When you’re sourcing from China for the first time it can be difficult to know where to start, so the team at China Works have put together this comprehensive list of things to look for from the start to the end of your manufacturing project. Follow these steps to ensure your China sourcing project has the best possible chance of success:
A) Before you start
1. Determine if sourcing from China is right for your product or service – sourcing from the Far East can deliver significant costs benefits, but before you start you need to ask yourself many questions – such as can you afford to carry more inventory, are you willing to give up some control to achieve your cost savings, what is your ROI? Determine if it is better to manufacture your product locally or in China before you start
2. Determine your outsourcing model – are you looking to simply buy from a specific factory, or are you looking to set-up a strategic partnership or joint venture with that factory
3. Finish your product development at home and prepare proper CAD/engineering drawings – do not expect the factory to quote based on changing, incomplete or no drawings
B) Finding and selecting a factory
4. Prepare a comprehensive information pack for the factory – many factories receive multiple RFQs (request for quote) every day. Ensure they take your RFQ seriously by providing drawings, specifications, realistic purchase volumes and target prices
5. Find a quality factory using a China sourcing agent or a manufacturing directory – companies such as China Works can help you find quality factories from their existing pool of factory contacts. Alternatively you can use sites such as www.china-quotes.com, or www.alibaba.com to find factories yourself. Visiting international trade fairs is also a good way to meet potential factories face-to-face
6. Send your information pack to factories with the right capabilities for your project – ensure you pick the right factory for your project – for example don’t send an RFQ for a $5,000 project to a factory normally used to dealing with $100,000 projects. You will find your project is quickly put to the back of the priority list if a big order comes in
7. Understand each factory’s payment terms – Some factories may ask for 100% upfront, while others will be prepared to get going for a 30% downpayment. Likewise some may require a telegraphic transfer of funds (TT), while others will be prepared to accept a Letter of Credit (LOC)
8. Determine your import duties – Import duty is based on the HS code of the products you’re importing, the country you import from, and destination you import to. For example metal components sent to the UK from China are typically have a duty rate of 3.7% (of the ex-works price)
9. Work out your landed costs with the help of a freight forwarder – Many factories will only quote on an ex-works or FOB basis (i.e. the price from the factory gates or at the port) meaning you will have to determine shipping costs, VAT and duty for delivery to your warehouse. This article features a good summary of the different quotation terms – Shipping Terms Summary
10. Select your factory based on service, pricing, lead times and terms and conditions – choosing a factory based on price alone is a recipe for disaster. If one factory comes back 30% cheaper than all the others it will likely be too good to be true
C) Placing your order
11. Agree clear terms and conditions with the factory that clearly specify what will happen if things go wrong – if you’re worried about losing control of your intellectual property ask the factory to sign an NDA. These are beginning to carry more weight in China and a reputable factory will be worried about their reputation if they are accused of stealing IP. Also remember to confirm the legal arrangements for disputes, and terms of payment
12. Work out who you’re actually buying from – typically you may be buying from an export agent or ‘trading company’ rather than the factory itself. Ask the company you’re dealing with to clarify their role and their relationship with your factory
13. Ask the factory to prepare pre-production samples before an order is started – ensure the samples conform to your drawings, and samples are kept by both you and the factory. If there is a problem with your order these samples are vital to illustrate what was promised versus what was delivered
14. Specify everything to the factory, and ensure they understand the end use of a product – for example if the parts you’re ordering need to fit with another set of parts, send these to the factory so they can test at their end. Respond to your factory’s questions in a timely fashion, and expect your factory to do the same
15. Factor Chinese holidays into your lead times – Chinese factories take two significant holidays each year – the Chinese New Year in February, and China Week in October. Over Chinese New Year many factories can take up to 6 weeks off, while it is normal to take 2 weeks off in China Week. The good news is most factories work over Xmas and the Western New Year.
16. Authorise production to start when you’re satisfied with the above – production will typically start when the factory has received your downpayment.
17. Stick to your lead times - Never put pressure on factories to shorten lead times – in our experience this is the number one cause of project failure
18. Plan for the unexpected and prepare for a learning curve – we have never seen a new project that hasn’t had some sort of learning curve to start with. Plan these into your delivery timeframes, and work closely with your factory to get past any issues
D) When your order is ready
19. Arrange for your order to be quality checked before it is sent – ensure you have no surprises when your order arrives. Either send someone to sign-off the order yourself or arrange for a 3rd quality inspection company (such as China Works!) to inspect the order
20. Specify clearly how you want your goods to be packaged – packaging is an extremely important, but often overlooked part of the process. Poor packaging can result in your products being damaged on the way to your warehouse making your careful efforts around production a waste of time – 1 month at sea is long enough for metal goods to start rusting!
21. Arrange for shipping to your warehouse – a freight forwarder will be able to organise for shipping, duty and VAT to be paid. You can find many large and small freight forwarders who specialise in dealing with China through the web and at sites such as www.fiata.com
E) Receiving your order
22. Inspect the goods as soon as they arrive – many factory terms and conditions stipulate that the customer must report any issues within a given time period so be sure to check your goods quickly
23. Give the factory comprehensive feedback and continue to grow the relationship – tell the factory what was good and bad about the end to end process so the relationship develops between you and the process improves for the next shipment. If everything was to your satisfaction be sure to thank the factory.
We hope the above advice is useful to those reading, and that your China outsourcing project is a success! If anyone has any other thoughts or comments please feel free to share them below in the comments
Great exhaustive checklist ! On chapters B-8 and B-9, you may add that instead of waiting for freight forwarders to reply, importers can as well use online services such as AsiaCalculator to get instant landed costing.
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You left out everything legal. I would add in (for most anyway) the need to have a good Non Disclusure Agreement (ND) drafted (in Chinese) and signed by the factory before revealing confidential information and the need to have a good OEM Agreement (probably in Chinese as well) for added protection with respect to the manufacturing itself.
[...] up to Dan Harris of China Law Blog for pointing out this excellent China Works! stepwise checklist to follow when contracting out manufacturing of your product in the [...]
[...] the various steps a foreign company should take to manufacture product in China. Entitled, “The ultimate China sourcing checklist – a beginner’s guide to manufacturing in China,” the post nicely sets out twenty-three steps to be followed, within the following five [...]
This is a good summary of the overall process of China Sourcing. But how about this one?
Searching and Qualifying the Right Suppliers:
Gather a list of contact information from the internet through business forums, networking websites or search with well thought out keywords. Once you have established communication with them, your next step is qualifying suitable suppliers. To help you make an informed judgment, ask the following questions: what companies have they worked with, do they manufacture products for export, have they attended any trade shows or exhibitions, what’s the number of years they have been in this business, etc. Depending on their answer, you’ll have a much better idea about this company’s reputation, their geographical location and specializations. This information is crucial in helping you identify the most capable and reliable manufacturer.
Initial Quotation:
The most important question you must ask them is, do they understand all the requirements and does the quotation reflect that knowledge. Obtaining quotations from more than three suppliers will give you an accurate benchmark for a better comparison. It is not uncommon for manufacturers to offer you a below market price and then raise the price afterwards. So please be certain that the quotation is accurate and with a longer valid date.
Sample Production:
Sample production is a must if you are sourcing a more sophisticated product. On average, sample production could take up to five to ten test runs until the factory reaches an acceptable quality. Or if you want to cut corners, you could send samples of your finish product for them to use as a reference.
Time for Production:
Now you are ready for mass production. In terms of payment, it is not uncommon for manufacturers to request a 30% down payment, to cover the costs of raw material. The reminder 70% will be made out when products are ready for shipment. Of course, these terms and conditions vary by company and it is open for negotiation.
Shipping:
Before the finish products are loaded into the container, you should double check that all the goods are compliant to the regulatory requirements of your country. Products that violate any regulation may be confiscated at the boarder and could lead to future lawsuits. Don’t take your suppliers word for import compliance, because they are not legally bond; it is your responsibility.
Almost There:
When your shipment is well on its way, you may want to track the progress of transport and customs clearance status regularly with your freight forwarder once the container enters port. You may be asked to provide additional production information and you endorsing the bill of lading from the customs. You’ll also need to issue a power of attorney to your broker and purchase customs bond for your products.
An Important Note:
Importing from China is not an easy job. It is very complicated and involves numerous, highly detailed-oriented tasks. It requires strong communication and earnest co-operation from all participating parties. Most importantly, execution is the key. If any part of this delicate process is interrupted, it will cause a chain reaction that will severely damage your schedule of delivery. Sourcing from China should be dealt with knowledge, experience and caution. A feasible alternative would be to work with a company that acts on your behalf, and see you as their top priority.
does an NDA have to be in Chinese or can I use one in English?
is there a specific site that is best for checking regulatory info between USA/China?
in your opinion, is a trip to China to check samples and production better than simply Fedexing back and forth and sending emails with artwork?
thanks much! this is a very helpful site.