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Quality Control Agents: An insider’s look at their fee structure (part 1)

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You can divide the China inspection agents into two groups: Sourcing Agents and Inspection Agents.

Sourcing Agents

Sourcing agents often do inspections and audits as part of their supply chain management service.

They will charge 3 to 15% (depending on size of order) for their service, which is inclusive of audits and inspections.  I’m not a fan of this system for many reasons:

 

You wouldn’t ask your dentist for legal advice.

Professional Inspectors and Auditors have a skill set and training which an employee of a sourcing agency may not have.  Sourcing agencies are often staffed by bi-lingual project managers and account managers who are good at communications and organizing requests for quotations, but they may not have the slightest clue about how to audit a factory for social compliance or drill down into a supplier’s quality systems to confirm if it is ISO compliant and technically capable of making the specific product you wish to order.  Many sourcing agencies don’t even know how an AQL table works. (I’ll cover AQL tables in part 2.)

Even if the sourcing agent has suitable staff with experience conducting inspections and audits, I still don’t recommend using them for QC for the following reasons.

a)     Sourcing agents often have hidden kickbacks from the factory that the client doesn’t know about.  In reality, the inspector is working for the factory rather than for you. They are unlikely to be diligent with the inspection.

b)     If I am paying for an inspection or audit report on a factory, this is proprietary information about my supply chain that I want to keep secret.  It’s hard to tell if the sourcing agency is leveraging the work I paid for to service their other clients.

c)      Because the sourcing agent is working on a fixed commission, they don’t have an incentive to make multiple factory visits because travel and accommodations cut into their margin. They tend to make one visit to the factory then try to manage the QC over the phone and email. Bad idea.

d)     Most buyers (and many sourcing agents) don’t know that the PRC government requires inspectors and agencies employing inspectors to be AQSIQ certified. (I’ll explain about AQSIQ in an upcoming blog post.)  If your sourcing agency gets audited by the authorities, they could be shut down and your project compromised.

e)      Most importantly, inspections and audits are commodity services readily available for a few 100 USD from specialized/professional firms.

I prefer to let the inspectors focus on inspections and sourcing agents focus on sourcing.

 

Inspection Agents

Some inspection agents charge a % of the PO value for their inspection work.  Most professional inspection firms charge by the man day.

I prefer to pay based on the amount of work to be done by the inspector rather than a fixed %. Here is why:

If you have a $100,000 order of metal parts and the inspection criteria is something standard like “pull a statistically reliable sample size at random from the production line and check 3 critical dimensions with a caliper”, and knowing that respectable inspection agencies only charge $298 per man day (and 99% of inspections can be done with a few man days) why would anybody in their right mind give the inspection agency 5%?  Maybe those buyers just don’t know better. I hope this article helps them save some money!

I’m on the board of advisors and www.AsiaQualityFocus.com.  With their permission I have cut and pasted their pricing structure below so that reader can see how a leading inspection agency charges as well as learn what is and isn’t included.

AQF pricing

AQF pricing 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For your reference, the fees above are inclusive of the following:

  • Preparation (protocol, checklist) and coordination of your inspection/audit/production monitoring.
  • Transportation, meals and normal overtime (not nighttime overtime) for the Chinese inspector(s).
  • Inspection Report and Inspection certificate issuance.
  • Online posting and archiving of your quality control and quality assurance reports.

 

Regardless of which inspection agency you end up using, keep the following tips in mind:

  1. Are they a legitimate company with proper business licensing and government certifications (AQSIQ approved)?
  2. Do they have a clear track record of performance? If they can’t give you some client references, run away. That is a very big red flag.
  3. Are they focused on a certain set of services or do they try to everything for everybody? Yes, even the 3rd party service providers have been known to outsource to others just like some factories outsource production without telling the buyer.
  4. Is their pricing structure and service agreement well defined and transparent?
  5. It is a major pitfall to do business with a 3rd Party service provider without a clear contract in place that outlines the service, costs, time frame and other desired attributes of the partnership.

 

Because all of the leading inspection agencies charge by the man day, it is important to understand how the days are calculated.  Put simply, as buyers, on one hand, we want to make sure our inspection agent is checking enough units to give us an accurate assessment of the order’s overall quality.  But on the other hand, we want to keep the man days to a minimum and control costs. In Part 2, I explain how to balance these two goals.

 

To be continued…

About the author: Mike Bellamy

Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). Author of “The Essential Reference Guide to China Sourcing” and founder of PassageMaker Sourcing Solutions.



Mike Bellamy

Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). Author of “The Essential Reference Guide to China Sourcing” and founder of PassageMaker Sourcing Solutions. Mike is co-founder of CSA, the China Sourcing Academy.


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