Challenges in the due diligence process about suppliers in China

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Managing Director in China Office

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Here are some interesting or useful articles that I found recently.

In China, the Dangers of Due Diligence

Checking Chinese suppliers or partners carefully before starting a business relationship is extremely important.

Yet China is making it pretty clear that background checks on companies or individuals (without their consent) are not welcome. They are, in many cases, illegal!

Fast and Flawed Inspections of Factories Abroad

Another interesting article from the New York Times, about the difficulty of auditors to find the real in factories.

The inspections are often so superficial that they omit the most fundamental workplace safeguards like fire escapes. And even when inspectors are tough, factory managers find ways to trick them and hide serious violations, like child labor or locked exit doors. Dangerous conditions cited in the audits frequently take months to correct, often with little enforcement or follow-through to guarantee compliance.

And what is the root cause? First, the type of audits:

Dara O’Rourke, a global supply chain expert at the University of California, Berkeley, said little had improved in 20 years of factory monitoring, especially with increased use of the cheaper “check the box” inspections at thousands of factories.

And second, the bad habit of subcontracting the work:

Unauthorized subcontracting, or farming work out, to an unapproved factory (as was the case for the Quaker Pet Group order in China), is very common.

So what is the solution, according to experts?

You can never visit facilities often enough to make sure they stay compliant — you’ll never have enough inspectors to do that. What really keeps factories compliant is when workers have a voice and they can speak out when something isn’t right.

The Problem With Auditing Factories in China 

Andrew Reich doesn’t seem to agree with the above article.

Retailers, brands and importers are more concerned with CYA (covering their asses) then in making real improvements and protecting workers. This is the ROOT of the problem, and we all know if your root is rotten you ain’t going to grow a very nice tree.

He goes on to describe the perverse incentives that social compliance audits have created in the supply chain.

Insist on a Bank Account When Paying a First Sample Charge 

Callum Makkai gives two GREAT tips to improve the supplier verification process:

  • If you need to pay for the initial sample charge, insist to wire money on their company bank account. If they can’t give you that information, they are probably not a serious supplier.
  • If you need to pay the courier fee for sending the samples, don’t just give your account number to the supplier — instead, ask your courier to pick the samples up. This way, you know the supplier’s address, and you can compare it to the address on the business registration.

How to Stay Organized While Sourcing

Liz Long gives small buyers a few tips on how to organize their China sourcing activity.

Here are a few of her suggestions:

  • Keep all contacts in Excel, with comments etc.;
  • Set up the quoting process so that you compare apples to apples;
  • Using a CRM software to keep track of all interactions with suppliers.

3 tips for your China price requests

Etienne Charlier gives us three tips on how to request quotations from Chinese suppliers, based on actual examples.

The naughty vendor checklist

Stephen Ashcroft, a “purchasing and proposals coach”, came up with a list of behaviors observed in suppliers who tried to take advantage of the buyer.

Here are a few good ones:

  • Shift responsibility to sub-contractors to avoid accountability.
  • Blame pressure put on price by the buyer at the time of contract for performance shortfalls, and then try to renegotiate the price.
  • Escalate minor difficulties to prevent them being raised in the future.
  • Exaggerate costs of variations and changes to enhance profit.

Article Source: qualityinspection


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