Most Chinese manufacturers are not aware of the quality requirements of foreign consumers. I think anybody who has spent some time here in factories to fix production issues has come to this conclusion. Chinese production people and "cha bu duo" If the top manager of the factory does not relentlessly emphasize the importance of quality (and only a few do), the supervisors have other priorities: minimizing waste, producing as fast as possible, and not shipping (too) late. That's when … [Read more...]
The short term view of chinese suppliers
Foreign buyers are often shocked by the behavior of their Chinese suppliers. They are themselves often trying to grow their business by making unprofitable deals with new customers. And when they ask for some help from their supplier, they can't even extract a few cents off the price, or get a claim settled. They cannot convince their suppliers that making small efforts can lead to long-term benefits. Why are Chinese people so focused on short-term results? Many people invoke … [Read more...]
Who takes the final decision to let the factory ship the products?
It is always amazing how some Chinese suppliers can take advantage of a situation, and then reject the fault on another party with a straight face. I just fell victim of it, because of a supplier that didn't wait for his customer's shipping confirmation. Under FOB terms (or the corresponding FCA for air freight), the buyer controls the shipment. He appoints the forwarder (or organizes the transport by himself). An advantage is that he decides when the supplier should bring the products for … [Read more...]
Confirming quality when paying by irrevocable letter of credit
In my last article, I explained how an importer can confirm his product's quality while paying by bank wire. The other very widespread mode of payment is the letter of credit (L/C), or documentary credit. Generally speaking, buyers should look out for the same risks, so I won't repeat most of them. But there are specific issues to be aware of, as listed below. First, how does a payment by L/C work? A bank is used as a third party to guarantee that a payment will be done if a number of … [Read more...]
Confirming quality when paying by bank wire (T/T)
This article will detail how an importer can confirm his product's quality while paying by bank wire (let's say the deposit is 30%). Important note: what I wrote below is relevant primarily for sea shipments. For air shipping, the remainder (usually 70% is paid before the goods leave the factory). First, how does this mode of payment work? A 30% down payment is wired (by telegraphic transfer) before components are purchased and production is launched. This step usually follows the … [Read more...]
Tie payments to quality acceptance, for each shipment
I'm catching up here on a good post entitled When Sourcing in China. Cash = Control on the All Roads blog. I wanted to write something about the relationship between payments and quality, but I don't think I can write it more clearly than this: For those who are sourcing in China, it really is important to understand that as long as you “owe” your supplier money, you are still in the position of power. You can change an order size more easily, you can demand a 3rd party audit, and if the QC … [Read more...]
An inappropriate example about China sourcing
Very good post, over at Evolving Excellence, entitled How Do You Like Them Apples?. Bill Waddell, a consultant with strong experience in operations management, analyzes Apple’s procurement of iPods. He tries to demonstrate that Apple probably doesn’t save any money by sourcing from China. He starts with numbers from academic studies: […] The Chinese manufacturer (Foxconn I presume) takes 2.7 labor hours to make one at about $1.50 an hour for a total Chinese value add of $4 per iPod. He … [Read more...]
Resolving conflicts in China
I finished reading Mr. China by Tim Clissold and I found it quite interesting. It is the story of an investment fund that lost hundreds of millions of dollars in China in the 1990s. The author describes in great details the traps his company fell into and what solutions they found. At that time, the only form of investment that was allowed was doing joint ventures with Chinese partners. But some comments are also useful for importers trying to resolve a conflict with a Chinese … [Read more...]
Chinese suppliers and subcontracting
I just came across an interesting post ("6 conversations and a couple of cultural lessons") on the SRI blog. In the last paragraphs, David Dayton evokes the sub-contracting habits of Chinese manufacturers: Chinese factories ALWAYS sub work out to other factories. (And no, I’m not exaggerating. Always is the right word.) But they never do QC. I have not, in 7 years, ever had a factory do QC before they accepted product from a factory that they’ve sub’d work out to. They always act so surprised … [Read more...]
Lack of quality control: impact on consumers
The general shareholders meeting at Carrefour (2nd largest retailer in the world) recently took place. Many newspapers wrote about the complaint from a small shareholder, speaking in public to the CEO (see this article from Le Monde, 10th paragraph). My translation: Last week I bought a pack of strawberries for 1 euro: I got diarrhea! I bought coffee from Costa Rica: I got diarrhea! I bought some socks in 46/48 size, but after washing they shrank down to size 38, which is my wife's size! You … [Read more...]