China Manufacturing Decoded

Our CEO Renaud Anjoran (whose background is as a Certified ISO 9001 & 14001 lead auditor, ASQ certified Quality Engineer, and Quality Manager) discusses the Quality Management Process, including its 3 main sections: Planning, QC, and Improvement. This process allows buyers to plan ahead to assure good quality from the start of the project, use real data to pinpoint and eliminate quality issues they're getting from a supplier, and to stop issues from recurring in future by putting in place processes and systems that prevent the issues from reoccurring in future.

The takeaway from this episode is a proven QM process which you can use to improve your own quality, and it's based on this graphic which is referred to throughout:

00:00 - Summarising the quality management process and its basis in the Juran trilogy, namely the planning, control, and improvement phases.

06:34 - What benefits do implementing such a quality management plan provide to buyers over those that don't pay as much attention to quality management activities? Instead of flying blind, the QM process allows improvement to processes which would otherwise keep throwing up quality issues. Measuring data also allows better control over component suppliers. Overall, poor performance across the supply chain has a negative effect on your business, not necessarily theirs.

11:04 - Best practices for getting started with quality management if you're starting from scratch. As a minimum, document your requirements (what you and your customers will or will not accept) as this allows you to point out if a supplier has done something wrong that deviates from them! Without this, you can see how improving quality may be an issue if a supplier disagrees with your assessment. Based on the requirements, the second key best practice would be to do some QC inspections (including product reliability & compliance) - fundamentally, do the products reach your expectations?

17:56 - Can 'small buyers' affect change? If you're a very small buyer, let's say 0.1% of a factory's output, for example, driving change in your suppliers may not be possible as they will not listen to you. However, if you account for 10, 20, or 30%, for instance, then it's a different story.

18:43 - Do quality recurring quality issues leave small buyers like some FBA sellers in a difficult position? What can you do to protect your business and improve quality? Would it be as drastic as needing to switch to a new, better supplier? Assuming the factory is capable, it may be a design, material, or component issue, so this is worth looking into when you have some quality and defect information.

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Going through each step of the quality management one by one to illustrate the process that buyers can follow in detail.

21:59 - Quality planning

1. Know your customer expectations (a good specification sheet and drawings will be helpful)
2. Set objectives (approving samples is an important step here and boundary samples may be effective if you have a little tolerance between two points)
3. Qualify supplier & sub-suppliers (we refer to this episode on different supplier types)
4. Audit systems and processes, find risks (FMEA), plan accordingly

28:51 - Quality control

1. Product/material inspections (product inspections can be before during and after production, although DUPRO is favorable as there is then time to make changes before all products are finished)
2. Laboratory testing (some samples are sent to labs for reliability/compliance/safety testing, especially if they cannot be done on-site at the manufacturer's facility)

31:00 - Quality improvement

1. Use problems found during auditing or QC to drive improvements
2. Set controls on identified risks (this could be a preventive maintenance plan, for example)
3. Keep updating the quality standard as and when new issues occur, also the risk analysis for when new risks are found, and feed back to the supplier if there are issues with materials or components coming from a certain sub-supplier

• Explore this topic in more detail in this blog post over on QualityInspection.org: How Quality Planning Drives QC and Process Improvement

We're discussing manufacturing contracts. These are an essential piece of the puzzle for buyers with suppliers in China or elsewhere in Asia as they provide you with a way to clarify your requirements with your supplier, outline your expectations and the penalties for if they aren't met, protect your IP from being used or distributed incorrectly, and provide a legal framework to take action if things go wrong.

Hopefully, if you have an enforceable contract you will never need to resort to litigation, but we do touch on this, too.

Start to 02:47 - Introduction & do buyers work with suppliers without a manufacturing contract? - this is fairly common, but the idea that contracts are not enforceable in China (which is fairly prevalent) just isn't the case.

02:47 to 05:30 - What makes buyers feel secure enough not to use a contract when dealing with Asian suppliers? - this could be down to a lack of awareness about the need for a specialized manufacturing contract that is enforceable in, say, China, because they're used to not requiring a new contract per project in their countries. They may not know about the risk-reducing benefits of a valid contract, especially where larger orders are concerned.

05:30 to 07:53 - Payment terms which can help mitigate your risks - exploring preferential payment terms which may be acceptable to suppliers if large orders are placed, such as paying by letter of credit or paying a 20% downpayment and the balance after delivery.

07:53 to 12:22 - What are the benefits of having a valid and enforceable manufacturing contract? - outlining key benefits. The number one is the ability to outline and clarify your expectations to the supplier and have them commit to it in writing. Using a clear quality standard as an attachment is also important here. The second key benefit is the extra leverage that the contract provides to buyers in the event that something goes wrong.

12:22 to 25:45 - What is included in a manufacturing contract - there are roughly 3 elements to consider (although this will depend on your needs and the type of supplier you deal with) and we'll go through them one by one:

• Confidentiality agreement - China NDA or more comprehensive China NNN agreement - this will prevent the supplier from sharing your IP, using it to compete against you, or reaching out to your customers behind your back. Note - keeping penalties sensible is important.
• Product Development Agreement (PDA) – (if developing product/s with your supplier) - this controls who will own the IP and outlines who financed what, etc. This will help you to move to new suppliers and take tooling and designs with you if needed.
• Manufacturing Agreement (MA) - this outlines what you want the supplier to commit to. Product, spec, quality standard, price, shipment date, etc. It takes away any ambiguity and makes your requirements 100% clear.

25:45 to 27:05 - Further discussion about when these 3 elements may or may not be appropriate - for instance, if a Chinese supplier has rightfully developed the product that you are, say, white-labeling, then it is not appropriate to insist on a clause of exclusivity for the design.

27:05 to 31:53 - What else should go into the manufacturing agreement? - you may include payment terms, a clause about access to their factory for audits and checking, that no sub-contracting is allowed, the inspection process, and when products will be allowed to ship (contingent on passing inspection), what happens if products are received, but many quality issues are found - Why many lawyers struggle to distinguish between manufacturing and design defects which can lead to conflict between supplier and customer if the wording of the contract is not clear on this point and defects occur after some time that the products have been in the field (which would usually indicate a design defect, not a manufacturing defect that the supplier would be responsible for unless they developed the product, too) - also clauses on when a supplier may be sued or termination of the contract can be actioned.

31:53 to 34:36 - Manufacturing contract templates and contract depth - the length and depth of your contract is influenced by the size and type of supplier you work with and your order size and complexity. A small supplier may not have the bandwidth to deal with a very long and detailed contract.

34:36 to 36:40 - The strength of the manufacturing agreement to remove ambiguity - how the contract keeps everything in black and white and prevents managing a project via skype, wechat, email, etc. This could cause problems if trying to find fault for iss...

This podcast uncovers everything importers are likely to need to know about management system standards. We'll discuss key standards, their benefits (for both manufacturers and buyers), good and bad ways to implement them, auditing them, and more.

What are management system standards?

Certifications of these standards are achieved by organizations to demonstrate that they're able to perform the tasks required to achieve their objectives or those of their clients and/or drive improvements in a certain area. An example would be the ISO 14000 family which relates to environmental management being adopted by a manufacturer whose factory must limit pollution and other negative environmental impacts in order to be able to work for an environmentally-conscious client. 

When a supplier is certified for a standard this will allow a buyer to feel confident in working with them if this standard is important to their business, therefore it's one factor to consider as part of the vetting process.

Start to 4:04 - Introduction - explaining why management system standards are important to pay attention to, especially when vetting new suppliers or auditing your own operations (as they can form the basis of an improvement checklist).

4:04 to 09:50 - Tying in management system standards to working with Chinese suppliers specifically - the difference between adhering to a standard and being officially certified. Where to check certifications if they're claimed. The role of standards in building client confidence. Warning about fake certificates and those provided by companies who are less credible.

09:50 to 14:07 - Key management system standards - all of these are sets of requirements with different purposes:

• ISO 9001 - the basis for many standards due to its framework. Quality management system standard for an organization to adopt when focusing on its customer's needs and improving.
• Other QMS standards specific to certain industries, like ISO 13485 for medical devices, IATF 6949 for the auto industry's components, and others such as for aerospace.
• ISO 140001 - environmental management / friendliness
• ISO 45001 - occupational health & safety
• ISO 27001 - information security

In Chinese factories, ISO 9001 & 14001 are usually the most commonly adopted certifications as foreign clients often demand these before for working with them and so they are more appealing if they hold these certifications.

14:07 to 18:40 - Does the Chinese government's focus on the environment provide an impetus for manufacturers there to gain environmental management certifications? - discussing the government's environmental regulations and enforcement in recent years and how effective this has been. Why ISO 14001 certification would make sense for companies who are close to the limits of environmental regulations in China. Positive global recognization of greener companies, like Patagonia.

18:40 to 30:40 - Certifying to multiple standards - if a company wishes to certify to more than one standard it is possible to do this without an enormous amount of work as many standards are quite similar in many ways. Also, discussing the differences between good and bad implementations - explaining how you can save time and money in a 'good implementation.'

25:05 to 29:03 - Why and how certifying bodies and auditors often push in the wrong direction - how they can sometimes drive clients to do everything from scratch unnecessarily costing them extra money! What a good certifying process looks like. Being wary of being in a position where you're overpaying certifying bodies.

29:03 to 30:00 - Does the certification process vary a lot per certifying body? - why their similarities prevent this from being particularly problematic.

30:00 to 35:25 - The logical path for learning more about standards - the same bodies do the training and the certifications and often push companies to purchase a standard to learn from, then implementation training, and then learn how to do the auditing by doing internal and then lead auditor training. How all of these activities don't necessarily make sense and can be very expensive, especially if you have some understanding or past experience in implementing standards. It's also possible to find a lot of the information you need for free online in or...

We continue our exploration of the vetting process when sourcing new Chinese suppliers in this episode. You can read more about this topic in the series of blog posts on QualityInspection.org which we refer to throughout - read all of those posts here.

Social compliance audits are the next factory audit type that buyers need to be aware of and consider, certainly if you're from a big brand or in a niche where social issues (such as child labor) are common, for example, apparel.

Ideally, using a social compliance audit to assure that your supply chain is free from illegal practices such as modern slavery is an important factor in vetting and working with a new supplier. Many large companies, like Walmart for instance, have their own standards that they insist that suppliers meet concerning employee welfare, adherence to local laws, and elements like environmental standards, too. Fundamentally, a social compliance audit protects you from being associated with things in your supply chain which could damage your company or brand.

So, let's explore what this type of audit is, how effective it is, and the drawbacks it has, too.

Start to 8:53 - Introduction + explaining WHAT a social compliance audit is. Some examples of the 3 'big' circumstances that importers want to avoid: Child labor, forced labor, and dangerous working conditions.

8:53 to 10:24 - Does adding in the cost of improving working conditions increase costs overall for buyers? Why the costs associated with paying injured staff, negative government scrutiny, or reduced efficiency due to a shortage of staff put off by unsafe conditions can quickly escalate.

10:24 to 13:55 - Elements of a social compliance audit that are probably given too much importance, for example, working longer working hours and overtime. Even where hours worked are into an 'illegal' amount, this doesn't mean that abuses are occurring, especially in China with migrant workers.

13:55 to 17:20 - What does a 'dumb' importer do when performing a social compliance audit? The dangers of sticking rigidly to a standard in terms of forcing suppliers to lie in order to pass (this may be unavoidable if big customers demand certain things).

17:20 to 18:00 - How the 'smarter' importer approaches social compliance auditing with a selective focus. If the supplier is safe and improving, this should be the goal. Focusing on things like consensual overtime is a red herring.

18:00 to 20:30 - The different social compliance standards and how these have become a good business for large testing groups, to the point where it can be used by buyers and labs to profit from the suppliers who are forced to be audited in order to win business.

20:30 to 22:30 - How and why factories in places like China and Vietnam are improving over time naturally these days and why, therefore, many social compliance audits aren't helping other than for improving the buyer's image.

22:30 to 23:26 - The risks of social compliance auditors being corrupt.

23:26 to 24:45 - How buyers train their suppliers to lie by enforcing rigid social compliance audits with a lot of short-term pressure (pass or lose the order) and also possibly create corruption in the supply chain if the wrong auditor goes in.

24:45 to 26:52 - Why a rigid social compliance scale is good for a buyer's statistics, but not so helpful on the ground. Is it merely ass-covering?

26:52 to END - Exploring a better, more holistic way to approach social compliance audits which is likely to be less open to abuse and more likely to lead to positive changes.

• This episode draws from a lot of the information in this blog post about social compliance audits.
• Learn more about on-site social compliance audits from Sofeast and how we can help you.
• Read more about social compliance audits' negative effects.
• In this post, Renaud writes about why social compliance audits don't work!
• Read about the value of worker interviews during social compliance audits.

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Welcome to episode 249 of our podcast—a special holiday season bonus episode, hosted by Adrian and joined by Renaud, as they wrap up the year just before Christmas. In this festive episode, they extend their season's greetings and talk about various topics that highlight the year's end activities and the bustling nature of the holiday period, particularly contrasting the festive slowdown in the Western world with the relentless pace in China.

The hosts discuss the unusual business dynamics this season, such as foreign customers visiting Dongguan for production checks despite the holidays, underscoring the commitment levels required in the manufacturing industry.

A significant portion of the episode discusses the emergence of China's new visa-free transit policy. This policy, effective for citizens from 54 countries, allows for a 10-day stay in China without a visa, provided travelers are en route to a third country. Adrian and Renaud explore the implications of this development, especially for business travelers who can now conveniently manage short trips to China.

The episode also revisits major industrial changes and achievements at Agilien and Sofeast throughout 2024, including expanding manufacturing capabilities, innovative prototyping methods, and enhancing logistical frameworks. This reflection offers listeners insights into the challenges and successes of firms operating within China's complex manufacturing landscape.

Furthermore, the podcast teases upcoming content and interviews, providing a glimpse into what listeners can expect in 2025, including expert discussions on supply chain management and strategies to navigate tariffs effectively.

We wish all listeners a very happy holiday period!

• 00:00: Introduction & Holiday Greetings
• 02:39: Manufacturing Challenges Ahead
• 04:14: Visa-Free Travel Updates
• 10:13: Sofeast Group Changes in 2024, Shenzhen Office
• 12:09: Prototyping Innovations at Agilian
• 16:34: New Stitching Capabilities
• 19:32: Reviewing the Top 5 Episodes of 2024
• 25:31: Year-End Reflections

• China extends visa-free transit stays to 240 hours, adds more entry points
• Take a look at Agilian Technology our product engineering and contract manufacturing subsidiary (and much more)

Top 10 podcast episodes from 2024:

1. 7 Key NPI Tasks To Do Before You Take Your Product Into Production
2. What's A Good QA Auditing & Inspection Program For New Products?
3. Exploring Plastic Injection Molding Pilot Runs
4. Cost Vs Quality - How Manufacturers Can Find A Balance
5. From "Poorly made in China" to "Made with Quality in China"
6. 10 Common Problems From Chinese Suppliers (& How You Can Deal With Them)
7. What do the USA's May '24 China tariffs mean for importers?
8. Near-Sourcing in Europe (+ Turkey) VS Buying from China (Feat. Fredrik Gronkvist, Productmkr.com)
9. Handing Over To Manufacturing: Best Practices
10. IP Protection when buying from China (Feat. Dan Harris, China Law Blog)

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