One of the most important things for startups to do once they’re ready for production in China is spend the time and money finding a quality factory. The relationship developed with a supplier can be critical as a company grows. The corollary to that is that skimping on due diligence can be devastating. This is the message Mike Bellamy conveyed in our latest interview on factory audits.
Most startups that have weathered a crowdfunding campaign or attracted funding are ready to move into higher levels of production, but those that are still fulfilling small orders or involved in prototyping need to know what they want from a China supplier.
Bellamy recommends startups unwilling or unable to pay the higher prices of small orders stay in their home country for prototyping or possibly even small orders. This might even be more economical since a startup can more easily manage the process from home rather than spending thousands of dollars on project management from across the world.
Committed startups ready to grow their business can entice China suppliers with a little extra money and assurances, though. “It’s all about money,” Bellamy said.
If a startup isn’t ready for thousands of units, it’s best to acknowledge this to the supplier. To keep a supplier interested, startups should explain the order quantities they expect in the future if things go well and offer to pay a higher per unit price for the initial small orders. This way a company is building a relationship with a quality supplier that will be able to handle larger orders down the line.
Building this trust is key to finding and keeping a good supplier. Bellamy explained that some suppliers have been known to do some tricks on buyers they consider fickle. One of these tricks is deliberately producing a small percentage of defective products and promising to make up for it on the next order. This keeps buyers on the hook for another order if they were shopping around for another supplier.
The best way to avoid these kinds of problems is to have a good, bilingual contract with penalty terms clearly spelled out should the supplier mess up. This contract is key. It should be official with the company’s seal and a startup should never send money to an account that isn’t in the company’s name.
Finding these quality manufacturers can still be tricky, though. Resources like GlobalSources.com can at least help startups find verified suppliers that are reliable, but that doesn’t tell them whether a given supplier is a good fit for their product. A startup should draft up a list of potential suppliers before arriving in China. The real determination of whether a supplier is a good fit, though, comes from being on the ground in China, talking directly with the suppliers and visiting the factories.
“Finding a right partner is the largest success or fail factor when you’re China sourcing,” Bellamy said.
When a startup is ready to do a factory audit, Bellamy recommends going with an established audit agency. Professionals can audit factories for less than $500, which could be less than the price of plane ticket to China. Bellamy recommends these professional audits for at least the first couple of audits since a startup is not likely to know what criteria to check.
Another company should also be hired for product inspection. This is another few hundred dollars, but it helps ensure a startup is getting the products it paid for.
Though it adds up to maybe a few thousand dollars, getting a good contract drafted, visiting China, auditing factories and doing product inspections are all worth it. “Those things are money well spent,” Bellamy said.
One other important component of getting the right product is conveying to a supplier precisely what a startup needs. This can be a difficult process for unique, innovative products. For some aspects of a product, there are simple industry standards to help avoid miscommunication. Colors, for example, have systems like the Pantone Matching System and RAL color standard that eliminate ambiguity.
More sophisticated specifications could require a startup inventing its own standards to communicate exactly what it needs to a supplier. If a startup can’t do that in-house, Bellamy recommends working with an engineering company that can help. If a startup isn’t certain a supplier knows exactly what its client wants, the startup should be prepared for mistakes. At that point, though, the factory may not be the party legally at fault.
The most important takeaway from all of this is that startups should be visiting China to find a good supplier that can turn into a good long-term partner. As Bellamy put it, “Even if you don’t know anything about engineering or visiting a factory, simply coming here and asking some intelligent questions… over dinner and a beer, you might learn a lot about the companies that you’re going to do business with.”
Free Email Updates
Get the latest content first.
Congratulations. Welcome to the family.