Trading company
Trading companies are middlemen between you and factories. Good trading companies can add a lot of value. A good trading company often knows the right supplier for your product, manages the supplier, does quality control (QC), and passes along volume discounts. Trading companies may not offer
very low price, have people who speak better English than factories do, and they're most accustomed to dealing with foreign customers.
Stay away from a trading company that first tries to pass itself of as a factory. A number of trading companies impersonate factories because they want you to think they control the production process. These companies are usually amateurish and lack the honesty to make you whole in event of a problem. If you're considering dealing with a trading company, you want to ensure three things:
• It has the financial strength to compensate you for problems.
• It's well run.
• It's not on your home government's "restricted" list.
• Do due diligence (DD): View their business licens for their registered capital; the more registered capital, the likelier the company is to be nancially strong. Visit the trading company's offices and apply a common-sense test. Stay away from indecent looking company because the Chinese are very much into appearances. Those fail to make the company look decent, you have little hope that it actually is. You should also ask for a customer list and do some cross-checking.
Factory
Factories may be able to give lower prices than many trading companies. Also, starting a factory takes more money than starting a trading company, so the factory you work with is less likely to fold unexpectedly. In most cases, factory inspection isn't rocket science. Here's a basic checklist of items to focus on when you tour a factory:
• Cleanliness: Appearances count for a lot. If the workers, managers, or the factory appears sloppy, assume that attitude carries over into their products especially with electronics.
• Organization: See the entire process — from where materials come in to how they're processed into products to how and where they're stored.
Think about whether the workflow makes sense and is efficient. If some things don't make sense, ask questions. If you still can't figure out why the factory is doing something a certain way, that's a redag.
Pay particular attention to where finished goods are stored and shipped from. You certainly don't want any of your order to go missing or be placed on the wrong container!
• Machinery: Ask the factory people questions as below:
o What exactly do they do?
o How old are they? What are the brands?
o Where did they come from?
o How much maintenance is required?
o Does the factory have the equipment to cover all stages of the production process? The answers may mean little in and of themselves, but you may understand some important points if you compare factories (which you usually should). Plus, asking questions sends the message that you pay attention to details.
• Quality control (QC): Ask to see the data on the QC inspections on incoming materials. You may also want to inspect the factory's suppliers, depending on the type of inputs. Factories can also have QC inspections at various points throughout the production process. Finished goods should always undergo at least some inspection.
Regardless of how many QC checkpoints the factory uses, the location of the checkpoints and where and how the failed parts are handled should be clear. If that information isn't clear to you on a walkthrough, it likely isn't clear to the workers, either!
Some factories may have received certain process certifications, such as ISO9000 and 9001. If you're interested in the factory's certi cations, make sure they actually follow the certi cation requirements in everyday production.
• Employee conditions: Make sure the factory isn't using prison or child labor. Ask to see the employees' cafeteria and dormitories. You shouldn't expect the Four Seasons, but the dorms should be clean and orderly. Find out how long the employees have for lunch and how long their shifts are. Ask about what training the employees receive. See whether the factory offers much of a career path for them. Happy employees do their jobs better and are less likely to cause production delays and quality issues through turnover.
• Location: You want to understand and evaluate the factory's location for three reasons:
o Utility quotas: Limits on electricity can be especially problematic — particularly for factories in and around big cities. You want to assess the area's utility reliability and whether the factory has backup facilities. Water may also be rationed in certain areas.
o Closeness to suppliers: If the factory's suppliers aren't that close, really pay attention to the inventory
try to figure out whether supply bottleneck.
o Proximity to a port from which they can ship you the goods: You obviously don't want a backup on the way out of the factory, either.
o In case of your orders get outsourced, you should focus on whether the factory has machines that can produce your product when doing DD on a factory.
