Sourcing products internationally needs some expertise in order to successfully crack into the global market and avoid some pitfalls. Equipped with that expertise, Tom shares his twenty years of experience product sourcing in Asia. He offers some ways on how to avoid those and ensure overall quality as he lays down the problems most people encounter, Learn more about deceiving samples, communicating with the factory, quoting products, and the manufacturing process and inspection as Tom goes into all of them one by one and gives some great insights that will help you source and receive the right product.
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I want to talk about Asia Sourcing Pitfalls, some of the many. I’m probably not going to be able to cover potential pitfalls. We have been importing products and sourcing products in Asia since 1998. We’ve had quite a bit our experience in it importing them for ourselves, for our own companies, for products we source and then have made and sell, and also on behalf of clients. I’m sure you’ve heard on some of our other recordings, either podcasts or video, we’ve been to China a lot. Every two weeks, either Tracy or I would be in China for ten days to two weeks. We’ve each spent more than a year in China over our careers. We have a lot of experience and had a lot of clients producing a lot of different products. We’ve experienced a lot of potential pitfalls and I want to share some of them with you.
The Golden Sample
One of those pitfalls is what I’m going to call the golden sample and I want to talk about that one first. When you find a new factory, you make a sample request from them and you give them specifications for what you want them to make. This is true whether it’s a custom, a new design product, or it’s something that you’re just having adjusted, making a variation from something that they carry already. Maybe it’s a custom color or an added feature or unique packaging. A lot of times the factory will spend a lot of extra time producing a very high-quality sample for you and ship it to you here in the US for you to review it. That’s great and that sample is perfect. You place an order then when you get the order of product, it doesn’t live up to the quality of the original sample you received. It makes sense that the factory would produce a high-quality sample to get your business and then produce a product, ship it on a container, or maybe it’s a smaller quantity and you airfreight it over, and you’ve already paid for it. By the time you get it, it’s too late for them to do anything about it or for you to get it fixed because you’re not going to ship it back to China to get it made the way you expected it to be.
I know this may be counterintuitive. You may think, “The factory didn’t do a good job. They sent me a sample. They misled me.” The reality is if you don’t get in your order that you received the quality that you expected, quite honestly, that tends to be more on you than it is on the factory. Granted they misled you and provided a better-quality sample than they intended to produce, it may not be an intention always. It may also be that a factory sample shop has more highly skilled workers and they produce a high-quality product. Maybe they do a better job than their production process than the factory is capable of. It still misleads you a little bit as what to expect, but it may not be an intentional act to defraud you.
Chinese factories want to keep getting more business. Asian factories anywhere want to keep getting more business. Unless it’s a big order and they’re expecting to close their factory, move somewhere else and never see you again, they probably didn’t intend to do this, but it still comes back to you. We have documents in our document library on ProductLaunchHazzards.com where you can find quality control documents, you can see what they look like. You can see specification documents where you’re laying out the critical factors of a product and what your expectations are for quality. You have to provide the factory with the requirements. I would even do it in the quoting process and let them know, “We’re buying a product with these specifications, this quality, and what is my price for that?” You want to specify, “It is critical that this color match this Pantone color and we need to make sure that you do this accurately.” An example of a product I ordered, it’s not a knife per se, but it’s a tool made of a metal blade and has a sharp edge to it.
This factory in general was manufacturing a similar product for a different purpose. The sharpness of that blade that they were making for that other purpose was not all that sharp. For our needs, we had to specify the sharpness characteristic of that blade so that when we get ours, it meets our expectations and does the job it’s intended to. To the factory, it doesn’t matter to them one way or the other. Whether they manufacture the blade to a less sharp point or a sharper point, it doesn’t cost them anymore. They didn’t raise the price of the product on us. We just were very specific, “The blade must meet this sharpness specification,” and they said, “Here’s your price, it’s the same price.” Set up those expectations from the beginning in terms of your documentation so that you know all the quality that you expect, and they’ll have you to check it against. They’ll have their own internal people monitor and manufacture the product to meet those specifications. They always want to meet our expectations. They seem to know what they are.
The second aspect of that besides setting up accurate specifications from the beginning is to have boots on the ground in China acting on your behalf independently of the factory to confirm the quality of that product before it leaves that factory. That’s your opportunity to correct anything before you have to pay for it, pay for transporting it, and the duty coming into the US. You don’t want to do that on the product that you’re not happy with. Having an independent quality control agent on your behalf, on the ground in the factory, is very inexpensive on a per order basis. You don’t have to have an employee there full-time but it’s having someone there independent acting in your behalf that also has those specifications. They don’t have to inspect every single product, they can randomly inspect one out of every hundred if that’s the case. It might be one or two out of every hundred. They don’t have to destroy them. They can just inspect them and those can usually still be packed properly and shipped.
There may be some destructive testing of certain products that you might want to do to make sure the product is made properly. Then, you may have to factor that defect percentage into your overall costs. It is well worth it to spend 1% or 2% in terms of lost product and even a couple more percentage may be on the order as a fee for an independent quality control agent to confirm that the factory made what they said they would make and what you’re expecting them to make before you ship it. Those are my recommendations for how to deal with this trap or potential pitfall of the golden sample.
Communicating With The Factory
Another Asian sourcing pitfall is making sure you’re communicating with and doing business with the actual factory. I’ve had this happen with another client of ours who has been purchasing a product in China for several years and a product that they’re doing very well with. It represents a couple of $100,000 of revenue to their business. It’s not millions of dollars, but it’s also not a new test order either. You’re ordering $200,000 of product from a factory per year. That’s a lot. They’ve continued over a couple years to have some quality problems with their product. The quality has been degrading. They’ve also had a lot of delayed shipping and order dates. There are shipping dates that were promised by the factory that they would miss by three or four weeks even. It’s causing some disruption and problems with their order flow. They’ve come very close to being out of stock a couple times on Amazon with this product. That’s a bad situation.
As we dug into the situation to try to help them and see what’s going on, I used a cliché and find out where the bodies were buried in the process because they don’t always tell you the reality of what’s going on. When we researched, we found that a major part of the finishing process of this product was not done in-house at this company, it was a sub-supplier. In fact, as we dug into it, we found out that the company they’ve been purchasing from a couple of years is not a factory at all. It’s a trading company and they don’t manufacture anything. They were dealing with sub-suppliers and trying to coordinate all that and what they communicate is not always accurate or they’re not able to live up to it because they’re not in control. This is a huge pitfall.Hope is not a plan. Click To Tweet
For any of you on our platform, I would always do business directly with the factory instead of with a trading company or some other company that is a packing company that’s bringing parts together. There may be exceptions where it’s acceptable to do it differently but in general, you want to be dealing with the source. You want an accurate information, you want the best cost possible, and you want to know what all the real internal capabilities are for the supplier that you’re going to buy from, this vendor.
You can’t expect to get accurate information unless you’re dealing directly with the factory. How do you do that? If you’re just trying to search for products on Alibaba and things like that, chances are you could easily be dealing with a trading company or some other supplier that’s not the actual factory. I would always get a referral for somebody else that you know who does business in China, who has people on the ground in China to check out whatever company it is that you’re doing business with and they can find out locally in China, Malaysia, Indonesia, Philippines, or Vietnam. You got to contact someone on the ground in one of those countries who can research and confirm that this company you’re dealing with is an actual factory. They can go and visit them on your behalf.
You’d be surprised that it may not be as expensive as you think it might be to pay someone acting on your behalf to go visit a factory and confirm that they’re legitimate, that they are who they say they are, that they’re located where they say they are, and they do what they say they do. We do this a lot. There are lots of experts on this platform that do business in Asian countries and have people on the ground in various countries. Reach out to us and find out if you need help in this regard. We have people on the ground in China and we have contacts with other people that have people on the ground in Vietnam in particular. There’s especially a lot of wood furniture products coming out of Vietnam if any of you are in that category or other kinds of wooden products in different countries around Asia. Chances are if we don’t know somebody, we know somebody that does know somebody and can eventually get you to a real person on the ground who can check it out. You cannot assume anything and you can’t just hope that it’s going to be okay.
My mantra is, “Hope is not a plan or hope is not a strategy.” You cannot build a business based on hope. You need to know. Quality control is a huge thing. It’s setting up quality expectations in the quoting and specification process, and even in a purchase order with an attachment of a list of criteria that are requirements for you to purchase the product. Then, also verifying that they have made what they’re supposed to make, reviewing the actual product and testing it to some degree is critical. Those are some pitfalls. Other pitfalls are making sure when you’re getting a product quoted that you’re very familiar with all of the terms, conditions, and criteria.
Set up good expectations from the beginning, whatever they are, whether it’s your minimum order quantity, whether the quote is X works the factory or FOB the port. Those are the common terms used. X works price means that’s the price for them to make the product and stack it up on pallets or in boxes at their factory. They’re not going to pay to transport it anywhere within their country or out. An FOB price is reverse to freight on board. That means that they’ve included in the price, they’ve quoted you transportation to the port.Set up good expectations from the beginning. Click To Tweet
If you’re having something made in the Shanghai area and it’s the Port of Shanghai or you’re having somewhere going to the port of Yantian, the port that’s closest to the factory, they will go and transport it there. They’re including that cost and so you don’t have to worry about it. It’s just an important thing to know. The reality is you are, in one way or another as the importer, going to be paying for the transportation of that product from the factory to your warehouse in the United States or in Amazon or wherever it may be regardless. It’s just a matter of understanding where that expense is paid. Is it a part of the product cost or is it not? Make sure you understand exactly what you’re getting into from the get-go and that there are no hidden costs.
Another Asian sourcing pitfall has to do with testing. If you have a product that is in a regulated industry where there are any industry standards you need to make sure are met, you have to make sure that the factory is capable of doing proper testing either before or even during the manufacturing process. Are they helping to source a test report from a test lab in China, if that’s needed? Furniture items have to be tested. Juvenile product items often have to be tested.
Any industry has a regulation of some kind that has to be tested. There are third-party independent test labs that are in every country around the world who can test the product. This is especially important when you’ve tooled for a product, you’ve made an injection mold for something and this probably has to go through some testing. You can’t ignore this step. If you do, you’ll have no way of verifying that that injection mold was properly made. We’ve experienced this a lot with products.
I used an example in the past Office Hour of an injection molded base for an office-type chair. When you make a tool, the engineers, even the designers like me and the tooling people make that tool to what they believe are the right dimensions in order to perform for the customer and pass testing, but it’s not a certainty. That part always needs to be tested and when it’s tested, sometimes it’s done at the factory. Sometimes even if a tooling company is also going to mold, it would have testing equipment there or certainly a third-party test. When we had a sample shop in China for one of our clients, we helped them set up and they were doing so many of these types of chair-based products that we recommend they purchase the piece of testing equipment and get it into that sample shop so that they can test parts right there and not have to go to the expense of sending it out to a test lab all the time. That worked very well for them.The “Hopefully it will pass” mentality can end up being a re-call later. Click To Tweet
The point is you test the products and if that part doesn’t pass testing the first time, then the tooling manufacturer make some changes to the tool so that there’s a little more material in certain areas so that it’s stronger and then can pass testing. You can have this back and forth happen in the early stages to make sure that the part meets the requirements and passes the test. You cannot leave that to chance and say, “They’ve done a pretty good job, they have gotten close enough and hopefully it will pass.” “Hopefully it will pass” can end up being a recall later.
Having A Representative
This is a big pitfall. A reason why you may want to have your own representative acting on your behalf on the ground at the factory level, at least while the product is being manufactured, is to inspect the incoming material. A lot of times your quote and the price you’re paying is based on a certain quality of material being used. Let’s say you’re molding something in plastic and you need to use material that has no recycled content in it. Usually, that would be a specially colored part or a part that needs a certain strength.
When you use material that has a certain percentage of recycled plastic in it, the strength properties can be less than something that has 100% what they call virgin material or new plastic material. It is always going to be stronger. In some cases, it’s perfectly acceptable to have a high percentage of recycled content in a part, especially if the color of that part is black, then you can do that. If it’s more of a structural part that’s black, you can do that.
We made a lot of structural plastic parts out of nylon and with nylon, that’s a very friendly material for a lot of recycled content. You want to make sure if you’ve paid for a virgin material, you’re getting a virgin material that your parts are made of and not getting a recycled material. How do you know? There are ways to track the incoming material from a supplier. You can have your factory show you the documentation that they’ve made the purchases from the right sub-supplier and they purchased the right material. Just like you can have a quality control person inspecting your product that is on the assembly line very late in the process of manufacturing, you can also have someone there to inspect the incoming material, to verify the paperwork, to see where it’s come from, to show that this is the right material and it’s what you’ve actually paid for, and make sure that the factory has not cut corners.
We have seen factories cut corners on critical parts and try to save a few pennies here and there to make themselves more money and not disclose that. Then, we’ve seen those same clients have problems with durability and defective parts after the products arrive in the United States. It causes a lot of problems. It certainly creates, at minimum, a very big customer service situation to deal with. At worst case scenario, it can cause a problem that could result in a recall and that’s the last thing you ever want. Incoming material is another area.
A lot of you usually don’t get involved in that level of business of sourcing products. You leave that all up to the factory. Maybe that has worked most of the time and maybe most of the time it would, but the more you do this and the more factories you end up buying from, the more you learn. If you want to make sure you’re going to be able to deliver what you plan to deliver, that you’re going to have enough product to sell, that your customer’s going to have that good experience and they come back and buy more from you, you want to make sure you look into these things. You don’t fall into one of these potential pitfalls with Asian sourcing.
When To Buy From A Trading Company
Going back to a subject about what conditions might be acceptable to have a trading company that you buy from, it’s happening less and less lately. The value of trading companies has become less and less over the years that we’ve been doing business in China, which I can’t believe is almost twenty years now, but it is. It used to be that a lot of factories, especially in China, did not have the right or the ability according to the Chinese government to be a factory you can export directly from. They weren’t allowed to do that. It’s a licensing and regulatory thing and other factories did have the license and ability to do that. If you were dealing with a lot of suppliers or even a single supplier that didn’t have the authority, the right to sell you a product and export it directly from China, they would have to transfer it to another company, one of these trading companies, or even another factory then they would have the ability to sell it to you.
That’s one reason you might have encountered that although it’s happening less and less. As it used to be in the ‘90s and early 2000s, a lot more factories didn’t have the right. As time goes on, most factories have the ability to export but you might come across that. Another thing is if you are combining different products in a box that are manufactured at different factories or maybe you’ve split the manufacturing up of your product, if you have a highly technical or a proprietary product, then you don’t want anyone factory over there to have everything and to know everything about your product. That might be a good case for having a component made at factory A, a component made in factory B or maybe even factory C, and all of them deliver them to this different company who’s a trading company and maybe just a packing company.
Maybe all they have is a packing line and they are buying corrugated cardboard boxes that are printed with your stuff. Maybe they have the packing materials and are just packaging it all up with the instructions, shrink wrapping it, packing into master cartons, or putting them on a container for you. If your reason is strategic for intellectual property or it’s one of logistics where you want to combine all the products into the box in China and not wait until they get to the US, then there may be a reason to either use a trading company perhaps. We have some clients who are doing that.
However, the reality is if you take the factory that’s maybe the most convenient location to the port or maybe it’s a factory, if you’re bundling things together who are making the bigger and more expensive or heavier component that goes into your box, you may very want to have the other one or two factories that were making other components ship their products to that factory and that factory packages them all. Most factories are willing to do that and they’re very happy to do that. They’ll charge you a little bit of labor, but that’s the cheapest thing they have over there and QC doesn’t cost very much. While I am absolutely an advocate for working directly with the factory and knowing exactly who you’re doing business with, what their capabilities are and are not, sometimes it does make sense to work with a trading company or some third-party company that is going to help provide logistics for you in terms of bundling.If you want something done right, do it yourself. Click To Tweet
Those are a few Asian pitfalls. One question here that was written in that I want to address is, “Why not just source something in the United States?” Certainly, that’s an option and everything we do is not done in Asia or in China. We have sourced some products here in the United States for our customers. If a product does not have a lot of labor involved in making it, then you may very well find that sourcing it in the United States is beneficial to you financially and from a logistics perspective because you don’t have to wait for a couple or three weeks while it’s transporting over the water to the US or the western US anyway, from Asia. If you’re going to the eastern US, it can take four weeks or plus before you get it in your warehouse.
There’s a lot of time involved there and certainly, there is a cost in ocean freight or air freight shipping of products from Asia. If you can do it in the US, I am all for that. I have no problem with that. It’s just that we still today, even though there’s been a resurgence of American manufacturing to a degree and new technologies like additive manufacturing, 3D printing makes a lot of things possible that you don’t have to tool for things where you used to. We continue to price out products for ourselves and for clients domestically and in Asia. We find that in reality, the economics, even with additional tariffs that are being considered or are already in place, that oftentimes it is still much less expensive to source something in Asia than it is in the US.
There are exceptions to that. It could be very low labor products, products that are made of a single part or a piece of material that doesn’t have an assembly that’s needed, are more likely to be able to be made in the US. We’ve talked about tooling in the past Office Hour, the cost of making tools, whether it comes to the actual product itself or any tooling charges, whether those are stamping dyes or injection molds or any number of different things, very often we find that just the cost of the tooling is so much less expensive in China. It lowers the barrier of entry to make your own product or whether it’s a me-product or as Tracy likes to say, sometimes it needs special product if it’s not completely new. Even the cost of tooling in China is so much less expensive that there are very few products that price out and make sense to do in the US but there are some.
If the economics are there, the logistics are much easier done in the United States. However, adding to my answer to this question, that these issues of factories producing the right quality, bringing in the right material, doing things the way they’re supposed to, setting up those quality expectations and needing to inspect that quality before it leaves the factory, none of those things change just because you’re making it in the US. It would be a mistake for any of you to assume that just because the company is in the United States they’re trustworthy and are going to do what they say they’re going to do and that they’re going to produce what you expect them to produce. All the same, things still apply in terms of accurate communication of information, specifications and quality control.
It doesn’t matter to me if it comes from a Chinese factory or a US factory. If you don’t get what you expect, then it was on you to either not have specified it properly or to have put a system in place to confirm they actually made what they said they’re going to make before it leaves their factory. You have the ability to control it. I’m a huge advocate of taking control of your own destiny and not leaving things up to chance or another people’s hands because that old adage is true. If you want something done right, do it yourself. That doesn’t mean you have to do everything personally, but at least maybe your employee, your staff, your team, or some other you trust and believe in is charged with specifying exactly what it is you’re going to get and verifying that you’re going to get it before it ends up shipped to you because then, you’ll have a bigger headache to deal with and more expenses getting it fixed.
All those things still apply. I love manufacturing things in the US. When my career started very early on, I was designing and developing products that were manufactured in the US. The reality is a lot of those factories are not there anymore. For certain types of products, most of the manufacturing has moved offshore to one country or another. There’s not as much manufacturing here. 3D printing is bringing that back. I’m very excited. I’m bullish on the future of American manufacturing and believe me, I will do it here as much as I can as it makes sense. The reality is there are lots of processes, especially plating, finishing, things like that that are more toxic and are more expensive in the US. Honestly, a lot of factories don’t do that kind of work and don’t want to do it here in the US.
You could not find a lot of the products maybe 50 years ago that might have been made in the US at all. There are no factories that want to do it. I’m also not very bullish on, “You’ve got to buy American or you’ve got to manufacture it here just because.” If I can buy something in the US, I absolutely will. I very much admire Tesla Automobiles and I’d like to buy one myself. I don’t own one but I hope to someday. I’m all for it. This is about what makes sense for your business and the context of the economics of your business and the logistics of your procurement, fulfillment, meeting your customers’ needs, and what makes the most sense. Most often it still involves manufacturing outside of the US or in a lot of cases anyway.
I hope that’s helpful for some pitfalls here in Asian Sourcing. If you have any questions, please write them in. Go to ProductLaunchHazzards.com and submit a question or reach out to us on social media. I’ll be happy to address questions in the future Office Hour or in another episode of this podcast or Product Launch Hazzard. Thanks very much. I hope you enjoyed this.