Buy in China: How can I control better my chinese manufacturer to rework defective goods

A frequent question I receive is : ” How can I get my manufacturer to accept to rework my defectives goods ?”. This question come back very frequently and I see many importers going to endless dispute with their manufacturer and quite often it doesn’t solve their problem. More specifically, this situation occur when after a production a Final Random Inspection (or Preshipment Inspection) reveal a substantial defective rate making the product difficult to sell. Quite often, the manufacturer will not want to rework the goods because they have already packed everything and it would cost them too much to rework the goods.

Hence, they are usually in a hold and wait position for their buyer to pay the goods before shipment and don’t move from this position. On the other side the buyer is willing to get its goods being reworked and don’t want to pay the balance of the goods if the goods are not reworked. On one side the manufacturer wait his money, and on ther other side the buyers waits its perfect product. Quite often, because time is against the importers whi most of time has to deliver his final client quickly, the importer will loose at this game and will pay the goods to ship and hope his final client doesn’t see the defective too much. Personnally, I think there are a few simple way to obtain goods reworking after defective but to get this, you need to plan in advance.

1./ Understanding a manufacturer brain

To do this, first you need to put yourself in the brain of the manufacturer: the manufacturer receives 30% of an order and start producing some goods. With a 30% deposit in hand he can barely cover the advance payment of its sub suppliers (material, component, packaging). For the manufacturer to make a margin (let’s say 20-30%), he has to receive 100% of the payment. This is not his advantage to not get paid and not ship the goods to its client.

Nevertheless, here is what is happening: Most of time products which get purchased by importers are usualy OEM products. Those products are also purchased by other buyers worldwide. Importers will ask a small customization to his manufacturer because the cost is very low. Custom packaging, a sticker for branding and a silk screen marking are a few examples (it depends on the level of customization).

If an importer place order, pay a 30% deposit, and finally refuse the goods, then the supplier have product in hand and has to generate money with those goods. Two solutions are then possible:

• The manufacturer sell the product as it on the chinese market, and this his how some importers would then say that the manufacturer become competitor or let flow some product on black or parallel market
• The manufacturer repackage or refurbish the product by changing what can be changed

Those are mostly the two leverages a manufacturer can have to generate some margin on a production which a buyer didn’t pay in the end.

2./ Mining the ground

To make your manufacturer be willing to accept your terms, here are a few tricks. You understand that the manufacturer will not listen to you too much if he thinks that he can repackage or refurbish your product easily to resell it to someone else.

Hence, if you want to have power on your manufacturer, you should establish a strategy to make the manufacturer having the less leverage possible on his option, so make sure the following:

a./ Tighten your contract

Your contract (in bilingual) should indicate that in case of defective or any other case the manufacturer can not resell products under using your brand, and this whatever the market.

b./ Customize your product at the maximum so they can not resell the product easily to someone else

• Packaging highly customized (and if possible a bit expensive, so it would be a big waste to trash it)
• Marking on  as many parts as possible of your product (if possible make those marking not being removable, so choose the ink quality wisely)
• Plastic part in mold marking with your brand to mark your plastic part with your brand in 3D
• If you are making electronic product then mark the PCB with your brand on it and customized the user interface with your brand on it
• Warranty sticker
• Master carton
• Accessories

Make sure you can customize and mark the part which get the highest cost and which difficult to replace, so that the alternative are quite limited

3./ Discussing smartly

Now, you launch your production and perform a Preshipment Inspection at the end of the order. And you find defectives. You ask your supplier either a discount or you want a reworking. The supplier refuse both.

In the discussion, you can now highlight to him : “I understand your position, however look: you have signed a contract in chinese that you can not sold those goods anymore to anyone else one side, and on the other side, parts are marked with our logo everywhere. It will cost you more time, money, energy and hassle to refurbish those goods than spending a few days for us to correct the defective one”.

Normally, it should help you to convince your manufacturer to make the right choice.

Conclusion

Anticipate problems earlier. Try to think the way a manufacturer would deal with the problem. Limit the manufacturer possibilities so they have to listen to you.