SRI's Qualifying Suppliers Presentation from the Global Sources HK Shows

As promised, here is the outline of the presentation that I gave in HK. The focus was first-time buyers and some of the things they should be watching out for in starting work in China.An updated version of this presentation will be give in Shanghai at the Global Sources Show, December 13th.Evaluating Potential Suppliers in China• Qualitative Techniques for choosing the best factory for your needs.What to know about China BEFORE you start talking• “Westerners come to China with too much trust.” Chinese people don’t even trust Chinese from other provinces.• The legal system is probably not what you are used to. While it’s getting better it is not independent and is not precedent based (it’s a file first system).• Potential suppliers will probably never say no. If they say maybe, that means no.• There will be problems. Don’t go in blind-you will have problems so chose your suppliers carefully.• You do NOT need special relationships or backdoor connections to work in China any more. Don’t go here. Do it right, do it legally or don’t do it.• Factories are limited in the number of people that can/will make decisions. If you aren’t talking with the decision maker you’re wasting your time.There is no substitute for being here yourself• You cannot judge a factory by their website or show booth• You must visit the supplier yourself, probably more than a few times.• Plan on multiple trips for better quality and better/faster problem solving (i.e. better personal relationships).• You cannot manage a project from 5000 miles away by phone, fax and email; especially when English is the second or even third language.• If you’re working with trading company and they tell you can’t go see the factory, get a new trading company immediately. If they are not completely transparent you don’t want to work with them.Realistic Expectations• Tradeshows are just that-SHOWS. So verify everything yourself.• Don’t expect to finish everything in a 10 day visit. Your factory visits better take more time than your trip to the Great Wall or the Canton Fair.• You can have any two of the following:– High quality– Short production times– Low costQuestions to ask at a trade show:• Ownership?• Export History/license?• Client Recommendations?• Actual Capacity?• Age/condition/make/ model of Equipment?• Average Order Qtty?• Average Production Time?• Sales Department Questions:– Fluent in English?– Dedicated rep?– How long with company/turnover?– Can you talk with managers/engineers directly?– Who makes decisions on price/materials/quality?– 3rd party QC?Factory Visits• Plan on spending as much time on the floor as you can--more than a day, if possible.• Make sure you see production and QC in action.• Talk with the factory’s other clients--why are they there and what is their experience?• Bring you own translator and probably lawyer too (if it’s a big project/order).• Visit as many potential sites as possible.• Talk directly with designers, managers, QC and engineers not just sales people.Questions to Ask Yourself and the Supplier• Can you honestly communicate with them?• Do you feel comfortable working together?• Are you going to have issues justifying the factory conditions to your investors?• What are the production line bottlenecks that will most affect you? Is the allocation of labor what you need?• How much of their production do they outsource? You cannot ask this question too many times or to too many people.• Do they have multiple sites? Which one did they show you? Where will they (really) produce your items?• How many other large clients? What’s their order schedule?• When is their high season?• What does the price include/not include? Know your INCO terms!• What is done with non-conforming products? If you don’t both specify and verify what is to be done you’ll most likely see your rejected products again.• How does the factory control molds, design and other IP?• Utilities and back up?• Is the QC department independent from production goals?• Do they have various MNC (Wal-Mart, Disney, etc.) and industry certifications?• How do they verify incoming product quality/origin? Can you have original documents and copies of standards?• R&D and/or mold design/manufacturing done on site or outsourced? If not on site how do they control quality?• Safety procedures defined and followed?• Do they pay at least local minimum wage?• How much machine/process training is provided for each person/assignment?• Is there project and shift specific training?Final Points• Complete more Due Diligence than you normally would in your home country.• Be involved in the process more than you would with an order in your home country.• Record ALL conversations, commitments, changes, options, problems, EVERYTHING. You will be the only one that records things, so make it a habit to send copies of conversations to your supplier and have them confirm them.• Take ALL legal precautions you can at home and in China.• There is always another story/more to the story; so keep asking questions.• Spend the necessary time to do all due diligence BEFORE you pay for any product or sign any contracts.