What New Buyers Need to Know - China Sourcing Information Center

I. Housekeeping notes from show management
II. Introduction to speaker
III.Managing expectations
• Culture notes
• Sourcing expectations
– Domestic vs. international sourcing
• Note on Intellectual Property (IP)
• Types of suppliers
• Quality Control (QC) overview
• Logistics overview
• Payments
IV. Q & A
Supply Chains
Our clients are direct
suppliers to the
following retailers and
CSIC is a not-for-profit organization that exists to help educate,
develop, and advance the China sourcing professional. The
following resources are available free of charge to the public:
» China Sourcer e-Magazine
» Video Tutorials
» Ask-the-Experts Service
» Buyer Blogs
» White Papers
» Endorsed Service Providers
NEW: Supplier Blacklist
No need to spend a lot of time on cultural
Your cultural understanding is not a prerequisite for success
Very forgiving of cultural mistakes
So many examples
…But there are a few things to be aware of
Sourcing expectations:
Domestic vs. international sourcing
• Culture
• Communication
– time and language, spoken vs. written
Due diligence
Contracts / PO’s
Product design (Harley example)
Order quantities
Sourcing expectations:
Domestic vs. international sourcing
• Lead times
custom production = 30 + 30 +30
air vs. sea, container, spell it out down to
BOM and confirm it… “put it in a box” is
not the way to leave it
• Packaging
• Sampling
if not off shelf, may not be easy or free…
short term thinking… relative value
Sourcing expectations:
Domestic vs. international sourcing
Customs clearance
Returns (build it into contract, order
• Servicing
• IP protection
Sourcing expectations:
Domestic vs. international sourcing
• Legal exposure
– Importer of record, who is to confirm
conformance, why not let the supplier
determine conformance
• No “common knowledge”
– If you can’t write it down and
scientifically confirm it, you can’t
expect it… example: color
Lots of challenges, but the payoff in savings is worth
the effort
“everything is possible, nothing
is easy”
Disclaimer on China Intellectual Property
Vast majority of suppliers are honest and a pleasure to
deal with.
Unfortunately in a market as massive and competitive
as China, IP is often a casualty.
IP protection will be a key part of “Part 2” later in the
Types of suppliers (vs. a “vendor”)
Pros & cons
“Chinese Chinese” factory
“FIE” Chinese factory
JV (CJV, EJV, Fabricated JV)
Excerpts from White Paper “Avoiding Middlemen – what most
China sourcing agents, trading companies and brokers don’t
want you to know!”
Testing a theory
trade show in Mainland China
stood in the main hall
complex product
said in English “can anybody here make this item”
Result: 15 “mei wenti” (“no problem”), factory direct connections and
great pricing.
Today, the amount of money involved in the China Sourcing game is so
large …..BUYER BEWARE.
Factory Direct or Not? (Good vs. bad middlemen)
Plan for IP
Project Management
“Check list of Red Flags” available via email
Example #1: Two Faced Cards
Example #2: Bait n Switch
Ask for copy of license
China QC Overview Why are China Quality issues always in the
 Recent and Rapid growth of Production
 Global Interaction made easy thanks to
the Internet
“know our limits and don’t rely solely on the suppliers”
Let’s explore some of the key terms.
Testing vs. Inspection vs. Audit
Testing: In a lab. Lead Test for example.
Inspection: Pulling a random sample from production
line, warehouse or market place, to compare against
agreed standards
Audit: Two Main Kinds
1. Factory Audit= technically assessment of people,
skills, process and equipment
2. Social Audit = child labor, min wage, OT, insurance,
work place safety
Golden Sample vs. Production Sample (how
dangerous to ask “just give me a sample”)
ISO: family of standards and guidelines for measuring
quality in the manufacturing and service industries from
the International Organization for Standardization (ISO).
BUT ISO 9000 certification does not guarantee product
quality. It ensures that the processes that develop the
product are documented and performed in a quality
manner. “ concrete life jackets”
Quality Control: A system that is put in place by a manufacturer to monitor
and maintain quality as goods flow from raw materials (IQC) into semifinished goods (IPQC) into finished goods ready and packaged for shipment
QA or 3PQC: Outside party that reviews the QC system of the factory and
provides testing, inspection and/or audit services
Minor vs. Major vs. Critical Defects
Critical= could hurt somebody
Major= ability to sell the product is compromised
Minor= temporarily acceptable defect
QC Fundamentals
 As we advance from Concept to
Production to Delivery, the cost associated
with testing and fixing any problems
increase exponentially.
 You will see that a few simple steps, early
on, not only are inexpensive, but very
effective in reducing the exposure to nonconfirming products.
FREE Tools
1. Do they have a Quality Manual?
The QC toolbox
“PQM” template available at www.PSSchina.com
2. Ask for references
1. Factory Audit
Few 100 USD if using a 3rd party specialist like
2. Consider verification & investigation by specialist like
1. Shipping department at factory declares cargo
2. Engages export customs broker in China for
clearance and inspection
3. China Customs allows export (based on license
held by factory)
4. Chinese trucking company picks up cargo carries to
HK border
5. Customs cleared for export into HK
6. Delivery to Port or Airport (CFS)
7. Export clearance of HK and booking with Airline /
Shipping Line
Arrival at destination port / airport
Customs clearance
Local trucking company to pick up cargo at port / airport
Delivery to buyers warehouse / facility
Involved parties:
 Factory/Vendor/Buyer (3)
 Customs in China/Hong Kong/Final Destination (4-5)
 Logistic companies: Trucker/Shipping Lines/
Forwarder/Broker (5-7)
Total parties involved 12 – 15
Key Logistics Points
Find the right partner
Fast and Slow Air 2-7 days
Fast and Slow Sea 15-30 days
5 years ago vs. Today
Goal of Payments Segment:
 Common pitfalls/best practices for
documentation and terms of payment
 What to do when things go wrong.
Lessons learned:
 “30-40-30” & Roadmaps
 Financial Exposure is really Quality Exposure
 Be careful if transferring funds to a private account or 3rd party
trading company
 RMB accounts in near future
 Is the name on the bank account the same as the name on the
PO and the same as the production site?
Traditional Risk
Financial due diligence
Site visits (confirm vendor is a real manufacturer)
State lead times & penalties in contract
Evaluate reward vs. risk (especially for initial
production run)
Payment Terms are not Incoterms
PO & Contracts will be
reviewed in separate seminar
What to do when things go wrong?
•Find the right supplier in the first place
•K.C.C.C. (keep cool, communicate clearly)
•Arbitration/ Mediation
•Legal enforcement as last option
(8-0 record at the moment)
Options for lawyers in China
Includes templates for
PO, Supplier Contract,
guidelines, RFQ and
$150 USD online or
$100 Cash at booth at
trade show while supplies
If take away just two
Spend the time
to find the
right partners
for both
and service
linked to a
Payment Plan
Email: [email protected]
Company: www.PSSchina.com
China Sourcing Information Center
Blog: www.AnotherChinaBlog.com
LinkedIn “Mike Bellamy China”
Booth # 3G01

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