Excerpts from my interview with Thomson Reuters covering the impact of the economic slowdown, rising costs & payment issues when China sourcing.
Why some suppliers ship defects on purpose
Let’s say you don’t have an independent quality gate in place. Here is an example of a dirty trick suppliers pull and during my almost 20 years living in China, I’ve seen quite a few tricks the suppliers use to manipulate buyers.
Because the margins are tight, the seller wants to lock in the buyer for multiple orders. Of course, the buyer won’t promise to place additional orders until the first orders arrive. Too many buyers forgot to have clear terms in the PO/Contract about how defects will be handled. Sellers can exploit this to their advantage in the following way:
When seller ships out the order, their “makes an error” and under-ship the number of units and/or they make sure a certain percentage are defects. Since the buyer didn’t clarify what happens in the event of defects or under-shipment, the seller is now in the driver’s seat. Mr. Li will say “sorry for the defects, it was a mistake, won’t happen again, we’ll give you replacement products on the next order”. That’s how the seller gets locked in!
It’s easy to avoid this kind of drama.
- Have a well written, bi-lingual contract, under official chop. A custom contract can be done up by an English speaking Chinese lawyer for just a few 100 USD. So in my opinion, a buyer is just plain crazy to skip this important step.
- Apply a level of independent QC at the factory or consider having the product inspected 100% at an assembly/inspection facility.
Content related to contract, payments and purchase orders:
Wishing you successful China sourcing!
Founder of the PassageMaker group of companies.