In a post last week, How To Find Your China Manufacturer, Dan discussed some of the issues involved in choosing a China OEM manufacturer. I have been involved in this process on the ground in China for more than twenty years and I have developed some of my own standard practices for this.
The major and initial issue in choosing a Chinese manufacturer is determining whether the manufacturer is “real” or not. Chinese companies are masters of disguise. They use the Internet and sourcing websites to make themselves look much better than they are. But they can also hide the reality even on site. So you have to develop an efficient system for breaking through the façade to get to reality as quickly as possible.
The general procedure I follow and the one you should follow as well is as follows.
First, you or your representative have to visit the factory personally. It is shocking how much variation there is in manufacturing systems even within developed areas such as Dongguan, Guangzhou and Zhuhai. Factories making a virtually identical product can range from those using primitive hand techniques from the 1930s all the way to those that use state of the art German or Japanese automated equipment. You cannot believe what the factory says about its systems and you cannot believe the photos they provide. You must go to look personally.
Second, when you visit the factory you have to use your time efficiently. You goal must be to determine whether the factory is real or is it a Potemkin village or movie set, composed of all surface and no substance. What every foreign buyer must realize is that any factory owner can create the illusion of being a strong business by putting on a show for the foreign buyer. The buyer arrives to see a buzzing, active factory with all assembly lines moving at full speed. As soon as the buyer leaves, the place shuts down again, waiting for the next victim to arrive.
I usually do the following to break through to reality:
- I refuse to visit the factory floor first. The Chinese side is always upset about this decision. I just make clear that I have other things I want to do first.
- The first place I visit is the raw materials warehouse. Is the warehouse full or empty? An empty warehouse is almost always a sign of a manufacturer that is struggling. If the warehouse is full, I then look to see what sort of material is in the warehouse. Are the materials consistent with what the manufacturer says it produces? Are the suppliers local, national or international? Do I recognize any of the suppliers? Are the suppliers reputable?
- I next like to visit is the shipping warehouse. If the export warehouse is empty, this is an obvious signal that the manufacturer has no current business. If the warehouse if full, I then check whether the deliveries are for China internal markets or for export. If for export, I then check what the destinations for the product. Are they headed for countries that generally have buyers that care about product quality? I also pay close attention to the packing of the product and loading procedure. You can tell a lot about a company by the way it loads the product into a container.
- My next visit is to the finance office of the manufacturer. I just sit on a chair for about an hour and observe what is going on. If there is no activity, I know the company is dead. If there is activity, I then observe. Is cash moving in and out of the safe? A company that relies on cash transactions is typically not part of an international sales market. Reliance mostly on cash evidences a local player with little China national and international business.
- My next stop is the sales department of the company. Again, the first thing I observe is whether the department is busy. Are the sales people taking orders and working with purchase orders and invoices and receipts, or are they drinking tea and staring out the window? What language are they speaking? Are they talking in Chinese or English? No English means no international business. Finally, I just sit in a corner and listen. This can be very valuable. For example, in a recent factory visit I noted that 100% of the phone calls to the sales department consisted of customer complaints about late delivery, short delivery, incorrect delivery and faulty product. That told me all I needed to know about that company.
- Finally, after all this back office visiting, I am ready to look at the factory. Here, I further frustrate the factory owner by refusing to look at the work shop floor. Instead, I make clear that I want to visit the quality control department. If there is no QC department, that tells me everything. If there is a QC department, once again I just take a chair in the corner and watch. My goal is to determine what happens when a quality problem is discovered. Do the QC people go out to the factory floor to see what happened? Do they just pull out the defective item with no further action? Or do they do absolutely nothing? What happens to the defective item? Is it destroyed or is it put aside, presumably for sale in the local market. Some manufacturers will take you to their QC/RD laboratory. The same basic rules apply for this visit. Does the lab show signs of use, or it is just a fancy showroom designed to fool gullible foreigners? I recently visited such a lab at the offices of a food manufacturer. The equipment was beautiful. In fact, it was so beautiful that it was quite obvious that none of the QC and testing equipment had ever been used.
- Finally I will visit the factory floor. By this time I have a pretty good idea what is going on at the factory. The factory floor visit is usually just a check on the equipment being used and the QC procedure is in effect.
Once you get used to using an approach like the one I use above, you will find that you can weed out the bad factories very quickly. In my experience, good factories are rare. If your initial review suggests that the factory is a good one, you should take the time to move to the next stage of discussing whether or not you can really do business with the factory. Any good factory will also be very busy. You need to have an honest discussion about what you want to have made, in what quantity and in what time frame. On the other hand, if you reject a factory, make your departure as soon as possible. Do not fall into the trap of wasting time going to lunch or dinner with the factory people that fall into the obvious reject list. On the other hand, if the good factories invite you to lunch or dinner, take the time to go. Good factories are rare and you should work immediately to build a relationship.