The Seven Keys to Product Quality When Manufacturing Overseas

international manufacturing lawyers

A client sent one of my law firm’s international manufacturing lawyers an article and asked if it was accurate.  It is and I discuss it below because it should prove helpful to anyone that has its products manufactured overseas, especially in Asia. The article is entitled, “Seven Keys to Quality when Working with Foreign Product Suppliers” [link no longer exists] and it sets forth the following:

1. Good Manufacturer. Choose the right manufacturer. Good manufacturers make good products. Bad manufacturers do not. Do your due diligence.

2.  Detailed Documents.  
“The number one key to quality when working with factories in a foreign country is to have the right documentation. Having bilingual, detailed, factory agreed upon checklists in place that document an item’s specifications and the criteria for inspecting the product before shipment is essential to controlling product quality. One cannot say for sure, but I would be willing to bet that the factories responsible for products recently recalled for lead paint did not have bilingual documentation on hand from their customer stating the type of paints that could and could not be used. Sure, this type of documentation takes time and hard work to create, but putting such processes in place is the first and most important step in avoiding quality issues. QC Checklists should describe in detail the following:

  • Item Packaging
  • Item Defect Classification (what is considered an defect and at what severity)
  • Item Size and Other Specifications
  • Item Functionality and How it is Checked”

3. Factory Presence.  Having a presence at your overseas factory helps ensure that both factory staff and management really know who you are. Either through a 3rd party QC company or your own staff, ensure that you are being represented at the factory in person on a regular basis and that your factory clearly connects your presence there with your production.

4. Inspection.  
Perform regular product inspections (either with your staff or a via third party), not only on the final product shipment, but also during production (otherwise knows as DUPRO). Ensure these inspections are consistent and based on clear inspection criteria. Always review the inspection results with factory management and their own QC team.

5. Approved Samples.  
Some say that a picture is worth a thousand words. I say that a sample is worth a thousand headaches! Items often get revised and modified several times in the sourcing process, and then again after production begins. Keeping an approved sample in your office, and also one in the factory that can be used to verify the production product by the QC team, is essential in seeing eye to eye with your foreign suppliers.

6. Responsibility.  
Nothing will alienate your foreign suppliers more than a mistake on your side for which you take no responsibility, and blame their misunderstanding. I’ve seen hard-headed buyers make this mistake more than once, to the demise of their hard earned factory relationships. So, make sure you have all the facts before you start to blame. Recognize when it’s possible that a mistake or production issue may have been caused by your own fault, or your own team’s mis-communication. Take responsibility when this happens, even if it means a financial loss. If you are working with the factory on a long term basis, the credibility you will gain will outweigh what you have given up.

7. Manufacturing Contract.
Good contracts can all by themselves help maintain quality. Overseas manufacturers, like companies everywhere, do not like to get sued. A good contract incorporates your key quality requirements and sets up your foreign company supplier for liability if it fails to meet those requirements.

Our international manufacturing lawyers typically put a provision in our OEM agreements mandating that the foreign manufacturer cannot subcontract out the manufacturing. We have been doing this for years and, as far as we know, no manufacturer has ever violated this provision. Let’s say your foreign product manufacturer has 12 customers for whom it manufacturers product and only three of them have a no subcontracting provision. Your manufacturer gets really busy and has to subcontract out some of its manufacturing. It can subcontract out the product manufacturing of any of its 12 customers, so why would it choose to subcontract out the product for the three customers with a contract provision prohibiting subcontracting?  Your no-subcontract provision operates like a good bike lock. The thief can still steal the bike with a good bike lock, but why do so when there are so many easier targets out there?

What do you think?

16 responses to “The Seven Keys to Product Quality When Manufacturing Overseas”

  1. I agree with the bike lock theory. I remember discussing with a factory boss who reached his production capacity and wanted to start sub-contracting. He told me “I’ll subcontract in priority the production for my least important customers; and of course I won’t do it for the customers whose contract forbids any sub-contracting”.
    But I would say, it is only applied if the buyer strongly emphasizes this requirement. Many suppliers don’t read contracts, even in Chinese.

  2. Dan.
    A few other operational/ procedural items I would add are:
    1)Take the time to establish the right partners and processes – Don’t come to China with a list of 3 suppliers that were found off Alibaba, and don’t work on a time line. Get it right from the start, and if need be, take a short term hit and continue producing in the US/ EU until the China platform is ready.
    Should things fail, it will cost a lot more than a few months of the existing process.
    2) Conduct continuous product quality and risk assessments – know what can go wrong, work out the margins for error, be a step ahead.
    3) Develop a platform that has a diversified supplier base, and one that is transparent to you – there is no easier way to get in trouble than to let a single supplier source everything in the blind. Either source the raw materials in-house and send to an assembler, or work with the assembler to identify subcontractors.
    4) Always have final inspection done AT THE FACTORY – the worst position a buyer can be in is when the goods arrive at the US dock, 21 days after the final payment was made, and it is not to order. Inspecting ON SITE makes returns/ adjustments easier, and as many payment terms are for the largest balance of the money at delivery, the buyers are still in a good position to negotiate.
    5) Always carry a safety stock (if possible) – If you have a supplier on a JIT delivery system, and they know you have no safety stock, then pricing negotiations will have a wholly different tone than if the supplier knows you have a a one to two month safety stock and are out shopping around.
    6) Never under any circumstances thing that if a supplier is cutting corners add to the portfolio. A lot of people think that by giving more business things will improve, and I have yet to see that come true. It only increases the likelihood that your supplier will become your competitor, and that if there are problems in quality, it is only going to be more difficult to find another supplier who can take the business.
    R

  3. Hi again Dan,
    Nice going — SIX SIGMA!
    Since you’ve coined the term “bike lock” theory, do you have any informal/formal stats detailing that the Chinese manufacturer *wouldn’t* go after the 4 (of the 30 from your example) with whom it has an ironclad — and in Chinese — contract?
    I mean, I want to believe that the relationships develop logically, but aren’t there other factors which come into play — esp. for foreign clients — that are borne out by the stats?
    –ADM

  4. I agree with the bike lock theory. I remember discussing with a factory boss who reached his production capacity and wanted to start sub-contracting. He told me “I’ll subcontract in priority the production for my least important customers; and of course I won’t do it for the customers whose contract forbids any sub-contracting”.
    But I would say, it is only applied if the buyer strongly emphasizes this requirement. Many suppliers don’t read contracts, even in Chinese.

  5. I say I never lost a bike with two locks, even though some of them looked really good.
    Never done any manufacturing, though, so that may be a different story.

  6. Dan.
    A few other operational/ procedural items I would add are:
    1)Take the time to establish the right partners and processes – Don’t come to China with a list of 3 suppliers that were found off Alibaba, and don’t work on a time line. Get it right from the start, and if need be, take a short term hit and continue producing in the US/ EU until the China platform is ready.
    Should things fail, it will cost a lot more than a few months of the existing process.
    2) Conduct continuous product quality and risk assessments – know what can go wrong, work out the margins for error, be a step ahead.
    3) Develop a platform that has a diversified supplier base, and one that is transparent to you – there is no easier way to get in trouble than to let a single supplier source everything in the blind. Either source the raw materials in-house and send to an assembler, or work with the assembler to identify subcontractors.
    4) Always have final inspection done AT THE FACTORY – the worst position a buyer can be in is when the goods arrive at the US dock, 21 days after the final payment was made, and it is not to order. Inspecting ON SITE makes returns/ adjustments easier, and as many payment terms are for the largest balance of the money at delivery, the buyers are still in a good position to negotiate.
    5) Always carry a safety stock (if possible) – If you have a supplier on a JIT delivery system, and they know you have no safety stock, then pricing negotiations will have a wholly different tone than if the supplier knows you have a a one to two month safety stock and are out shopping around.
    6) Never under any circumstances thing that if a supplier is cutting corners add to the portfolio. A lot of people think that by giving more business things will improve, and I have yet to see that come true. It only increases the likelihood that your supplier will become your competitor, and that if there are problems in quality, it is only going to be more difficult to find another supplier who can take the business.
    R

  7. Hi again Dan,
    Nice going — SIX SIGMA!
    Since you’ve coined the term “bike lock” theory, do you have any informal/formal stats detailing that the Chinese manufacturer *wouldn’t* go after the 4 (of the 30 from your example) with whom it has an ironclad — and in Chinese — contract?
    I mean, I want to believe that the relationships develop logically, but aren’t there other factors which come into play — esp. for foreign clients — that are borne out by the stats?
    –ADM

  8. I say I never lost a bike with two locks, even though some of them looked really good.
    Never done any manufacturing, though, so that may be a different story.

  9. Nice Post Dan. Like the bike lock theory. My theory on bike theft (which i apply daily to the love of my life 14″ SPX Fold-up) is “if you can see it, it’s not stolen”. Yup, i never let it out of my site. This applies well to manufacturing overseas and goes back to having a “presence” in the factory.

  10. Nice Post Dan. Like the bike lock theory. My theory on bike theft (which i apply daily to the love of my life 14″ SPX Fold-up) is “if you can see it, it’s not stolen”. Yup, i never let it out of my site. This applies well to manufacturing overseas and goes back to having a “presence” in the factory.

  11. Great post and I agree with AllRoads–sourcing the right partner in the first place will make the following steps both achievable and effective. We visit all suppliers that we source for our clients to inspect the facilities, including incoming materials, engineering and testing facilities, inventory, the production line, QC areas, and worker conditions. It’s also key to meet management and key personnel involved. What is their QC staff like? Do they offer engineering support and how good is it? What other product lines do they produce? Etc.

  12. Great post and I agree with AllRoads–sourcing the right partner in the first place will make the following steps both achievable and effective. We visit all suppliers that we source for our clients to inspect the facilities, including incoming materials, engineering and testing facilities, inventory, the production line, QC areas, and worker conditions. It’s also key to meet management and key personnel involved. What is their QC staff like? Do they offer engineering support and how good is it? What other product lines do they produce? Etc.

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