If they suggest inspecting quality by themselves (basically asking you to trust them blindly), you should brush that idea off immediately.

2. Visit the factory frequently

In China, face-to-face meetings are much more productive than emails or phone calls, especially if you can get in front of decision-makers.

You are probably in contact with a salesperson, who has a limited influence in the organization. If you can, come regularly to China and talk to the middle managers (who allocate capacity and set priorities) and/or the technicians working on your orders.

If you have already met with the boss during a previous visit, remember his name and ask for his input. He might not physically be able to attend your meeting, but you can ask the sales rep to ask for his decision when you get stuck on an important issue.

3. Be seen as a “good customer”

More and more Chinese suppliers have realized that they need to cultivate a certain number of good buyers and treat them well. From a buyer’s point of view, it does not take much to achieve this status.

Show that you care about your supplier. Ask questions to understand their situation, and try to take it into account in your decisions (at least in a small way). This will help you be categorized as a “good customer”, even if you insist on following professional processes.

4. Remain polite

Some buyers are disrespectful towards their Chinese suppliers, particularly when problems arise, and this attitude is usually counterproductive.

Again, this is a fine line. When you drive a car you can be assertive, but you should not be aggressive. Same thing when you address your suppliers!

You should avoid asking tough questions in a direct manner. I remember one of my clients who, after being shown a factory’s mistakes, placed some samples on a table and asked “why did this happen?”, “didn’t you control the materials, as you promised us before?”, “why didn’t the line operators catch it?”, and so on.

Big mistake because he was putting down mid-level people in the supplier’s company. My client offended all the key people working on his project on a personal level. And in public. They lost face.

What is face, you might ask?

In situations where someone has made a mistake or done wrong, and the error is made attributable to that person in public, then that one person has “lost face” – their reputation in the eyes of their peers has been reduced. Losing face is an experience no-one wishes to have befall them. So, even if the one losing face is clearly “wrong”, some folks will go to great lengths to avoid the appearance of losing face.

If the factory is clearly at fault, you should work with them to identify the root cause(s) of the faults and set corrective actions then follow up to check their progress.

Business is business, and you should defend your interests, however, keep in mind that Chinese people tend to mix professional and personal relationships.

Now, if you are in front of the factory owner and if you are one of their significant customers, you can push hard. You can be tough and scream. As Paul Midler wrote in his latest book, nothing can offend them.

5. Use email wisely

So, you, or your inspector, have found a problem. What should you do?

If you are at the factory yourself, everything is easier. You can give them immediate feedback about what is acceptable and what is not (you should take photos and write a note about it).

If you are not on site, you should send emails to convey information (photos, lists of problems, potential root cause, etc.) and ask for a response. Try to make only one point per message. Then you can call your contact to ensure they have received your email and they understand what you are explaining and then ask when they will respond.

Do not send and re-send long emails. If you apply too much pressure, you will probably not get a clear response. Similarly, be careful not to place blame on any particular person.

The natural tendency of Chinese suppliers will be to justify themselves and find an excuse (which will often be a “white lie”). The most important thing is to get them to formulate their next corrective actions and to commit to a time frame. Keep focused on this, rather than asking “who messed up?”

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The advice in this article is my personal take on this subject. Ask 10 different people and you will get 10 different opinions, so you should make up your mind as you gain experience.

It is coming again. Chinese New Year (CNY for short). All Chinese manufacturers will close sometime in early February and re-open slowly toward the end of the month. The more they rely on migrant labor, the longer the break (on average).

If you are a seasoned importer, you know how to manage the disruption. This is not what I am writing about today.

This year comes with an extra risk: closure of the business because of environmental non-compliance.

Many factories have been completely shut down, and many others had to close temporarily. (By the way, at CMC we prepared a white paper that explains this in detail.)

And yet, many manufacturing facilities are still operating in non-compliance and have managed to dodge the bullet. The owner knows he is at risk and he could lose his business overnight. He has been hiding somehow — for example, pretending the factory is closed when government inspectors are rumoured to be in the area, and operating at night.

Are these companies going to invest in new equipment in order to reduce their air/water/ground emissions? Not likely if they have the typical old-style Chinese attitude of “get the cash today and worry about the company’s future later”.

Are these owners going to try and survive another year? Some will, and some won’t. Those who won’t try will simply collect cash from customers, will avoid paying suppliers, employees, and taxes, will order nothing for production after CNY, and will quietly get out of sight.

If some of your critical suppliers use your tooling, and if you don’t have a backup supplier that can take over your productions quickly, you should really look into your suppliers’ processes. Do they do die casting, paint, surface treatments, or anything else that is potentially polluting? High risk.

How to reduce your risk? Avoid paying a deposit before CNY, if possible (maybe pay by letter of credit). Get your valuable tooling out of the factory and store it somewhere else. Cultivate a backup.

I have no idea what proportion of factories is in this situation. I can only guess that the number of “close and run” cases will go up this year. Let’s hope you are not one of the victims.