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in China – Part II: Quality assurance, balance payment & shipment

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Managing the production process in China – Part II:
Quality assurance, balance payment & shipment

Posted: March 07, 2016

By Fredrik Grönkvist

This
is the 2nd part of Managing the Production Process in China. In Part I, we covered the procedure from the negotiation of
the Sales Contract and Deposit Payment, to Mass Production and Batch
Samples.

In
this second part, we guide you through the remaining steps of the process,
including Quality Inspection, Compliance Testing, Balance Payment and, finally,
shipment.

4.
Quality Inspection & Compliance Testing

Now
it’s time to verify that the products are manufactured according to the
specification, and in compliance with all applicable safety standards
and labelling requirements. It’s a two step
process, as explained below.

a.
Preparations

You
may begin drafting a Quality Inspection checklist well before you even have a
supplier. The purpose is to execute all tests necessary to verify that the goods
are manufactured according to all technical specifications, listed in the sales
agreement. Most likely, you’ll hire a China based quality inspection agency to
carry out the inspection in the factory, on your behalf. However, it’s your job
to provide them with explicit and clear checklists. Yes, very
often they can provide detailed templates, but don’t make any assumptions. The
inspection will be carried out according to the protocol.

As
mentioned in Part 1: Sales Contract, all applicable standards and regulations
must be specified in the contract to begin with. However, you should also
contact a product testing company (i.e., SGS or Bureau Veritas) a few weeks
before the goods are completed to confirm price and sample delivery address. You
must also instruct your quality inspection agent to collect and submit samples, directly from the
factory, to the testing company. Don’t entrust your supplier to do this for
you.

Note:
Don’t keep the inspection and compliance test a secret. Suppliers are more
likely to adhere to your specifications and quality requirements if they know
that you will check up on the goods – prior to the balance payment.

b.
Execution

Most
buyers choose to send the inspector once all products are fully assembled, and
50 to 80% is packed. As said, the inspection is carried out according to the
protocol, with the result usually delivered within 24 hours. This is what you
should expect from the QC agency:

1.
Quality Inspection Report:
Contains all test data, including measurements and other results, compared to
the ‘required result’

2.
Images & Video: Showing functions, defects and testing
procedures

The
inspection agency shall also submit batch samples from compliance testing at
this time, and you shall contact the testing company directly (unless managed by
your QC agency) to confirm the arrival, and final testing cost. The test is to
be carried out immediately after you have paid the testing company.

Upon
completion, you now have the data you need to decide whether to approve or
reject the batch. You are, most likely, forced to deal with a number of
(hopefully minor) defects. If you approve both the quality inspection report,
and if the test reports comes back with an approval stamp – you can now move
forward to Step 5.

Note:
The compliance testing process always exceeds the production time, and may add
on another 1 to 4 weeks. When importing certain products, for example textiles
and apparel, you may collect material samples much earlier in the process, and
thereby save weeks. However, some products must be tested and certified as
‘assembled units’, which is the case for electronics and toys.

5.
Balance Payment

There
is no return after you’ve settled the balance payment. At this stage, you must
be sure that the products match your quality requirements, and are made in
compliance with all applicable regulations in your market. However, if there are
any issues that must be corrected, hold on to the balance payment until said
corrections has been made.

Once
again. Pay the to the right bank account, and keep track of the details. Send a
‘payment proof’ and follow up until the payment is confirmed by the supplier.
These days, most suppliers require payment before the ship to the port of
loading. However, the specific terms depend on what you’ve negotiated in the
contract. Some suppliers may also accept balance payment after sending the bill
of lading copy, but not the original document (which is required to release the
cargo).

6.
Shipment

The
exact process depends on the incoterm, specified in the sales contract.
Below follows a summary:

EXW:
The cargo is made ready for pickup at the supplier production facility. Your
freight forwarder must take care of transportation to the port of loading, in
China, and all export clearance procedures. I don’t recommend EXW under most
circumstances, and it’s rarely more cost efficient.

FOB:
The supplier takes care of delivery to the port of loading, and export
clearance. However, you must book freight from the port of loading (e.g.
Shenzhen) to your destination.

CIF:
Everything included in FOB, and shipment to the Port of Destination. However,
excluding port charges and inland transportation in the destination country. Port charges are often several times higher
than the sea freight charge when shipping LCL (Less than Container Load), so be
careful.

DAT:
Everything included in CIF, and including Port Charges in the Port of
Destination. However, inland transportation is not included.

DAP:
Everything included in DAT, and including inland transportation to your office
or warehouse.

That
being said, before you can release the cargo, the supplier, or the freight
forwarder, must send the freight documents, which includes the Bill of Lading, Commercial Invoice and Packing
List. This must be done at the latest two weeks before the cargo is expected
to arrive. For importing businesses based in, for example, Singapore, Malaysia
and Australia, the documents must be delivered well before that.

Fredrik
Grönkvist is the co-founder of ScandinAsian Enterprise in Shanghai. Since 2010,
he and his team have helped hundreds of companies worldwide, primarily in the EU
and US, to develop and manufacture products in China. He is also the main
contributor on www.chinaimportal.com, a leading
knowledge base for small- to medium-sized enterprises importing from Asia. For
further questions, you can contact him on www.chinaimportal.com/contact-us/.

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