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ways the smartest importers cut inspection costs

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5 ways the smartest importers cut inspection costs

Posted: December 16, 2015

by George Huang

You’re sitting at your desk, with your hands on your head staring down at the
balance sheet, burning the midnight oil again. You import promotional goods from
China. You have an order of 20,000 pens currently in production and scheduled to
leave the factory on December 15th – less than a week away.

You have a choice to make. Do you save some money in the short run by
skipping product inspection altogether? Or do you somehow allocate part of an
already limited budget for inspection?

If you’ve manufactured goods before, especially abroad, I probably don’t have
to tell you the value of carrying out product inspection of an order before
shipping. Pre-shipment inspection is one of the only ways to ensure your
products meet specifications and expectations for quality.

You might save a bit of money in the short term by forgoing inspection. But
any issues with your finished product after it reaches distribution centers – or
worse, your customers – might have you wishing you’d made the relatively small
investment in quality control beforehand.

But you import promotional goods. You work for tighter margins than
importers buying high-ticket items like jewelry or furniture. How can you afford
to spend a little extra on inspections to ensure the quality of the finished
goods?

The answer: the same way the savviest importers do it. With these five ways
to cut inspection costs.

1. Decrease the sample size for inspection

An inspection that relies on AQL sampling uses inspection levels to determine
the number of units to pull in a sample for inspection (learn more about three general inspection levels). Decreasing
the sample size by lowering inspection level is one of the most common and
straightforward ways to cut inspection costs. And you can lower your inspection
level while still having a random sample of goods checked.

Your lot size is 20,000 pens, which gives you three options for general
inspection levels, or sample sizes, below – “K”, “M” or “N”. You also have the
option of choosing a “special inspection level”, a much smaller sample size
that’s less frequently used for inspection.

If you look at the flip side of a standard AQL chart, you’ll see that sample size codes
“K”, “M” and “N” correspond to 125, 315 and 500 units, respectively. This means
that a GI-level inspection of your 20,000 pens will verify a sample of 125 pens.
A GIII-level inspection would have the largest scope, verifying a sample of 500
pens of your order.

A larger sample size generally means inspection will take longer to complete.
And a longer inspection will probably cost you more money if you’re hiring an
independent auditor that bills on a man-day basis (see Third-Party Inspection vs. Factory
Self-Inspection).

So the next time you receive a quote for product inspection, check the
inspection level and consider lowering it if you’re on a tight budget. You can
cut inspection costs by inspecting a smaller sample of product.

You can cut inspection costs by inspecting a
smaller sample of product. Click To Tweet

2. Merge similar SKUs to inspect them as a group

It’s often possible to inspect one sample pulled from multiple SKUs grouped
together and still get a fairly representative look at your order. SKUs that are
similar enough can be combined and inspected as one without compromising the
principle behind random sampling.

SKUs that are similar enough can be combined and
inspected as one. Click To Tweet

For example, let’s say the pens you’re manufacturing all have Marvel Comics
characters painted on them. The only difference between SKUs is the different
characters that are painted on each. Here your Spider-Man, Hulk, Iron Man and
Captain America pens can all be merged into a single group. Then, instead of
inspecting a small sample of each SKU, a relatively larger sample size can be
inspected of the combined SKUs.

But let’s say your Spider-Man and Hulk pens have a light that projects the
shape of the comic character when the user holds down a button. Since this
feature only applies to two out the four SKUs, it wouldn’t be wise to combine
all four. Here you would be better off merging the two similar SKUs with the
light feature as one group for sampling and the two similar SKUs without the
light feature as a second group for sampling.

Merging SKUs is one way you can cut inspection costs. But you must be careful
in choosing the SKUs that will be merged (learn more about merging SKUs).

3. Inspect based on time, rather than sample size

When you want the most units inspected in the shortest time possible you may
choose to inspect based on time, rather than sample size. Instead of telling
your QC provider to carry out a GI-level inspection of 125 units, you can ask
them to simply inspect as many units as possible in one day. Inspecting this way
can improve efficiency, but there’s one setback.

A product inspection based on time does not rely on statistical sampling
using AQL.

A product inspection based on time does not rely
on statistical sampling using AQL. Click To Tweet

Without AQL sampling, the auditor inspecting your product is usually unable
to provide

a simple “pass” or “fail” inspection result. This is because AQL sampling
determines the maximum number of defects allowed for a product to pass
inspection. And an inspection result that doesn’t use AQL will be more difficult
for you to interpret.

Time-based inspection can help you cut inspection costs. But you should
consider the effect of not using AQL sampling on your ability to make an
informed shipping decision. This type of inspection is ill-advised if you’re
inspecting an order for the first time.

4. Chargeback the supplier for failed inspections

Some importers will charge their suppliers for failed inspections. This is
one way to cut inspection costs that might work for you. It can serve not only
to keep inspection costs low, but also to incentivize your supplier to resolve
quality issues. You may find you can curtail the number of inspections needed as
your supplier tries to avoid failing results.

But you should first carefully consider the relationship you have with your
supplier before asking them to pay for failed inspections. You may have
difficulty enforcing chargebacks in situations where:

You’re ordering a relatively small quantity of an inexpensive product

You’re working with a new supplier for the first time; or

You have a history of problems getting your supplier to cooperate,
particularly communication problems

In cases like these, trying to chargeback inspection costs to your supplier
can be difficult. It can also hurt your relationship with the supplier and lead
to more serious problems. This is a strategy best left to importers with a
strong, long-standing relationship with their supplier or for importers with
significant buying power and influence to negotiate with their supplier.

5. Inspect locally

The last way savvy importers cut inspection costs is by hiring a local
auditor to inspect. It’s typically much more cost-effective to hire an auditor
locally than to send another that’s based relatively far from the factory where
inspection is needed.

Maybe you have your own inspection staff based in Hangzhou in China’s
Zhejiang Province. But if you need your pens inspected at a factory in Jiangmen,
Guangdong Province, an auditor from Hangzhou would need to travel about 1,350km
to reach the inspection site. That means more time spent in transit and more
travel expenses incurred.

Whether you have your own full-time inspection staff or not, you can save a
hefty sum by hiring an auditor near the inspection site to check your goods. In
fact, many larger importers that have their own full-time QC team will rely on
independent auditors or contractors for more remote areas (see Independent Inspection vs. In-House
Inspection).

You can save a hefty sum by hiring an auditor
near the inspection site to check your goods. Click To Tweet

Conclusion

No business venture is risk-free. As an importer, you determine your own
appetite for risk. But you can minimize your risk through pre-shipment
inspection of your product. And you can keep your inspection costs low, while
protecting yourself from the risk of receiving substandard goods.

A small investment in quality control during the manufacturing process can
pay dividends when your customers receive a product that meets quality
expectations and requirements. As British designer Bruce Oldfield once said,
“Never cut corners or accept anything that’s second-rate.” You can cut
inspection costs without cutting corners.

George Huang is a Client Manager at InTouch
Manufacturing Services, a QC firm that performs product inspections and
factory audits in Asia for clients in the US, EU and Australia.”

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