Asia Product Sourcing Pitfalls

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Hey there product launchers. Tom Hazzard here on product launch hazards with your office hours. For today, I'm your industrial design, general product development and sourcing expert on the platform. And today I want to talk about Asia sourcing pitfalls. Some of the many, I mean, we're not going to be able to cover all pitfalls, potential pitfalls. But Tracy and I have been importing products and sourcing products in Asia since 1998. Ish about there. And so we've had quite a bit of experience in it, importing them for ourselves, for our own companies, for products we source and then have made and sell and then also on behalf of clients. And I'm sure you've heard on some of our other recordings, either podcast or videos, we've been to China a lot and some years every two weeks. Either Tracy or I was in China for 10 days, two weeks. So we've each spent more than a year in China over our careers. So we have a lot of experience. And also we've had a lot of clients producing a lot of different kinds of products. So we've experienced a lot of potential pitfalls and I want to share some of them with you today. One of those pitfalls I'm going to call the golden sample, and I want to talk about that one first. When you find a new factory and you make a sample request from them, you give them specifications for what you want them to make. And this is true of whether it's a custom new design product or it's actually something you're just having adjusted, making a variation from something that they carry already. Maybe it's a custom color or an added feature or unique packaging, whatever it might be. A lot of times factory will spend a lot of extra time producing a very high quality sample for you and ship it to you here in the US for you to review it. And wow, that's great. That sample's perfect. And you place an order and then when you get the order of product, it doesn't live up to the quality of the original sample you received. And usually it makes sense, doesn't it, that the factory would produce a high quality sample to get your business and then produce product Ship it on a container, or maybe it's a smaller quantity and you air freight it over, you've already paid for it and by the time you get it, it's too late for them to do anything about it or for you to get it fixed because you're not going to ship it back to China to get it made the way you expected it to be. So the reality of this problem and the way to prevent you from receiving product that doesn't live up to what you expected is, I know this may be counterintuitive and you may think, well, the factory didn't do a good job. They sent me a sample, they misled me. Well, the reality is if you don't get in your order that you receive the quality that you expected, quite honestly, I think that tends to be more on you than it is on the factory. Now granted, they misled you and provided a better quality sample than they intended to produce. Or maybe it may not be an intention always. It may also be that a factory sample shop has more highly skilled workers and they produce a high quality product. And maybe they just do a better job than their production process in the factory is capable of. Now, it still misleads you a little bit as to what to expect, but it may not be an intentional act to defraud you. Chinese factories want to keep getting more business. Asian factories anywhere want to keep getting more business. So unless it's a really big order and they're expecting to close their factory and move somewhere else and never see you again, I mean, they probably didn't intend to do this, but it still comes back to you. Because if you don't set up the quality expectations from the beginning of the project, meaning in documentation. And we have documents in our document library on product launch hazards.com where you can find quality control documents. You can see what they look like. You can see specification documents where you're laying out the critical factors of a product and what your expectations are for quality. And then you have to provide the factory with the requirements. And I would even do it in the quoting process and let them know, hey, we're buying a product with these specifications. This quality and what is my price for that? You really want to specify, hey, it is critical that this color match this pantone color. And we need to make sure that you do this accurately or that. I'll give you an example on a product I recently ordered. That is, it's not a knife per se, but it's a tool made of a metal blade and has a sharp edge to it. And this factory in general was manufacturing a similar product for a different purpose. And the sharpness of that blade that they were making for that other purpose was really not all that sharp. And for our needs, we had to specify a specific sharpness characteristic of that blade so that when we get ours, it actually meets our expectations. It does the job. It's intended to. Now to the factory, it doesn't matter to them one way or the other whether they manufacture the blade to a less sharp point or a more sharp point. It doesn't cost them anymore. And they didn't actually raise the price of the product on us. We just were very specific, the blade must meet this sharpness specification. And they said, okay, and here's your price, same price. So setting up those expectations from the beginning in terms of your documentation so that you know all the quality that you expect and they have it to check against and they'll have their own internal people monitor and manufacture the product to meet those specifications. They always really, I would say most always want to meet our expectations. They just need to know what they are. And the second aspect to that, besides setting up accurate specifications from the beginning, is to have boots on the ground in China acting on your behalf independently of the factory, to confirm the quality of that product before it leaves that factory. Because that's really your opportunity to correct anything before you have to pay for it and pay for transporting it and the duty coming into the US you don't want to do that on product that you're not happy with. So having an independent quality control agent on your behalf on the ground in the factory, it's really very inexpensive on a per order basis. You don't have to have an employee there full time, but having someone there independent acting on your behalf that also has those specifications, and they don't have to inspect every single product, they can randomly inspect one out of every hundred. If that's the case, it might be one or two out of every hundred. And they don't have to destroy them, they can just inspect them and they can usually still be packed properly and ship. There may be some destructive testing that on certain product you might want to do to make sure the product is made properly. And then you may have to factor that defect percentage into your overall costs. But it is well worth it to spend 1 or 2% in terms of lost product and even a couple more percentage may be on the order as a fee for an independent quality control agent to confirm that the factory actually made what they said they would make. And what you're expecting them to make before you ship it. So those are my recommendations for how to deal with sort of this trap or potential pitfall of the golden sample. Then let's see, other Asian sourcing pitfalls are making sure you're actually communicating with and doing business with the actual factory. I've had this happen with another client of ours who has been purchasing products in China for several years. And a product that they're doing very well with, it represents a couple hundred thousand dollars of revenue to their business. So, I mean, it's not millions of dollars, but it's also not a new test order either. I mean, you're ordering $200,000 of product from a factory per year. That's. That's a lot. And they've continued over a couple years to have some quality problems with their product. The quality has been degrading. They've also had a lot of delayed shipping order date. Their shipping dates that were promised by the factory they would miss by three or four weeks even. And it's causing some disruption and problems with their order flow. And they've come very close to being out of stock a couple times on Amazon with this product. And that's a bad situation. So as we dug into the situation to try to help them and see what's going on, I sort of use the cliche, sort of find out where the bodies are buried in the process, because they don't always tell you the reality of what's going on. When we researched, we found that a major part of the finishing process of this product was not done in house at this company. It was a sub supplier. And in fact, as we dug into it, we found out that it seems that the company they've been purchasing from for a couple of years is actually not a factory at all. It's a trading company. And they don't really manufacture anything. So they're dealing with sub suppliers and trying to coordinate all that. And what they communicate is not always accurate or they're not able to live up to it because they're not in control. So this is a huge pitfall. And I would say for any of you on our platform who are watching this video or listening to this podcast, I would always, always, always do business directly with a factory instead of with a trading company or some other company that is a packing company, maybe that's just bringing parts together. Now, there may be exceptions where it's acceptable to do it differently, and I'll talk about that in a minute. But in general, you want to be Dealing right with the source. You want accurate information. You want the best cost possible, and you want to know what all the real internal capabilities are for the supplier that you're going to buy from this vendor. And really, you can't expect to get accurate information unless you're dealing directly with the factory. So how do you do that? If you're just trying searching for products on Alibaba and things like that, chances are you could easily be dealing with a trading company or some sort of other supplier that's not the actual factory. And I would always get a referral for somebody else that you know who does business in China, who has people on the ground in China to check out whatever company it is you're doing business with, and they can find out locally in China or Malaysia, Indonesia, Philippines, Vietnam. You got to contact someone on the ground in one of those countries that can actually research and confirm is this company you're dealing with an actual factory, and they can actually go and visit them on your behalf. You'd be surprised that it may not be as expensive as you think it might be to pay someone acting on your behalf to go visit a factory and confirm that they're legitimate, that they are who they say they are, they're located where they say they are, and they do what they say they do. We do this a lot. There are lots of experts on this platform that do business in Asian countries and have people on the ground in various countries. So reach out to us and find out if you need help in this regard. We have people on the ground in China, and we have contacts with other people that have people on the ground in Vietnam in particular. There's a lot of especially wood furniture products coming out of Vietnam. And if any of you are in that kind of category or other kinds of wooden products in different countries around Asia. And chances are, if we don't know somebody, we know somebody that does know somebody and can eventually get you to a real person on the ground who can check it out. And you cannot assume anything, and you can't just hope that it's going to be okay. My mantra, and I'm sure Tracy said it more than once, my mantra is hope is not a plan or hope is not a strategy. You cannot commit your business. You cannot build a business based on hope. You need to know. And so quality control is a huge thing. Again, both in a little bit of setting up quality expectations, like I said before in the quoting and specification process, and even in your purchase order with an attachment of a list of criteria that are Requirements for you to purchase the product and then also verifying that they actually have made what they're supposed to make and actually reviewing the actual product and testing it to some degree is critical. So those are some pitfalls. Other pitfalls are making sure when you're getting a product quoted that you're very familiar with all of the terms and conditions and criteria, set up good expectations from the beginning, whatever they are, whether it's your minimum order quantity, whether the quote is X works the factory or fob the port. And I think we've talked about those terms in some other sessions, but those are the common terms used. Ex works price means that's the price for them to make the product and stack it up on pallets or in boxes there at their factory. They're not going to pay to transport it anywhere within their country or out. An FOB price refers to freight on board and that means that they've included in the price they've quoted you transportation to the port. So if you're having something made in the Shanghai area and it's a port of Shanghai or you're having somewhere going to the port of Yantan or I forget what, there's so many of those ports, different regions of China. But anyway, the port that's closest to the factory, they will go and transport it there. They're including that cost and so you don't have to worry about it. And it's just an important thing to know. I mean the reality is you are one way or another as the importer, you are going to be paying for the transportation of that product from the factory to your warehouse in the United States or into Amazon or wherever it may be. Regardless, it's just a matter of understanding where that expense is paid. Is it a part of the product cost or is it not? So make sure you just understand exactly what you're getting into from the get go that there's no hidden costs. Another Asian sourcing pitfall has to do with testing. If you have a product that is in a regulated industry or there are any industry standards, you have to make sure that the factory is capable of doing proper testing either before or even during the manufacturing process. And are they helping to source actual test report from a test lab in China if that's needed? Furniture items have to be tested. Child juvenile product items often have to be tested. And there any industry has a regulation of some kind that has to be tested. There are third party independent test labs that are in every country around the world who can test the product and make sure. This is especially important when you've tooled for a product that you've made an injection mold for something and this product has to go through some testing. You can't ignore this step. If you do, you really have no way of verifying that that injection mold was properly made. And we've been experiencing this a lot with products.

I used an example in a past office hour of an injection molded base for a chair, for an office type chair. When you make a tool, the engineers, even the designers like me and the tooling people make that tool to what they believe the right dimensions are in order to perform for the customer, but also to pass testing. But it's not a certainty. That part always needs to be tested. And when it's tested, it sometimes is done at the factory. Sometimes even a tooling company, if they are also going to mold it, would have testing equipment there, or certainly a third party test. When we had a sample shop in China for one of our clients, we helped set up for them and they were doing so many of these types of chair based products that we recommended they purchase the piece of testing equipment and get it into that sample shop so that they can test parts right there and not have to go to the expense of sending it out to a test lab all the time. And that worked very well for them. But the point is you test the products and if that part doesn't pass testing the first time, well then the tooling manufacturer makes some changes to the tool so that there's a little more material in certain areas so that it's stronger and then can pass testing. And you can have this back and forth sort of happen in the early stages to make sure that the product that you are going to produce actually meets the requirements and passes the test. You cannot just leave that to chance and say, well, they've done a pretty good job, gotten close enough and hopefully it'll pass. Can end up being a recall later. Another pitfall, and this is a big one. And again, a reason why you may want to have your own representative acting on your behalf on the ground at the factory level, at least while the product is being manufactured. And this is to inspect incoming material. A lot of times your quote and your price you're paying is based on a certain quality of material being used. Let's say you're molding something in plastic and you need to use material that has no recycled content in it. It's a usually that would be a specially colored part or a part that needs a certain strength. And when you use Material that has a certain percentage of recycled plastic in it. These strength properties can be less than something that has 100%. What they call virgin material or new plastic material is always going to be stronger. Now, in some cases, it's perfectly acceptable to have a high percentage of recycled content in a part, especially if the color of that part is black. Then you can do that. If it's more of a structural part that's black, you can do that. We made a lot of structural plastic parts out of nylon, and with nylon, that's a very friendly material for a lot of recycled content. But here's the thing. You want to make sure if you've paid for virgin material, you're getting virgin material that your parts are made out of and not getting recycled material. How do you know? There are ways to track the incoming material from a supplier, and you can have your factory show you the documentation that they've actually made the purchases from the right sub supplier, they purchased the right material. But just like you can have a quality control person inspecting your product that is on the assembly line very late in the process of manufacturing, you can also have someone there to inspect the incoming material, to verify the paperwork, to see where it's come from, to show that this is the right material, what you've actually paid for, and make sure the factory has not cut corners. We have seen factories cut corners on critical parts and try to save a few pennies here and there to make themselves more money and not disclose that. And then we've seen those same clients have problems with durability and defect of parts after the products in the United States. And it causes a lot of problems. It certainly creates, at minimum, a very big customer service situation to deal with. And that, worst case scenario, can actually cause a problem that could result in a recall. And that's the last thing you ever want. So incoming material is another area. And I know a lot of you usually don't get involved in that level of business really of sourcing products. You really leave that all up to the factory. And maybe that's worked most of the time, and maybe most of the time it would. But the more you do this and the more factories you end up buying from, the more you learn that if you want to make sure you're going to be able to deliver what you plan to deliver, that you're going to have enough product to sell and that your customer is going to have that good experience and they come back and buy more from you, you really want to make sure you look into these things. And you don't fall into one of these potential pitfalls with Asian sourcing. So I want to return now to a subject I teased earlier about. What conditions might it be acceptable to have a trading company that you buy from? And there are some. I think it's happening less and less lately in recent years. I think the value of trading companies have become less and less over the years that we've been doing business in China, which I can't believe is almost 20 years now, but it is. And that is. It used to be that a lot of factories, especially in China, did not have the right or the ability, according to the Chinese government, to be a factory you can export directly from. They weren't allowed to do that. It's a licensing and regulatory thing. Okay. And other factories did have the license and ability to do that. And so if you were dealing with a lot of suppliers or even a single supplier that didn't have the authority the right to sell you product and export it directly from China, they would have to transfer it to another company, one of these trading companies, or even another factory, and then they would have the ability to sell it to you. That's one reason you might have encountered that. Although it's happening less and less as it used to be in the 90s and early 2000s, a lot more factories didn't have the right. And I think as time goes on, most factories have the ability to export. But you might come across that. Another thing is if you are combining different products in a box that are manufactured at different factories, if you have, or maybe you've split the manufacturing up of your product, if you have a highly technical or really proprietary product and you don't want any one factory over there to have everything and to know everything about your product, that might be a good case for having a component made at factory A, a component made at factory B, or maybe even factory C, and all them deliver them to this different company who's a trading company and maybe just a packing company, maybe all they have is a packing line and they're buying corrugated cardboard boxes that are printed with your stuff and have the packing materials and they're just packaging it all up with the instructions, shrink wrapping it, packing into master cartons and putting them on a container for you. If your reason is strategic for intellectual property, or it's just one of logistics where you want to combine all the products into the box in China and not wait until they get to the US Then there may be a reason to either use a trading company perhaps, and we have some clients who are doing that. However, the reality is a lot of factories today, like if you take the factory that's maybe the most convenient location to the port, or maybe it's a factory. If you're bundling things together, who's making the bigger and more expensive or heavier component that goes into your box, you may very well want to actually have the other one or two factories who are making other components ship their products to that factory and that factory packages them all. And most factories are willing to do that and they're very happy to do that. They'll charge you a little bit of labor, but that's the cheapest thing to have over there. It usually doesn't cost very much. So anyway, I just wanted to. While I am absolutely an advocate for working directly with the factory and knowing exactly who you're doing business with, what their capabilities are and are not, sometimes it does make sense to work with a trading company or some third party company that is going to help provide logistics for you in terms of bundling.

So those are a few Asian pitfalls. I've got one question here that was written in that I want to address and it's hey, why not just source something in the United States? Certainly that's an option. Everything we do is not done in Asia or in China. We do have sourced some products here in the United States for our customers. If it's a product that does not have a lot of labor involved in making it, then you may very well find that sourcing it in the United States is beneficial to you financially and from a logistics perspective because you don't have to wait for a couple or three weeks while it's transporting over the water to the US or to the western US Anyway from Asia. If you're going to the eastern US it can take four weeks or plus before you get it in your warehouse. There's a lot of time involved there and certainly there is cost in ocean freight or air freight shipping of products from Asia. If you can't do it in the US I'm all for that. I have no problem with it. It's just that we still today, even though I know there's been a resurgence of American manufacturing to a degree, and new technologies like additive manufacturing, 3D printing make a lot of things possible that you don't have to tool for things the way you used, we continue to price out products for ourselves and for clients domestically and in Asia. And we still find that in reality the economics, even with additional tariffs that are being considered or already in Place that oftentimes it is still much less expensive to source something in Asia than it is in the U.S. like I said, there are exceptions to that. There could be very low labor. Products that are made of a single part or piece of material that don't have assembly that's needed are more likely to be able to be made here in the US but whether it comes to the actual product itself or any tooling charges, and we've talked about tooling in a past office hour, if you haven't seen that, you might want to check that out. But the cost of making tools, whether those are stamping dies or injection molds or any number of different things, very often we find just the cost of the tooling is so much less expensive in China. It really lowers the barrier of entry to making your own product or whether it's a me only product or as Tracy likes to say, sometimes a ME special product if it's not completely new. Even the cost of tooling in China is just so much less expensive. There are very few products that actually price out and make sense to do in the US but there are some. And if the economics are there, the logistics are much easier done in the United States. However, I would also like to add to that, to my answer to this question, that these issues of factories producing the right quality, bringing in the right material, doing things the way they're supposed to, setting up those quality expectations, and needing to inspect that quality before it leaves the factory, none of those things change just because you're making it in the US I think it would be naive for someone, perhaps naive or a mistake anyway, for any of you to assume that just because the company is in the United States, that they're trustworthy and they're going to do what they say they're going to do, and that they're going to produce what you expect them to produce. All the same things still apply in terms of accurate communication of information, specifications, and quality control. Again, if you don't get the product you expect to, it doesn't matter to me if it comes from a Chinese factory or a US Factory. If you don't get what you expect, then it was on you to either not have specified it properly or to have put a system in place to confirm they actually made what they said they're going to make before it leaves their factory. You have the ability to control it, and I'm a huge advocate of taking control of your own destiny and not leaving things up to chance or in other people's hands because it's that old adage is true. If you want something done right, do it yourself. And that doesn't mean you have to do everything personally, but at least maybe your employee on your staff or your team, somebody you trust and believe in, is charged with specifying exactly what it is you're going to get and verifying that you're going to get it before it ends up shipped to you because then you just have a bigger headache to deal with and more expense in getting it fixed. So all those things still apply. But I love manufacturing things in the US when my career started, very early on, I was designing and developing products that were manufactured in the US the reality is a lot of those factories are not there anymore. And for certain types of products, most of that manufacturing is moved offshore to one country or another and there's not as much manufacturing here. Now 3D printing is bringing that back. I'm very excited. I'm bullish on the future of American manufacturing and believe me, I will do it here as much as I can as it makes sense. But the reality is there's a lot of processes, especially plating, finishing, things like that, that are more toxic and are more expensive in the US and honestly, a lot of factories don't do that kind of work and don't want to do it here in the US and a lot of products maybe 50 years ago that might have been made in the US you could not find made here at all. And there's no factory that wants to do it. So I'm also not very bullish on you got to buy American or you've got to manufacture it here, just because if I can buy something in the US absolutely will. I very much admire Tesla automobiles and I'd like to buy one myself. I don't own one, but I hope to someday. And so I'm all for it. But this is just about what makes sense for your business in the context of the economics of your business and the logistics of your, you know, procurement and fulfillment and meeting your customers needs, what makes the most sense. And most often it still involves manufacturing outside of the US or in a lot of cases anyway. So I hope that's helpful for some pitfalls here on Asian sourcing. If you have any questions, please write them in, go to productlaunchhazards.com and submit a question or reach out to us on social media at either product launch hazards or I'm not sure if we're doing has design for that, but that's another way you can reach out to me and I'M happy to address questions in a future office hour or on another episode of this podcast at Product Launch Hazards. So thanks very much. Hope you enjoyed this. Talk to you next time. Bye.

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