IMPORTING ODM & OEM PRODUCTS FROM CHIN

1/ Create Product Specification

Introduction

The product specification is a document that defines the design, materials, dimensions, components, logos, prints, packaging and technical standards relevant for your product. Manufacturers use this document to understand exactly what they need to produce.

Objectives

+ Create design files

+ Create logo/label files

+ Fill out Product Specification

+ Confirm applicable product regulations and standards

Task Overview 

1.1 Create Product Specification

Overview of relevant product specifications, including bill of materials (BoM), design files, logo files and more. 

1.2 Research Product Regulations

Introduction to the basics of product safety standards, labeling requirements, certification and more. Additional information is found in Product Safety.

1.3 Create Label Files

Create a logo, label, print and artwork files, or use a design freelancer for assistance.

1.4 Create Design Files

Create design drawings and technical drawings or use a freelancer for assistance.

1.1 How to Create Product Specification properly ?

Regardless of whether you intend to import a custom-designed (OEM) or private label (ODM) product, you need to define your product design and quality. 

a. Product Specification Overview

Materials

Bill of Materials (BoM)

All components must be listed in the Bill of Materials, on a per-unit basis:

  • Component A, 1 pc
  • Component B, 2 pcs
  • Component C, 5 pcs

The following must be specified for each component:

  • Materials
  • Design type: Custom design (OEM) / Factory standard design (ODM)
  • Colors / Plating
  • Dimensions
  • Technical standards (i.e., ASTM or EN Standards)
  • Labels / Print

Design Files

You must provide design files for all custom designed parts. However, you can also base your product on a combination of custom design (OEM) and factory standard (ODM) parts.

Reference Samples

A reference sample can be used to demonstrate product design, material quality or as a color reference. However, a reference sample is only a complement to your product specification, and not a replacement. 

b. Material Guides

It’s crucial that you understand the basics of materials and customization options, relevant to your product – before you engage with suppliers. Read the following attachments to better understand material and component selection options.

  • Material Guide: Metals (LINK)
  • Material Guide: Leather (LINK)
  • Material Guide: Plastics (LINK)
  • Material Guide: Textiles (LINK)
  • Material Guide: Electronics (LINK)

c. Additional Sources

If you have limited experience with your product, you may review product descriptions found on the following websites, to identify relevant product specifications and quality options:

  • amazon.com (Link)
  • alibaba.com (Link)
  • globalsources.com (Link)

 

1.2 Research Product Regulations

As an importer, you are responsible for ensuring compliance with all product regulations that apply to your product.

Failing to ensure compliance with all applicable regulations is a legal offense, may result in heavy fines, forced recalls or even criminal charges.

Before you contact suppliers (in Part 2), you must, therefore, confirm all applicable regulations.

What is a product regulation?

Product regulations cover one or more of the following:

  • Safety standards
  • Substance restrictions
  • Labeling requirements
  • Document requirements
  • Lab testing requirements

As such, ensuring compliance may be as simple as creating a ‘Made in China’ label file, or require a more complicated procedure that involves creating documentation, lab testing and reporting to the authorities.

Why do I need to ensure compliance?

Importing non-compliant products is a legal offense and can result in a forced recall, major fines or even criminal charges. 

If you import non-compliant products from Asia, you will be held legally responsible by the authorities in your target market, while you will not receive any assistance from your supplier.

Keep in mind that it is not the supplier’s responsibility to ensure compliance, despite the fact that they manufacture the product.

 

1.3 Create Label Files

Label files includes the following:

  • Logos
  • Prints
  • Engravings
  • Artwork
  • Patterns
  • Compliance marks (i.e., CE mark)
  • EAN Codes / Bar codes
  • Manuals / User Guides

Label files must be provided ‘ready made’ to the suppliers. A label file shall include the following data:

  • Text / Graphics
  • Dimensions
  • Color
  • Print / label position
  • Font file

File formats

Most suppliers use the following vector file formats for print or label files:

  • .eps
  • .ai

Need help finding a logo or artwork designer?

If you or your team lack the expertise to create label files, you can find professional design and artwork professionals on the following freelancer platforms:

Brand Protection

We recommend that you apply to register a trademark for your brand name (text) and logo (graphics) at this stage. At a minimum, you should register a trademark in your home country and other target markets (if any). In addition, we also recommend that you register your brand name in the manufacturing country. 

Recommended Service Provider: iGERENT

Non-Disclosure Agreements (NDA)

An NDA is not a replacement or substitute for a trademark or patent. While suppliers are often willing to sign NDA’s, it’s difficult and expensive to enforce in court. Further, an NDA is not offering any protection in case a third party (related or unrelated to your supplier) attempts to use your brand name and/or product design.

 

1.4 Create Design Files

You need to communicate product design and measurements. What matters is that your supplier can correctly understand your drawing, and thereby manufacture your product accordingly.

Design Drawings

A Design drawing must show the product and/or its components from all relevant angles, with specified dimensions in millimeters (mm).

File Formats
  • PDF
Standards (Optional)
  • ANSI (USA)
  • ISO (International)

Photocopies

For simpler products and components, you may submit photocopies of the product, rather than design drawings. However, a design drawing is often more precise and easier for the supplier to correctly interpret.

File Formats

  • PDF
  • .jpg
  • .png

CAD (3D) Files

Complex products and components can, in some cases, only be correctly presented using CAD software.

File Formats

  • dwg (AutoCAD)
  • stl (3D Systems)

 Notice: You are advised to provide 2D design drawings showing the product from different angles, as a complement to the CAD file/s. Further, before you send the files to your supplier, confirm which formats they accept for each design file.

Need help finding a product designer?

If you or your team lack the expertise to create design files, you can find professional design and artwork professionals on the following freelancer platforms:

Patents & Design Protection

A Patent can protect the design and/or function (utility) of your product in the registration country. Compared to trademark registration, the application process is more expensive and time-consuming. If your product or artwork is truly new and unique, we recommend you to file for a design patent before sharing files with suppliers.

  1. Design Patent/Design Protection

A design patent ensures that you have the exclusive right to certain design elements. It is a type of design right and prohibits companies from selling products with the same design. However, a design patent is only granted if your product design is truly new and unique.

  1. Utility Patent

Legal protection for a new invention or new improvement of an existing function.

Other companies must pay a license fee and obtain approval from the patent holder to sell the same or a similar product. However, a utility patent is only granted if your product functionality is truly new and unique.

Non-Disclosure Agreements (NDA)

An NDA is not a replacement or substitute for a trademark or patent. While suppliers are often willing to sign NDA’s, it’s difficult to expensive to enforce in court.

Further, an NDA is not offering any protection in case a third party (related or unrelated to your supplier) attempts to use your brand name and/or product design.

 

2. Supplier Research

 

2.0 Introduction

This part covers the process of creating a supplier shortlist using online resources, gathering prices and finally selecting one or more suppliers that will later produce pre-production product samples.

Objectives

+ Create a supplier shortlist

+ Contact suppliers to confirm price and other data

+ Select one or more suppliers

Task Overview

– How to create a supplier shortlist using relevant company data and other information on Alibaba.com or Globalsources.com.

– How to contact suppliers and request price quotations, MOQ, sample/tooling cost, and other relevant information.

– How to select a supplier based on pricing, MOQ, and other relevant information.

 

2.1 Supplier Sourcing 

Alibaba.com and Globalsources.com (from now on referred to as Supplier directories) are the most comprehensive supplier data banks available on the internet.

The Supplier directories contain critical information about the suppliers, that you can use to create a shortlist. 

a. Why do I need a supplier list?

In each industry, you can find hundreds of suppliers. It is impossible to contact them all.

Hence, you need to reduce the number that you actively engage with to something more manageable.

We advise you to identify at least 10 to 15 suppliers for the shortlist.

b. How many suppliers should I review?

As many as possible. The actual number depends on how many suppliers there are in a given industry.

You are advised to review at least 50 to 70 suppliers, from which you select 10 to 15 suppliers – based on the factors described below.

c. How shall I select suppliers for the shortlist?

You shall not randomly pick suppliers for your shortlist. Instead, you need to review the suppliers based on the data that is available in the Supplier directory. Below follows an overview:

Company Overview

  1. Company Name:Virtually all company names in China includes a location identifier. Companies with province names are larger, and better capitalized, than those with city names. As such, a province-based company name is, therefore, one such factor. Below follows an example:

– Shenzhen Company Co., Limited (Smaller)

– Guangdong Company Co., Limited (Larger)

  1. Product Scope:This lists the suppliers ‘main products’. For clear reasons, you want your product to be mentioned here. Suppliers listing a very diverse range of products are mostly buying agents or trading companies, as manufacturers have far more narrow product scopes.
  2. Product Compliance:Do they mention safety standards or product regulations in their company profile and/or product pages? If yes, they are more likely to be able to manufacture compliant products (as compared to those who have no mention of product regulations)
  3. Quality Management System & CSR / Social Compliance:Does the supplier claim to be ISO 9001, BSCI or Sedex certified? If yes, they are more likely to be a ‘quality supplier’.
Notice: The suppliers are free to edit their Company introduction as they wish. This information may not be verified by the supplier directory

Uploaded Documents

Some suppliers upload documents that you can use to assess if the supplier should be shortlisted. Such documents include the following:

  • Product test reports
  • Product certificates
  • Factory audits
  • Production line audits
  • Quality management certificates
  • CSR / Social compliance audits

Verified Company Information

  1. Registered Capital:The Registered Capital indicates the supplier’s scale of operations. A supplier with a very low capital (i.e., RMB 100,000) is most likely a trading company, while a supplier with, say, RMB 20,000,000, is likely a manufacturer.
  2. Year of Registration: Albeit not the most important criteria, a supplier’s history has some significance.
  3. Registered Address:The suppliers, registered, operational address. However, these often tend to be outdated.

d. Supplier Check Tool: Shortlist Assessment (Link)

To help you assess whether a supplier is qualified enough to be added to your supplier shortlist. The supplier assessment is based on the following factors (all of which can be found online, see points e. and f. below):

  • Registered Capital (RMB)
  • Year of Registration
  • Company Name
  • Product Scope
  • Product Compliance
  • Quality Management System
  • Social Compliance / CSR

Based on the input above, the system will give each supplier one of the following ratings:

  • Excellent(Add to shortlist)
  • Qualified(Add to shortlist)
  • Average(Do not add to shortlist, if better supplier options are available)
  • Not Qualified(Do not add to shortlist)

After you have filled in and submitted the form, an automatically generated Supplier Check Report (PDF) will be generated and delivered by email.

e. How can I find supplier data on Alibaba.com?

General Information: Supplier page > Company Profile > Company Overview

Verified Company Information: Supplier page > Company Profile > Company Overview > TrustPass Profile

Contact Details: Supplier page > Contacts 

f. How can I find supplier data on Globalsources.com?

General Information: Supplier page > Company Information

Verified Company Information: Supplier page > Company Information > Verified Business Profile

Contact Details: Supplier page > Contact Us

  

2.2 Request For Quotation (RFQ)

At this stage you have shortlisted a number of suppliers and should now contact them to request the following information:

  • Unit price
  • MOQ requirement
  • Product sample cost

a. Contact suppliers and send product specifications

We advise you to follow this sequence when establishing contact with the supplier and requesting a quotation:

Step 1: Go to the contact page on the supplier Alibaba.com or Globalsources.com page

  • com: Supplier page >Contacts
  • com: Supplier page >Contact Us

Notes

  1. You may need to register on the website before you can contact the supplier.
  2. The contact pages can be found in the main menu on Alibaba.com and Globalsources.com.
  3. Don’t send Google Docs links to suppliers in Mainland China as Google is blocked.

Step 2: Use Email template 1 (below) to request a quotation.

Email Template 1: Request Quotation

Hello,

I am the Manager of COMPANY in COUNTRY.

Product info

  • Product: WRITE HERE
  • Quantity: XXX pcs
  • Market: COUNTRY
  • Product Safety Standard: WRITE HERE
  • File Attachment: RFQ docs

Please review the attached product specification files.

Send your quote and include these details:

  • FOB Unit Price (USD)
  • MOQ Requirement
  • Product Sample Cost
  • Production time
  • Payment terms
  • WeChat ID

Send your quotation within 3 days

Best Regards, Name, Title, Company

b. Communication tools

  1. WeChat: The largest chat application in China. Wechat is used by essentially everyone in the country and the best way to follow up on your suppliers. This is the application that gets the most attention from suppliers. Wechat can be downloaded for free from Google Play or the Apple App Store and is also available for desktop.

Recommendation: Use the WeChat App or Browser version for day to day communication, calls, and when requesting status updates.

  1. Contact Form: We recommend that you use the contact and messaging forms on Alibaba.com and Globalsources.com, instead of e-mail. That way you can ensure that all communication is kept in one place, and with the right company.

Recommendation: Use the Alibaba.com and/or Globalsources.com contact forms when requesting quotations or sending files.

  1. Email: Supplier sales representatives tend to use their personal email accounts, such as @163.com or @qq.com e-mail addresses. Further, many supplier sales representatives only check their email only a few times a week, so don’t expect fast replies. There are exceptions, but WeChat is a better tool for day to day communication.

Recommendation: Use e-mail when sending files and documents to your supplier

Internet Censorship in China

Many internet services are blocked by the Chinese internet firewall. Such services include the following:

a. Gmail

b. Google Drive

c. Microsoft OneDrive

c. Facebook

d. Whatsapp

c. Sending large files

You should only send large files via Alibaba.com, Globalsources.com or a file transfer service such as Wetransfer.com.

d. Office hours

Most employees in Asia work regular hours from 9 AM to 6 PM, Monday to Friday. You must also take the local time zone into consideration:

  • China: GMT+8
  • Vietnam: GMT+7
  • Thailand: GMT+7
  • India: GMT+5.30

You can send messages outside of regular office hours but should not call your suppliers.

e. RFQ follow-ups

  1. You must follow up with the supplier on a regular basis (i.e. every 2nd day) until you have received a quotation
  2. The supplier may, mistakenly or not, leave out certain information in their quotation (i.e. MOQ or product sample cost). Request an updated quotation that includes all requested information:
  • Unit price
  • MOQ
  • Product sample cost

f. RFQ response rate

Don’t be surprised if you receive responses from only 50% of the suppliers you contact. There are many reasons why a supplier is not able or willing to offer a quotation.

 

2.3 Select Suppliers

 

This tutorial explains how to select at least one supplier based on their overall qualifications and quotation. You can select either one or several suppliers for the product sample order.

Quotation Files
  1. The supplier should provide a quotation file (e.g. PDF or Excel) or present prices, MOQ and other relevant terms in writing (via email).
  2. Don’t expect more than 50% of the suppliers you contacted in 2.2 RFQ to either respond or present relevant quotations.

a. Quotation Review

  1. Pricing

The supplier must provide the following quotations in the quotation file:

  • Unit prices
  • MOQ requirement
  • Product sample cost

Note: Price and MOQ is not the only factor you should take into consideration when selecting suppliers. You should also factor in their overall company and compliance qualifications, such as test reports, BSCI and ISO 9001 certification.

Checklist 

  • Is the quoted price in line with other suppliers?
  • Is the price too high? (you may negotiate at this stage)
  • Is the price too low? (they may have misunderstood your specification)
  1. Specifications

The supplier should list the relevant product specifications in the quotation file. Otherwise, there is no indication that the quote is based on the correct design and materials.

  1. MOQ

The supplier shall specify the MOQ requirement in the RFQ file. Notice that you may negotiate the MOQ at this stage.

  1. Documentation

Did the supplier provide any of the following files?

  • Test Reports
  • CSR Audits: BSCI, Sedex (SMETA) or other
  • QMS Certificates: ISO 9001:2008, ISO 9001:2015, other

Notice: You may skip this step if the supplier has verifiable documents on their Alibaba.com or Globalsources.com page.

b. Document Verification

  1. Test Reports

Test reports are used to assess if a supplier is able to manufacture ‘compliant products’. Use this checklist to assess if the test report is relevant:

  • Held by:Shall match the supplier name
  • Product:Shall be valid for a relevant product or material
  • Standard / Regulation:Shall be valid for a relevant standard / regulation
  • Issued by:Shall be issued by an accredited testing company (see below)

Verification Process

  1. Find the issuing company on the test report
  2. Request a document verification via the website of the issuing company, and submit a digital copy of the test report
  3. The issuing company shall confirm the validity of the test report within 3 days

Notice: Disqualify the supplier immediately if they provided a fake test report (i.e., altered or complete fabrication).

Accredited Companies

  • QIMA
  • SGS
  • Intertek
  • Bureau Veritas
  • TUV
  1. Company Certificates (ISO 9001, BSCI, Sedex)

Company certificates can be used to assess if the supplier is qualified or not. Use this checklist to check if the submitted certificates are relevant:

  • Held by: Shall match the supplier name
  • Product scope: Shall be valid for relevant products or materials
  • Issued by: Shall be issued by an accredited company (see list above)
  • Valid until: The certificate shall not be expired

Verification Process

  1. Find the issuing company on the certificate
  2. Request a document verification via the website of the issuing company, and submit a digital copy of the test report
  3. The issuing company shall confirm the validity of the test report within 3 days

Note: Disqualify the supplier immediately if they provided a fake or altered company certificate. 

c. How many suppliers should we select?

To proceed to Part 3, you must select at least 1 supplier. However, you may let several suppliers (2 – 5) ‘compete’ during the sample production process.

Hence, you reduce the risk of halting the process, in case one supplier would fail to produce the sample according to your specifications.

  

2.4 Task List

 Task 1: Supplier Sourcing (2.1)

  1. List suppliers from Alibaba.com
  2. List suppliers from Globalsources.com

Task 2: Request for Quotation (2.2)

  1. Go to the contact page of the suppliers Alibaba.com or Globalsources.com page
  2. Use Email Template 1 to request a quotation and attach other relevant files
  3. Follow-up via email on a regular basis (+ 2 days)

Task 3: Select Suppliers (2.3)

a/ Review Supplier Quotation Files (i.e. PDF or Excel)

  • Unit price
  • MOQ
  • Product sample cost
  • Payment terms
  • Product specifications

b/Verify Documentation (if any):

  • Test reports
  • ISO 9001
  • Sedex / BSCI
  • Other documents

Notice: You may skip this step if the supplier has verifiable documents on their Alibaba.com or Globalsources.com page.

Select at least one supplier based on these factors:

  • Unit price
  • MOQ
  • Product sample cost
  • Payment terms
  • Product specifications
  • Compliance documents (e.g. test reports)
  • Company certificates (e.g. BSCI or ISO 9001)

COMPLETION REQUIREMENT

  1. Identify at least one qualified supplier

 

2.5 Email Template #1: RFQ

Hello,

I am the Manager of [COMPANY] in [COUNTRY].

Product info

·   Product: WRITE HERE

·   Quantity: XXX pcs

·   Market: COUNTRY

·   Product Safety Standard: WRITE HERE

Please review the attached product specification files.

Send your quote and include these details:

·   FOB Unit Price (USD)

·   MOQ Requirement

·   Product Sample Cost

·   Production time

·   Payment terms

Send your quotation within 3 days

Best Regards, Name, Title, Company

Description: This email template is used when contacting the suppliers for the first time by email. Its purpose is to present you as a serious buyer – and explain how the supplier is expected to participate in the RFQ procedure.

 

3. Product Sample Development

 

3.0 Introduction

This module covers the process of ordering pre-production samples, identifying and reporting errors/quality issues and ultimately making a final supplier selection once you approve the product sample.

Objectives

+ Order pre-production samples

+ Identify and report product sample errors/defects (if any)

+ Obtain and approve final pre-production samples

 

3.1 Product Sample Terms

Product Sample Terms communicates the product specifications and sample order terms to your supplier. This document must be confirmed by the supplier before you pay them.

Summary

Product design files and brand

The supplier may not use the buyer’s product design files, technical specifications, artwork, graphical files or brand name to manufacture products for its own sales, or for other customers (domestic or international).

Sample Cost Refund

  1. The seller shall deduct the sample order cost ($XXX) from the order value once the buyer has purchased (e.g. placed an order for) a total volume of XXXpcs.

Sample Production

  1. The supplier must produce an unlimited number of product samples in case the previous sample batches don’t comply with the product specifications and quality requirements in this document.
  2. The seller may not request additional payments from the buyer unless the buyer makes changes to the product designs, materials, quality requirements or compliance requirements.
  3. Maximum sample production time: XXdays
  4. If the supplier fails to produce an acceptable sample after 2 revisions, the buyer may request a full refund from the supplier.

Payment Terms

  1. XX% pre-payment before sample production
    2. XX% balance payment after sample approval

Subcontracting

  1. The seller may not subcontract the sample production to any other supplier.

Tooling Ownership

  1. All tooling made to produce the samples is the property of the buyer, and may not be used in production for the supplier’s own usage or its other customers (domestic or international).
  2. The tooling may be transferred from to the buyer, or its representative in China, at any time. Upon such a request, the seller must send the tooling to the buyer within 3 working days.

 

3.2 Sample Production

Once you have paid for the product samples, the supplier shall start the process immediately. This tutorial covers the entire sample production process, from planning to delivery.

a. Production Process

Request your supplier to confirm the final sample completion date as soon as the sample cost is paid. Sample production may involve the following steps:

Custom Design (OEM) Products: 40 – 60 days (+ Revisions)

  • Create technical documentation
  • Procure materials and parts from subcontractors
  • Order tooling
  • Complete product sample

Private Label (ODM) Products: 10 – 30 days (+ Revisions)

  • Procure materials and parts from subcontractors
  • Complete product sample
Request regular updates

You can catch early-stage quality issues, by requesting status updates and product photos from your supplier. You should also request photos once the supplier has completed the first version.

Notice: Suppliers rarely have product samples in stock, and may even have to procure materials and parts from subcontractors before they can complete a product sample.

b. Sample Revisions

Don’t expect a supplier to succeed on the first sample. In most cases, it takes 2 to 3 samples before the sample is matching the final product (to the extent possible). The supplier shall take photos and deliver the sample as soon as it is completed. Once received, you shall carefully check the sample to spot defects or other quality issues.

Assuming you find quality issues of any kind, you shall immediately send the following to the supplier:

  • Images showing the defect
  • Description
  • Suggest corrective action
Product Sample Revisions

Report all quality issues, and suggest solutions.

 Update and resubmit the template each time you receive a sample from your supplier until you approve the product samples.

It’s crucial that you actively help your supplier to find solutions to all design and quality issues.

Based on your report, the supplier shall then remake the product sample – until you have something that can be approved.

c. Sample Approval

You must approve a final sample before you can proceed with the next phase, and place your first order. 

However, if the supplier keeps failing, after the 3rd product sample, you shall consider disqualifying them.

Don’t expect perfect samples

There are economic and technical limitations to what your supplier can achieve with a product sample. 

For example, they may not be able to get the exact same color, plating or material – as the final product.

Ask your supplier to confirm which quality, material, and design-related ‘specification gaps’ you should expect on the samples.

d. Sample delivery

Air freight companies

Product samples are normally delivered by express air mail. You can request the supplier to send them with any of the following companies:

  • FedEx
  • DHL
  • UPS
  • TNT
  • China EMS

You can expect the supplier to book the delivery for you. However, you will be required to pay the delivery cost.

Delivery address

You must also submit the delivery address using this format to your supplier:

  • Company
  • Name
  • Address
  • Zip Code
  • City
  • Country
  • Phone

Tracking ID

The supplier shall provide you with a tracking ID within 1 to 2 days after the sample delivery. You can then follow the sample shipment via the freight company website.

It normally takes 4 to 7 working days before the samples arrive if you book an express service like DHL or FedEx. China EMS deliveries can take 10 – 12 working days.

Cost examples

  • 5 – 1 kg: $25
  • 1 – 5 kgs: $30 – $50
  • 5 – 10 kgs: $60 – 100
  • 10 – 20 kgs: $100 – 200

Import duties

You may need to pay import duties (See Module 5) when importing product samples.

Keep a digital copy of the sample invoice, in case the customs authorities require you to prove the customs value.

In addition, you must instruct your supplier to declare the correct customs value on the package.

 

3.3 Email Template #2: Product Sample Terms

Hello,

We accept the quotation.

Therefore we would like you to provide us with product samples. It’s very important that the samples you send us match our product specifications.

Please see the attachment and follow these instructions:

1. Download the file attachment and read the terms

2. Confirm if any changes must be made to the product specifications

3. Confirm if you approve the order terms

4. Print the document, sign (legal representative signature in Chinese characters), and stamp each page (using your Chinese company stamp)

5. Scan the document and send to us for approval (via email)

6. Send Proforma Invoice

We will arrange payment once this is completed.

Best Regards, Name, Title, Company

Description: Use this email template when you submit the Sample Order Sheet to the supplier. It explains why you require that they sign this document.

 

4. Production & Quality Control

 

This chapter covers the processing of placing your initial order, payments, verifying product quality and compliance, and ultimately booking the shipment from the manufacturing country to the final destination.

Objectives

+ Confirm all order terms

+ Pay the 30% deposit to your supplier

+ Book quality inspection

+ Book product lab testing

+ Book shipping

+ Pay the remaining 70% balance to your supplier

 Task Overview 

4.1 Production Manual

Introduction to the production Manual and overview of the various terms.

4.2 Deposit Payment

How to make the initial pre-production deposit payment to your supplier. This tutorial also includes a fraud prevention checklist.

4.3 Production

Materials procurement and production timeline overview.

4.4 Quality Inspection

How to prepare the checklist and book quality inspections.

4.5 Laboratory Testing

How to book lab testing and submit production samples to the testing company.

4.6 Balance Payment

Conditions for paying the remaining balance to the supplier.

 

4.1 Production Manual

Production Manual lists all relevant product specifications, compliance requirements, payment, shipping, and other order terms. Its purpose is to prevent quality issues, delays, and other issues. 

How can this document prevent quality issues?

Most quality issues are caused by misunderstandings, rather than by suppliers deliberately trying to cheat their customers. As such, it’s crucial that the following is confirmed before the order is placed:

  • Product specifications
  • Definition of a defective product
  • Applicable product regulations and standards

In addition, all general order terms and processes shall be confirmed beforehand:

  • Payment terms
  • Shipping terms
  • Export packaging
  • Lead times and delay penalties
  • Intellectual property term 

Notice: The Production Manual can be used for several orders, placed within a 3 to 5-year time span (depending on the set duration).

How is this document enforced?

The key is to make the supplier aware of the following:

  • The products will be subject to quality inspection (verify specifications)
  • The products will be subject to lab testing (verify regulatory compliance)
  • The balance payment (70%) will not be paid until the products pass boththe quality inspection and the lab test

As such, you put pressure on your supplier to actually follow the order terms, as they will lose the entire balance if they fail to do so.

Important Notice

This document is not a warranty or ‘money-back guarantee’. You must verify both quality and compliance before you wire the balance payment, as you will not be able to return defective units to your supplier’s country. Essentially, this document is only of value until the point that you’ve paid the supplier in full.

 

4.2 Deposit Payment 

Before the supplier starts the production process, you must pay the initial deposit. In this tutorial, you will learn how to make the deposit payment, confirm the arrival of the funds and avoid scams. 

a. How to make the deposit payment

Most suppliers accept the payment directly to their bank account or that of an export agent. You can wire the money via your internet bank, or visit a local bank office.

Notice that the following account details must be specified in the sales contract:

  • Beneficiary name
  • Beneficiary address
  • Bank account number
  • Bank
  • Bank address
  • SWIFT / BIC Code
  • Country

b. Currency

As of today, most suppliers only accept payment in US dollars (USD).

c. Payment proof

Submit a transaction record to your supplier via email, as soon as you have made the payment. This could be any record that shows the bank account details, date and amount (i.e., a PDF receipt from your internet bank).

d. Payment Fraud Prevention Checklist

Below follows an overview of various types of bank accounts, and their respective risk level. We advise you to request a review of the bank account details via our ticket system before paying your supplier.

 

Bank Account Type Criteria Risk Description
Company Account

Matching Beneficiary

Account beneficiary is matching the supplier’s company name.

 Account address is matching the suppliers registered address.

 Account is held in Mainland China

Low A company account, held by the very company you intend to do business with, may be taken for granted in most countries. However, in China, far from all suppliers offer this setup.
Export Agent Account ✘ Account beneficiary is not  matching the supplier’s company name.

✘ Account address is not matching the suppliers registered address.

 Account is held in Mainland China.

Low Some suppliers outsource all export related procedures to specialised export agent companies. In these cases, the payment is made to the export agents account.
HK Offshore Account

Matching Beneficiary

Account beneficiary name is  matching, or related to, the supplier’s company name.

✘ Account address is not matching the suppliers registered address.

✘ Account is held in Hong Kong.

Average Many suppliers use offshore companies, registered in Hong Kong, to receive payments from overseas. As such accounts cannot be directly linked to the manufacturers, which are always based in Mainland China, the risk is therefore higher.
Company Account

Not Matching Beneficiary

✘ Account beneficiary is not  matching the supplier’s company name.

✘ Account address is not matching the suppliers registered address.

 Account is held in Mainland China.

High Avoid payments to company entities which are not related to the supplier’s company name.
HK Offshore Account

Not Matching Beneficiary

✘ Account beneficiary name is not  matching, or related to, the supplier’s company name.

✘ Account address is not matching the suppliers registered address.

✘ Account is held in Hong Kong.

High Avoid payments to Hong Kong registered accounts, if the beneficiary is not matching, or related, to the company registered in Mainland China.
Private Account ✘ Account beneficiary name is not  held by a registered company. High Never make payments to accounts held by individuals.

 

e. Deposit Payment Checklist

The beneficiary details must be correct, as the receiving bank in China will otherwise return the money. To avoid such waste of time, you need to know the following:

·   Beneficiary Name: It shall be as specified by the supplier. Chinese company names are often quite long, and you cannot cut it in half, even if your bank doesn’t allow you to enter the full name. If that is the case, enter the remaining characters in the message field.

·   Beneficiary Address: Same goes for the beneficiary address. Don’t leave anything out, or the payment may be returned by the Chinese bank. If the address is too long, try to shorten it a bit (i.e., 333 Hao Zhang Yang Road can be shortened to 333 Zhangyang Rd).

·   Bank Account Number: Same as specified by the supplier. Chinese bank accounts just have one account number, for both international and domestic use (unlike, for example, the EU which use IBAN for international transactions).

·   Beneficiary Bank Account: You may either input the SWIFT code or Bank name combined with branch and bank address.

 

4.3 Production

The mass production phase begins at the very moment the supplier confirms the arrival of the deposit payment. The supplier is now to execute the steps outlined in its production plan.

a. Production process overview

The process varies depending on the product, but this is what it might look like:

·   Purchase Components & Material: 10 – 20 days (from subcontractors)

·   Process Components & Materials: 10 – 15 days (in house)

·   Batch Sample Completed: 1 – 3 days (recommended for the 1st batch)

·   Assembly: 5 – 8 days

·   Packing: 1 – 2 days

Note: The production plan assumes that all tooling (i.e., Injection molds) is already completed prior to mass production, as this is required to make pre-production samples.

b. Batch samples

While you should have received prototypes before you decided to go forward and place an order with the supplier, it’s still highly recommended, at least for the first batch, to require the supplier to first produce a number of batch samples, for your approval, before mass production proceeds.

Indeed, this may put production to a temporary halt, especially if such samples are to be delivered to your office (rather than approved on-site by an inspector). Yet, misunderstandings and neglect are common, and this is your last chance to prevent quality issues from spreading further.

c. Request regular updates

You should request regular status updates from your supplier, to keep the pressure on to complete production on time. Further, you must also confirm the completion date before booking a quality inspection.

d. Request photos and videos to confirm that the production is on track

Most qualities occur due to misunderstanding between the buyer and the seller. You can request the supplier to provide images, videos, and photos that confirm that the product is matching the following requirements:

  1. Design
  2. Labels
  3. Dimensions
  4. Functions
  5. Quality

The earlier you discover quality issues, the easier and faster it will be to correct the production before it’s too late.

 

4.4 Quality Inspection

The purpose of a quality inspection is to verify that the products are manufactured according to specifications before you make the final balance payment. It is critical that you do not pay the supplier until the quality inspection is performed, as you will have limited leverage once the supplier is paid in full.

How much do we need to pay for the quality inspection?

The price, including travel expenses, is normally around $300.

How many days in advance do we need to book?

You should submit the booking at least 10 days in advance, to ensure that there is enough time to confirm the factory address and QC checklist.

What if the quality inspection fails?

If the quality inspection fails, you need to assess if there is a need to order a follow-up inspection. The supplier must also explain how they intend to remake or rework the products, to ensure that the follow-up inspection may pass. If possible, pass on the cost for the follow-up inspection to your supplier.

 

 4.5 Laboratory Testing

You may submit samples for compliance testing before or after production – or even both. However, many regulations require that the test is conducted on a sample collected from the batch of mass-produced products.

a. Laboratory testing

Third-party laboratory testing is not always mandatory. However, it is the only way to verify if the product is compliant with all relevant standards. Below follows a step by step guide:

  1. Select an accredited testing company

Note: You should not let the supplier select a compliance testing company for you. You must book the lab test directly with the testing company to ensure that you:

  • Receive a test report issued with your company name
  • Receive a test report from an accredited testing company 
  1. Create a testing plan

Depending on the applicable regulation, you may either submit complete product samples, or material samples. In addition, you may also need to submit samples for each color or other variations.

Checklist

  • Is lab testing mandatory for your product in your target market?
  • According to which regulations/s should the test be performed?
  • Should you test all products (including different colors of the same products) and/or materials – or only a few?
  • Which products and/or materials shall be submitted for compliance testing?
  • Which colors and/or other variations shall be submitted for compliance testing?
  • Can you identify risk factors that reflect foreseeable usage by your customers?
  • Should they test the product packaging?

Note: You may also submit pre-production samples for laboratory testing. However, a batch sample is a more accurate representation of the product that you intend to place on the market.

  1. Online Booking

You shall contact your testing company at least 2 weeks before production completion, to notify them about incoming batch samples. They will then provide you with the following:

  • Required sample material quantity (they may need more than one unit)
  • Delivery address for batch samples and contact person
  • Booking number / Sample ID number (must be affixed to the incoming batch samples)
  • Suggested laboratory tests / applicable regulations
  • Estimated costs (note that they cannot provide a final quote until the batch samples are delivered) 

Warning: You may ask the testing company to assess which standards they believe apply to your product, in a certain country or market. However, notice that testing companies don’t offer any guarantees for a correct compliance assessment.

Hence, it’s critical that you don’t solely rely on their assessment but make your own (regarding which standards and regulations apply to a certain product) before you submit product samples.

  1. Sample Collection / Submission

Preferably, the Quality inspector collects batch samples and submits them to the testing company. You should, to the extent possible, not allow the supplier to submit samples.

There is a risk that they will, in self-interest, submit compliant samples (made specifically to pass lab testing) – while your batch is in fact non-compliant. Also, ensure that they affix the Booking ID / Sample ID on or inside the envelope. Otherwise, the testing company cannot identify the samples.

  1. Payment

Once the samples have arrived at the testing company, you can request a final quotation. If accepted, the testing company will issue an invoice. Most likely, they will demand that you pay them before they perform the lab testing.

  1. Receive Test Report

Within 1 to 2 weeks, you will receive the test report via email. If your products pass the testing, you can use this document as proof of compliance. It can be submitted to authorities and customers.

b. Additional Documentation Requirements

The test report is not the only document you may need. Depending on the applicable regulation/s, you may need to obtain or issue additional documents, such as a Declaration of Conformity and technical documentation.

You need to ensure that you have all required compliance documents in order, before you pay the supplier and before the cargo is shipped. If not, your product may be refused entry in the port of destination.

c. FAQ

How much do we need to pay for lab testing?

The fees normally start at around $300. The costs are hard to estimate, as they depend on the following:

  • # SKUs
  • # colors / materials
  • # regulations / safety standards

How many samples do we need to send?

Confirm this with the testing company before you submit samples.

What if the test fails?

Do not pay the balance payment if the lab test fails. If this ever happens, find out why the product failed, and require your supplier to pay for a follow-up test.

 

4.6 Balance Payment

There is no return after you’ve settled the balance payment. At this stage, you must be sure that the products match your quality requirements, and are made in compliance with all applicable regulations in your market.

a. Hold the balance payment until you have confirmed the quality and compliance of your products

If there are any issues that must be corrected, hold on to the balance payment until said corrections have been made.

b. Payment proof

Submit a transaction record to your supplier via email, as soon as you have made the payment. This could be any record that shows the bank account details, date and amount (i.e., a PDF receipt from your internet bank).

c. Cargo release

The specific terms depend on what you’ve negotiated in the contract. Some suppliers may also accept balance payment after sending the bill of lading copy, but not the original document (which is required to release the cargo).

d. Payment fraud warning

Only pay the bank accounts held by the supplier (See 4.2 Deposit payment), even if the supplier requests you to pay to another bank account. Payment fraud, due to email account hacking and employee corruption, is widespread.

4.7 Email Template #3: Order Confirmation

Hello,

We would like to place a test order of XXX pieces. However, before we place the order we need to sign an Order Terms Sheet with your company.

Listed terms

·   Standards & Regulations

·   Accepted defect rate

·   Payment terms

·   Bank account details

·   Shipping terms

·   Late delivery terms

·   Export packaging terms

·   Order process

Attachments

·   Order terms sheet

·   Product Specification

Please follow this process

1. Print all attachments

2. Stamp all pages using your official company stamp

3. Send scan copies to us for review

4. Send proforma invoice

5. Send paper copies to our address by DHL or FedEx

Quality control

1. We will send a quality inspection agent to check the products before the 70% balance payment

2. The products will also be subject to a INSERT STANDARD lab test before the 70% balance

Warning: We will not pay the balance if the quality control or lab test fails

Best Regards, Name, Title, Company

Description: This email template is used when sending the Agreement draft to the supplier, for initial review and approval. It explains why you require them to sign a contract, before placing your order.

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