Housekeeping notes from show management Introduction to speaker Managing expectations

What new buyers need to know Mike BellamyCSIC & PassageMaker

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 Serviced

Our clients are direct suppliers to

the following retailers and corporations:

www.PSSchina.com


Intro to the CSIC

» China Sourcer e-Magazine» Video Tutorials» Ask-the-Experts Service» Buyer Blogs» White Papers» Endorsed Service Providers NEW: Supplier Blacklist

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:


No need to spend a lot of time on cultural differences Your cultural understanding is not a pre-requisite for success

Very forgiving of cultural mistakesSo many examples

…But there are a few things to be aware of


• Culture• Communication

– time and language, spoken vs. written

• Travel• Due diligence• Contracts / PO’s• Quality• Product design (Harley

example)• Order quantities

Sourcing expectations: Domestic vs. international

sourcing


• Lead times – custom production = 30 + 30 +30

• Packaging– 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

• Sampling – if not off shelf, may not be easy or

free… short term thinking… relative value


sourcing


• Payment• Shipping/logistics• Duties/tariffs• Customs clearance• Returns (build it into contract,

order extra…)• Servicing• IP protection


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 conformation


sourcing


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 week.


Types of suppliers (vs. a “vendor”)

Pros & cons• “Chinese Chinese” factory• “FIE” Chinese factory• WOFE• JV (CJV, EJV, Fabricated JV)• SOE


Excerpts from White Paper “Avoiding Middlemen – what most China sourcing agents, trading companies and brokers don’t want you to know!”

Testing a theorytrade show in Mainland China stood in the main hallcomplex productsaid 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)

1. Costs2. Quality3. Plan for IP4. Project Management5. Communications

“Check list of Red Flags” available via emailExample #1: Two Faced Cards

Example #2: Bait n SwitchAsk for copy of license


China QC Overview Why are China Quality issues always in the news?

Recent and Rapid growth of Production Base

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 equipment2. 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 semi-finished goods (IPQC) into finished goods ready and packaged for shipment (FQC).

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 somebodyMajor= ability to sell the product is compromisedMinor= 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 non-confirming products.


The QC toolboxFREE Tools1. Do they have a Quality Manual?

“PQM” template available at www.PSSchina.com

2. Ask for references

INEXPENSIVE Tools

1. Factory Audit Few 100 USD if using a 3rd party specialist like www.AsiaQualityFocus.com

2. Consider verification & investigation by specialist like www.CBIconsulting.com.cn

http://www.psschina.com/



1. Shipping department at factory declares cargo ready

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


8. Arrival at destination port / airport 9. Customs clearance 10. Local trucking company to pick up cargo at port /

airport 11. 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 daysFast and Slow Sea 15-30

daysIntermodal

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 RiskFinancial due diligence (www.CBIconsulting.com.cn)

Site visits (confirm vendor is a real manufacturer)

State lead times & penalties in contract

Jurisdiction


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


www.ChinaSourcingInfo.org/book

Shameless Book Plug

Includes templates for PO, Supplier Contract, Factory Audits, QC guidelines, RFQ and more

$150 USD online or $100 Cash at booth at trade show while supplies last

http://www.chinasourcinginfo.org/book




Corporate Sponsors


If take away just two things…

Spend the time to find the right partners for both manufacturing and service providers

Inspection linked to a Payment Plan

PassageMakerEmail: [email protected] Company: www.PSSchina.com

China Sourcing Information Centerwww.ChinaSourcingInfo.org

Blog: www.AnotherChinaBlog.com

LinkedIn “Mike Bellamy China”

Booth # 3G01

mailto:[email protected]

http://www.psschina.com/

http://www.chinasourcinginfo.org/

Documents

Housekeeping notes from show management Introduction to speaker Managing expectations