Elksourcing：Why Buyers Choose to Perform a Factory Audit in China?

After a new factory is sourced in China, most buyers will choose to perform a factory audit, as it is a cost-effective way to make sure the factory is reliable and offers quality products. Based on the ISO 9001 standard, supplier evaluations include many additional benchmarks, giving you robust insights to the way the factory is managed. Before you place any order, learn why a factory audit can save you from making a huge mistake by choosing the wrong factory.

Verify Supplier’s Legitimacy

Working with suppliers in China comes with risk, but a factory audit from a reputable quality control firm minimizes uncertainties. It’s difficult to verify a supplier’s claims from a distance, in particular without having industry knowledge. A factory audit can ensure that the factory is legal and has all the necessary certification and licenses to be able to sell and export goods.

Confirm Supplier’s Product Expertise

A factory audit gives you an inside look at the factory’s showroom without having to step foot inside. A quality control auditor verifies the machines to find out whether or not the factory has the capacity to produce your product internally. If some parts are missing, sub-contractors may be involved. Even if you’re OK with that, you still have the rights to know how and where your products are produced.

Check the Factory Capacities and Organization

An in-depth supplier evaluation confirms that a factory can indeed meet the production lead-times you initially received from the vendor. The auditor checks the supplier’s storage capacity, which can greatly impact the quality of your goods. For example, products stored outside could be affected by bad weather. If semi-finished and finished products are stored in the same area, they may accidentally be loaded together. A factory audit also tells you how management is organized so you know who makes decisions and solves problems — and most importantly, who you should talk to for negotiations.

Authenticate the Factory Quality Management System

The quality management portion of the factory audit confirms that the factory has the necessary processes in place to ensure the quality of your final product. The auditor checks how your specifications are reviewed and taken into account, the way goods are controlled during production, and how the machineries are calibrated over time to guarantee the same efficiency and quality result. There are key quality indicators for all relevant functions at every organizational level to make sure no detail goes unnoticed.

Verify the Supplier’s Social Accountability

A factory audit provides a thorough review of the factory to make sure that at an administrative level, all documents conform to the local regulations. As per the SA 8000 standards, the auditor reviews HR records and even interviews managers and workers to confirm the factory’s work environment. You’ll receive verified proof that the working environment is clean, and the conditions are acceptable.

Elksourcing：How to Successfully Find a Suitable Supplier in China?

With tools such as Alibaba or Global Sources, it’s a simple matter of an internet search to find a supplier in China, so you have the opportunity to take advantage of a large number of competitive factories in a country with low labor costs, rising productivity, advanced infrastructure, and increasingly sophisticated production capabilities.

Unfortunately, though, once you have found a supplier online that claims to be able to produce your product, it’s not always smooth sailing from there. In my experience as many years in the industry, I have met with plenty of buyers that have ended up getting frustrated because they have been communicating with suppliers in China for months, without any measureable progress having been made. Often this has to do with the factory in question not actually being able to meet the buyer’s expectations or standards.

To successfully find a suitable China supplier, you need a strategy, which I believe should include awareness, knowledge and a good amount of homework. Below are some practical tips to find a suitable China supplier that has the potential to develop into a long-term relationship.

1) Choose the Right Kind of Supplier

Make sure to be aware of the different ownership structures that exist for manufacturing companies in China and the pros and cons of each. For example, State Owned Enterprises (SOEs) are generally larger, well established and have good reputations. With SOEs you don’t need worry as much about problems with your final shipment but be warned that you will typically run into bureaucratic obstacles as the complicated management structures and paperwork requirements can make even simple processes take an inordinate amount of time.

Private companies in comparison tend to be much easier to deal with. Given that they operate in a much more competitive, Darwinian environment, they usually have a much stronger desire to work with you. That said, these have their drawbacks too as they have much fewer assurances as to the actual quality of their work and they tend to be willing to say and do whatever it takes to get your business.

In general, if you will only be placing small orders annually, it is usually best to avoid the large manufacturers as they will quote you higher prices and have much less incentive to really care for your order. Though smaller factories may be somewhat easier to develop a relationship with, they will need much closer monitoring throughout the production process, particularly for the first production run.

Beware: It is not uncommon to be shown a nice factory that you choose to hire only to find that they have subcontracted production to a smaller workshop. Make sure to conduct your due diligence with thorough factory audits to make sure your production is being carried out as advertised. Your contract with your supplier should also prohibit subcontracting.

2) Do not Select a Factory without an Audit

I have met many foreign importers that will find a nice sample at a trade show in China, receive a favorable quotation from the company that they think manufactured the sample and then think their supplier search has ended. Be aware though that it can be very risky to choose your supplier in this way. Online directories (e.g. Alibaba) and trade shows are only a starting point. Suppliers usually pay to be listed in the directory or to exhibit at a show, and they are not rigorously screened.

If your contact claims to own a factory, you can run a background check on his/her company to confirm this claim. There are several channels for conducting these checks. First you can call the company and ask them to provide copies of the relevant certifications. Next, you can ask them for a client list which you can use to ask previous customers of theirs about their experience with the factory. Finally, you can contact the relevant, local regulatory bureaus such as the provincial Administration for Industry and Commerce.

Regardless of the risks however, the best place to start your search for a supplier is the directory websites. This will give you a good idea of your options and help you to formulate a reliable range of possible prices. The most well-known of these include:

Alibaba, Made In China, Trade Key, Global Sources, Google.

Once you have a good feel for who the company is and are assured that your contact actually is a representative of the factory, you should next set out to perform a factory audit. You may choose to pay a third party located in the area your factory is in to do this job for you.

When you are conducting these investigations, make sure that the factory is aware of the importing regulations associated with your target market. Find out from your home country what requirements there are to import from China and verify that your suppliers meet these conditions.

3) Place a Sample Order with Your Top Two Factories

This is a good way to test the market if you are unable to make a final decision on a factory or are unsure if the Chinese market is suitable for your product. It’s a good idea to start with a list of about 10 suppliers which you then narrow down to 5. From this 5, I typically pick the top 2 suppliers from which to ask for samples.

When you ask for a sample, remember that you shouldn’t just be monitoring the final product. Pay attention to the whole process, evaluating the totality of their operations.

How easy is it to work with this factory?

Do they communicate in a timely manner?
How was the overall quality of the sample including how well they followed your instructions?
Was everything delivered on time?

Take all of this into account when you’re making your evaluation for a factory.

Finally, remember that it is always good to have backup plans, so keep the factories, samples, and evaluations on file for future reference.

Having a good system in place and not trying to take any shortcuts will save you time and money in the future. In general, by doing thorough investigations of suppliers, no matter how confident they may seem of their capabilities or how comfortable the relationship feels, you can avoid later miscommunications or delays, and reduce your risks of China sourcing.