• UL, CSPC Compliance & Fraud Prevention – What US importers need to know about China

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    David Baysource

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    We talk a lot about product certification compliance and importing from China, from a European perspective. We thought it was about time to reach out to our fellow readers from across the pond. David Alexander,  President of BaySource Global, explains what American businesses needs to know about UL, CSPC Compliance, Fraud Prevention and getting your product right.

    David, please tell us a bit about what you do and how you got started

    In 2000 I was SVP Operations for a US consumer products company in the health and beauty care space. In 2002 we needed to launch a new brand that required all new packaging. The best domestic pricing we were quoted on container/closure tooling was US$300,000 which was extraordinary for a $5 million brand. By luck we were introduced by our Canadian distributors to an agent in Hong Kong. Long story short, we got the tooling done for US$30,000 and the products at half the cost.

    This was the genesis for my realization that small to mid sized companies needed the same allies and resources as large ones. In 2004 I formally launched BaySource and we have counseled and managed contract manufacturing projects involving everything from basic metal works, injection molding, cut and sew to complex engineered PCBA designs and electromechanical products.

    We also handle distribution into China with a Class A Import-Export license. This involves managing purchase orders, inside sales, fulfillment, aftermarket service and support, and most importantly Collections.

    Why do you think it makes sense to work with an “on the ground” partner rather than managing the supply chain from a distance?

    By now I think this conversation has evolved to a more obvious conclusion—that it is very difficult to manage a project if you aren’t present. When you think about it, even contract manufacturing projects a few hundred miles away is a challenge, let alone a few thousand, in a different language, culture and countless additional considerations. In another article, Using an Agent vs Going Direct, I list the top 10 reasons to establish a trusted resource when doing business in China.

    Many Chinese suppliers complain about overseas customers not providing them with sufficient product specifications. Is this a problem you’re also dealing with?

    Indeed the adage “garbage in, garbage out” applies to any sourcing or manufacturing project. We actually see it as one of our key value added responsibilities to identify gaps in product design and material specification even prior to it getting in the hands of the factories. There isn’t a single time when we haven’t found any missing or errant specs or tolerances. So while it is still a common problem, this is something that can be addressed and mitigated up front.

    Why is it important to provide a Chinese supplier with clear product specifications? Shouldn’t the supplier guarantee that the products reach up to a certain quality standard?

    This is an excellent question and one that a half day seminar might be able to cover. Like so many misunderstandings about China, most managers don’t realize just how literal the Chinese are when following instruction. If the specification is to paint the train blue, the train will be painted blue. Only there are a thousand different shades and names of blue, hundreds of different vendors, and half of these will have ingredients that are considered hazardous or exceed PPM (parts per million) for lead content and will lead to that Mattel product recall.

    Many products are required to be compliant with certain product standards and directives. Which products and certification standards should American importers be aware of?

    This is a big question. Product certifications are generally dictated by category or trade. With your product in the public domain, most retailers will require some sort of regulatory or product safety testing and compliance with groups such as the Consumer Product Safety Commission (CPSC), Underwriters Laboratories (UL) and others. Depending on what industry you are in, your item may require testing and certification by default. This can mean additional time, red tape and money. Standards such as ISO for Quality, Safety and Environmental – are dictated more by industry.

    Some factories may claim to be “compliant” which is different than being certified. The FDA, for instance, doesn’t certify Chinese factories, but some may demonstrate compliance by practices such as clean room manufacturing or cradle to grave lot tracking of materials.

    How is it possible to determine whether a Chinese supplier is compliant with standards such as UL and FCC?

    Most will have updated, current copies of their certificates framed and displayed. Take a photo or notes and jot down the dates and numbers which can also be verified by the entities issuing certification. Inquire which clients required the certifications (the factories would not spend the money to get certified on their own) If the certificates are not current, a deeper dive into the factory’s Quality department will reveal a lot about their philosophy regarding Quality Assurance and Quality Control.

    All right, thanks for the advice! Let’s talk about something else. Scams. Are you seeing more China related frauds today than ten years ago?

    Scams can occur in Chicago, London, Amsterdam or Shanghai. Anywhere you have over a billion people there is a chance for a scam. Manage-Manage-Manage should be the theme of this interview. Manage the details, manage the expectation, monitor the progress, and when it’s looking good, manage some more.

    A common challenge when working with an offshore factory is quality fade, a term used to describe a diminished level of quality over time. While it may not seem like an egregious attempt to scam the customer, factories will save every penny in cost of goods possible. Managing the details proactively will help. Don’t ask yes or no questions. So for instance, ask the factory what their inbound material qualification process is.

    What you are looking for is a consistent set of standards and practices which indicate that down to the raw materials level of the supply chain, the factory holds their vendors accountable or at least has a system in place to avoid poorer quality substitutions. This is a very Western type of stopgap practice, but one that cuts out another opportunity for poor quality.

    Let’s assume I’ve found a Chinese supplier and is about to place my first order. How do I minimize the risk of being scammed?

    1. Check their references well ahead of time and even before you have given them drawings or designs. Get a feel for the types and quality of customers whom they’ve served. This will be a good barometer for you to understand who else has placed their trust with this factory.

    2. Ask to see their Factory Registration, the very basic requirement for doing business.

    3. Have clear, written details of deliverables, timing and quality standards that you both agree upon.

    4. Negotiate terms that are good for both sides.

    NOTE: rarely will you get terms similar to Western companies such as Net 30 unless you are pumping tens of millions through their system. Most commonly you will have paid the factory in full before they will even release the shipment Ex-Works. Ask to pay a certain amount upon first article of inspection, an additional amount upon successful production run of a few hundred units and inspect a lot sample of these.

    NOTE: at this point develop and sign off on a “Golden Standard” which identifies all details of an acceptable product by color, weight, size, tolerances, fit & function—all requirements. If possible actually have both parties sign two units in permanent marker and maintain an inventory of each lot.

    5. Unless you have the resources, time, expertise and manpower, hire a China agent who can manage and mitigate these inherent risks on your behalf.

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