GS Show Final Day Questions and Related QC News

This new QC program that Wal-Mart is rolling out is not related to the show, but it is related to the questions on supplier qualifications and product QC.  That a buyer as big as Wal-Mart is drawing a line in the sand is only going to be a good thing.What can China or the buyers say to this new standard?  No?  No way.  They need this to legitimize their future manufacturing in the light of the last couple of years of bad press.  Sure there are tons of Chinese-made goods that are up to snuff, but that line of response is just going to be ridiculed by the west and MNC’s.  China needs to pick up this gauntlet and answer the call.  There is a great review of the Wal-Mart position of China suppliers right now from Bill Dodson at This Is China! Blog.  This, by the way, is a fantastic blog with a lot of good info about what it’s like to do business on the ground in China (from long boring car trips, to bad food, to negotiations, to actually business—that’s what it’s really like).I talked with a friend at Wal-Mart last night and he said that some in the Chinese media are already painting this as Wal-Mart forcing new costs onto the Chinese suppliers.  Here's a hint for the overly defensive nationalist local media--this is the wrong angle to take.  I've said it before and I'll say it again: until Chinese factories value the lives of their Chinese customers as much as they value the lives of foreign customers there will continue to be quality problems, child labor, pollution and other problems with Chinese made goods.  Chinese buyers/customers really need to support the Wal-Mart program and demand it for domestic production too.But finally, to make this QC program work for Wal-Mart (and others) corruption is going to be addressed even more seriously than in the past.  Let me just say this about Wal-Mart and QC, I know that they take corruption in QC very very seriously.  But there is still much abuse.We have a supplier that we’ve worked with for more than 4 years.  They also supply Wal-Mart.  They told me, when Wal-Mart came up in a conversation one day (and I told my friend in Wal-Mart’s South China office), that they are getting killed by the tens of thousands of dollars in payments that the Wal-Mart QC people demand.  Not only are their margins already low, they told me, but the corruption is not limited to the inspectors but the department heads are in on the take too.  They demanded regular payments or threatened to reject otherwise acceptable product.  They told our factory that if the they blows the whistle on them the report will stop the order, go through the (corrupt) department heads and basically just hurt the suppliers own margins and times even more.  If something was to happen to the QC inspectors, they claim that they make so much money in illegal payments that they can both take a year off if they are fired and still use the Wal-Mart name/experience to get a new job elsewhere (since no one in China calls previous employers when hiring).The factory would not tell me the PO number because they didn’t want to have the order canceled.  But they did repeatedly ask me to talk with my friend in Wal-Mart and see if something could be done without hurting the current order or supplier. To Wal-Mart’s credit, my friend tried to get all the info he could from me about the supplier.  For weeks he begged for info so they could do something about it.  Wal-Mart also has a very active and extensive fraud department that regulates stuff like this.  I known a couple of people in Wal-Mart over the years here in China and I can honestly say they are great people—to a man.  But their security and fraud prevention obviously has some shortcomings, but they are vigorous about trying to control illegal activities.I’m not bashing on Wal-Mart here.  Actually praising them for both taking the QC issues public and directly to those that matter and for investing so much money into the prevention of fraud.  I know they fire a lot of people for graft.  The problem is that this type of corruption is systemic, as the cases of milk and lead paint (and cough syrup, and tires, toothpaste, and eggs, etc., etc., etc.,).  We’re fired more QC people in China the last 6 years than all other types employees from the US, China and Thailand combined.  Honest QC are paid handsomely here.  Honest suppliers are something you never let go of.  Here’s another example, from a large rodent themed entertainment company, I’ll call them Rat Inc. (I don’t know why I’ve never told this story and used the company’s name, I just never have.  Story telling mystique?  Fear of retribution?  Don’t know.  But why change now?!)A couple of years ago we managed a project for a buyer that was selling into Rat Inc.  They require that all factories are inspected before any products are manufactured with their name or trademarks.  So we called their Shanghai office and said “We’ve got 11 sub suppliers making parts for this kit of kids products.  They are all in Guangdong, when do you want to go see them?”  They told us, directly: “We didn’t hear that you have 11 suppliers, we only want to see one.  We want to see it on this day and we want to be gone by noon.  Pick the best factory, get us the details and have them ready with all the sub suppliers items already there.”Now I can understand that Rat Inc. wants to be efficient with their inspector’s time.  And I can understand that they trust our good judgment and manufacturing quality.  But policy is policy, right?  And the point of having inspectors in the first place is to inspect, right?!  I guarantee you some of the sub suppliers wouldn’t have passed their standards—and that’s the point.  They knew it too.  But they also knew that the product was, at least with an eyeball test, “good enough” to ship out and there was a very low chance of it coming back, so they just let it slide.These are the issues that you face manufacturing your own products, anywhere in the world, really, but especially in China.  The rule of thumb is: the more time you spend in the factory watching, testing, checking, the better the quality your end product will be leaving China.Show Question #1.Q: I’m about to place my first order with a Chinese supplier but I’m now concerned that the factory may go bankrupt like so may others; I may lose my money and the product I’ve now found.  What should I do?  Also you recommend using a lawyer in China, how I would I find a reputable one?A: First, pay $150 or so and get a report on your company before you send any money.  It’s easy to do.  Get online and talk with either Verify or Glo Bis.  Both are US companies.  They can get you back ground information and even government tax and registration reports and personnel searches on the owners.  I’m sure there are many other similar services like this available if you looked.Second, pay another $800 and get your factory audited.  This will confirm for you both what the factory is really doing (capability) and it will give you a “live” update as to the current situation of the factory—are they busy, clean, licensed, still there, etc.  SRI can do an audit for about $650 plus expenses.  Bureau Veritas has similar charges (I think) and also has engineers if you want specific machinery audited (costs more).Third, ask your factory/supplier for some client recommendations that can vouch for the existence and the quality of your potential supplier.  Try to get someone from you home country (or that at least speaks your language, obviously) and that has ordered in the last few months.Now, maybe you’re saying: “Hey!  I can’t pay and extra $1000 to just confirm what they already told me!”  My response is:  “What % of your order can be rejected and still allow you to still stay in business?”  Yes, it’s that serious.  Pay $1000 up front.  Pay another $1000 for a few days of QC and you’ll not only be safe, you’ll be set up for your next order and you and your supplier will have standards set for the future.  If you are ordering $20K or more, this should be an acceptable margin.  And the next order you’ll only be paying $1000 for the QC.  The opposite scenario is that you just trust your factory and send tens of thousands of dollars to someone you don’t know, have never visited and works in a very instable and opaque business environment.  If the factory takes $20K and runs (and I’ve never had this happen to me, but I’ve heard stories) the $1000 will seem like small potatoes.  If 20% of your order is junk, or if 100% just “off just a little,” but enough to make it a 2nd in your market, how insignificant is the $1000 pre-check now?!You learned it when you were a kid and it’s still true now: it’s better to be safe than sorry.Fourth, get a lawyer and cover your legal bases in China before you send any info/spec’s/designs/art to China.  China is a file first legal system (like Germany, but not like the US which is first to market) so you need to register your designs before you start working in China.  Some lawyers you can use are Harris and Moure in Shanghai/Seattle and Jun Zejun in Shenzhen.  I’ve used both.  Harris and Moure are much better, and much more expensive too.  But I have friends who swear by Jun Zejun.Show Question #2Q: If I see that factories/suppliers are “certified” or “Verified” or “Trusted” on the online sourcing sites, what does that really mean?A: It has a lot of different meanings.  First, on Alibaba, you can buy the Trust Pass or Gold Supplier status icons.  It has nothing to do with quality of the product or legality of the business (though they do claim to do a credit check).  I was offered the option of buying “gold” or other levels when we once considered setting up on Alibaba.  It’s sold to trading companies, middle men, buyer agents, whomever.   Their sales people offered it to us as a way to convince people that we were a manufacturer.Second, On Global Sources (and no, I’m NOT an employee or contracted worker for GS in any way, shape or form) the “Verified” means that they have visited the factory and confirmed that they have a business license and have a credit check run.  I don’t know how the process works for he other sourcing sites.  Search engines like google, Baidu, Yahoo do NOTHING to certify the listings on their results pages.  ALL these sourcing sites have NO GURANTEE FOR ANY PRODUCT OR PRODUCT QUALITY!  They have simply verified the legal and physical existence of the supplier.  The quality of any item that you buy is completely up to you.