As someone who has worked in offshore manufacturing for many years, I often get asked a lot of similar questions from clients. They usually take the following shape;
· “How do I know if a particular factory is good?”
· “How do I know if a factory can make my product?”
· “How do I know if a factory can achieve my required quality level?”
· “How do I know if a factory is actually a factory and not a trading company or agent pretending to be a factory?”
All of these questions, and more, can be addressed with proper factory verification, or evaluation.
The next question, that comes up, is rather obvious. How do you verify a factory?
There are a number of methods, that can be used individually or in combination.
Third Party Factory Inspections/Audits.
Many third-party inspection agencies, such as Intertek, Asia Inspection, and SGS, will audit a factory for a fee.
This fee depends on a number of factors, which are beyond the scope of this post, but a general report will consist of a number of sections, such as a general overview with a score, a factory profile, workflow and organisation, production lines and their capacity, factory facilities and machinery, amongst others.
There are usually optional things the auditor can check, such as social compliance, R&D, etc.
They will then have a general overview and photos. Specific areas of concern will be noted, as well as recommendations.
Bear in mind that these reports can run into 30 or 40 pages, so I have only covered the tip of the iceberg.
For more detail, you can check Asia Inspections Website, Asia inspection Factory Audit
This method has obvious advantages, such as experienced and certified inspectors, and objectivity.
The major drawbacks are twofold. Firstly, if you want to inspect multiple factories, it can get really expensive. Secondly, an audit is simply a snapshot in time. Things might change tomorrow. A factory might have “borrowed” a machine from a friend’s factory, just to pass the audit.
The most well-known site for sourcing factories in China, is Alibaba.com. They even have audited Gold Suppliers. This might seem as a one stop shop, but there are also major disadvantages.
Firstly, the coveted Gold Supplier status is purchased. I have been offered it on numerous occasions, and I am not a supplier. They also offer third party inspection services, and trade assurance. However, it is my personal opinion that these are slightly biased in favour of sellers, as Alibaba’s fees from sellers are their bread and butter.
Also keep in mind that these third parties are within Alibaba’s networks, so there is also a vested interest for them to be biased towards Alibaba.
With some experience, and a bit of common sense, you can self-verify your factory. It will not be as in depth as an audit from a third-party inspection agency, but when you are dealing with multiple factories, the cost of the above-mentioned audits, can be ridiculously high, and usually unaffordable, especially to those new to doing business in China, or any country for that matter.
I often work for start-up clients, who have small orders, and a limited budget. For each client I often need to get quotes from multiple factories, or at least reach out to multiple factories, to see if they will take on my clients work.
The next question would be how to self-verify.
I usually begin with a company introduction, which gives my clients non-negotiable business terms, quality requirements, expected lead times, sampling requirements, etc, as well as my own factory evaluation form the factory needs to fill in.
These two documents are important for a number of reasons.
· If a factory cannot meet your basic business terms, there is no use wasting time discussing anything further. Rather find out that a factory does not accept letter of credit payments at the beginning. Many new buyers will spend hours and hours with a factory, possibly even visit, and when it comes time to place the order, the factory will state they cannot accept one or another of the buyer’s terms. If you find this out at the beginning. It will save you money and time.
· The factory evaluation form is obviously not as detailed as a proper audit, but it asks for basic documents, a list of machinery, number of workers, number of production lines, QC department details, sample department details, photos of the factory (internally and externally), whether the factory has the right to export or must export through a trading company, etc. It will tell me if the factory can meet my client’s needs.
· These two documents require input from the factory, and will give insight into their ability to follow simple instructions, how long it takes them to respond, and to see if they ask the “right” questions. I am not only interested if a factory can make a product. I am also interested to see if they are going to be difficult or easy to manage. If a factory does not confirm they have received my mail, this is a problem, as I will have to follow up. If they say they will return the evaluation form on a specific date, and do not, this is a problem. Especially if they do not inform me of this. Again, I will need to follow up with them.
· They will let you know if the factory has competent English-speaking staff. Whether you like it or not, English is the international business language.
To put it simply. If a supplier cannot read a document properly, fill in a document properly, follow basic instructions, and miss one simple deadline, they are going to be a problem. Period.
With self-verification, you should still visit the factory prior to doing business. I always raise the importance of this. To be cost effective, set up a trip to see the maximum number of potential suppliers. Take the factory evaluation form and photos to each factory. On many occasions I have been taken to a factory different to the one I have information on. This usually occurs when a trading company or agent, try to pass themselves off as a direct factory. Do not be afraid to ask questions. Often on a factory tour, there will be people other than your contact accompanying you. Ask who they are.
I hope this article gives you some insight into how to verify a factory. Remember, you can never fully eliminate risk. Your goal should always be to reduce any risk as much as possible. Supplier verification goes a long way towards this goal.
Good luck with your China sourcing.