This post is by Gary Huang, an American based in Shanghai, China. Gary has been working in sourcing since 2008, and is the creator of 80/20 Sourcing which teaches online sellers and small business importers how to save time and make more money when sourcing from suppliers in China.
Recently I listened to an interesting podcast from Scott Voelker aka The Amazing Seller. He shared a story about a quality problem with one of his Amazon products which led to a listing suspension.
The problem was with a bundled product. Apparently some of the products had missing pieces and customers were returning them. Amazon noticed the unusually high return rate so they suspended his listing!
This meant all his sales stopped on this listing. Scott was smart to take action and file for a removal order to take back the defective inventory. Obviously he wasn’t going to ship them back to China (too expensive and time consuming) so he decided to fix them himself. Meanwhile he switched the listing from FBA to merchant-fulfilled to start selling the product again.
But in the process he lost a ton of sales from the time the listing was down to when he fixed the problem and shipped them back to Amazon. And he had to spend his own time and hard-earned money to fix the problem. What can we learn from this? What could Scott have done to prevent this nightmare?
Now I don’t mean to bash Scott. He’s quite an expert on selling with Amazon FBA and he’s a great teacher who’s given a lot to the Amazon seller community. But like the rest of us, nobody is perfect and we all make mistakes.
What if he could have detected these problems early on, before the order left the factory? If so, he could have asked his supplier to fix problems before they shipped. And at their cost. This would have meant:
- No customer complaints and returns leading to a suspension.
- Not having to ship products from Amazon back to his house and then back to Amazon FBA.
- Not having to spend time (and money) to fix the problem himself.
- No lost sales.
I think Scott would be a happy camper!
So how do we do this?
Rather than flying blind and taking a risk on every shipment, experienced sellers and importers inspect their products before they leave the factory. It’s called a pre-shipment inspection. And it’s a small price to pay for the amount of time, money and headaches it can prevent.
Benjamin Franklin once said “An ounce of prevention is worth a pound of cure.” So I’d like to share with you how I arrange pre-shipment inspections to provide quality control (QC), lower the risk of getting suspended by Amazon, and save you time and money so you can focus on growing your business.
Benefits of pre-shipment inspections
Pre-shipment inspections have a lot of advantages, and some are more obvious than others:
- Catch quality problems early on so you don’t have to deal with defects after products land back home.
- Get the factory to fix problems at their expense! I would much rather have the factory handle problems in China (lower cost of labor, no additional shipping times) than handling this in the US (high cost of labor, emails back and forth with factory to resolve the problem, shipping times of replacements from China to US, etc).
- Lower your return rates and risk of Amazon suspension. If you ship direct to Amazon without an inspection and discover problems later, then you will definitely get negative customer feedback and deal with many returns. If the complaints continue you could possibly face an account suspension.
- Keep the supplier on their toes, and get better quality products. Many times, simply letting the factory know that you plan to arrange an inspection before shipment will be enough to do this. They will pay more attention to production because they know you are serious about quality. Some experienced importers tell factories they will inspect even if they don’t follow through! While I don’t necessarily agree with this, it does work from time to time.
- Ship direct from the factory to Amazon to start selling sooner and reduce shipping costs. Shipping from point A (China factory) to point B (Amazon FBA warehouse) is faster and cheaper than point A (China factory) to point B (you) and then to point C (Amazon FBA warehouse).
I recently met an Amazon seller from Romania who sold on Amazon’s US platform. He told me about a problem he had with a shipment from China. Since he doesn’t live in the US he has his supplier ship the products to a friend in the US, who inspects it before shipping to Amazon’s warehouses.
When the product arrived in the US they discovered problems. After emailing back and forth with the Chinese factory, they agreed to replace the defective products and ship them to the US. But the seller lost significant time and sales going back and forth with the supplier to solve this problem. This kind of process can take two to three months for communication, production, and re-shipment resulting in tens of thousands of dollars in lost sales! If he had hired a third-party inspection agency to check the order, and fix the problem before it left the factory, he probably could have avoided a lot of headaches and made more sales.
When to arrange pre-shipment inspections
By now you’re probably asking, “When should I arrange an inspection? Is it necessary for every order?”
As a general rule of the thumb the risk of problems – and the need for inspection – is greater when the item is more complex, the item is newer (i.e. first production run) and the supplier is newer.
I like to think of a pre-shipment inspection as a safety net to lower your risk. It helps you identify problems before shipment while they can be more easily and cheaply fixed.
Here’s a round-up of the times when a pre-shipment inspection makes more sense:
- Expensive products or high-order values. In these cases it makes sense because the cost of inspection is lower on a percentage basis. For example for a $30,000 shipment a $300 inspection amounts to only a 1% cost, while for a $3,000 shipment this amounts to 10%! It makes more sense to inspect when you have larger value shipments.
- Highly complex items. I’m more likely to inspect items that are more complex with more moving parts such as electronics. In other words, products where things are more likely to go wrong.
- Fragile items. Anything breakable or easily damaged such as glass. I make sure to have them inspect not only product but also the packaging. Chinese suppliers will often package their product improperly which causes damage during shipment. So make sure there’s enough protection to reduce risk of damage during transit. This is especially true for sea shipments. Imagine your product being on a ship for a month – boxes move around and the product gets damaged if not packaged properly.
- New items. If the factory is making this for the first time, then expect mistakes. This is an especially important time to arrange inspections to catch problems early.
- New suppliers. Just as on a first date when you are getting to know each other, there will be some “bumps in the road” when it’s your first time working with a supplier. You’re more likely to have miscommunication and misaligned quality expectations when first working together. Over time, as the relationship develops and as you learn each others preferences, likes, and dislikes, those bumps will smooth themselves out.
- Common defects you are aware of. If in a prior shipment you had problems then you should instruct the inspector to pay special attention to those problem areas. For example with one of our products, the first batch had loose screws. So in the next batch we made sure to have the screws inspected. It makes sense to not only inform the supplier to make a corrective action plan, but also for you to take the initiative to inspect for this problem in the next order.
Exceptions: When can you choose NOT to inspect?
In a perfect world, inspecting 100% of all orders would be the ideal way to eliminate risk, but this is not feasible.
In the real world we all have budget constraints and limited cash flow. We are also running against the clock and want to get the product for sale to our customers. So here are some of my insights into when inspection is less likely to be necessary. Do take this with a grain of salt as these are general rules and your mileage may vary depending on your product, tolerance for risk, and aggressiveness.
- Simple products. One instance when we do not arrange pre-shipment inspections is if the product is very simple with a low likelihood of any critical problems. A simple molded component has a lower chance of things going wrong than a tablet computer
- Wide range of quality tolerance that is difficult to define. For example, one of our clients who sourced auto parts from China did not want to arrange a pre-shipment inspection for an order, because they felt all of the items would be failed according to the inspection agencies’ standards. It was a low-cost metal and rubber auto part. The degree of tolerance was difficult to define on paper, so they decided that an inspection would not be worthwhile. Over the years of importing several containers of product per month, there were instances of defective product (which the supplier replaced at their cost) but over the long haul this strategy saved them money.
- Small orders. If you’re making a small order then the cost of an inspection may not be worthwhile. For an order of $1,000 you probably wouldn’t want to spend the $300 to hire an inspection agency. That would be 30% of the order value. What should you do instead? Ask the factory to make a self-inspection and send you the report. Or ask them to ship you pre-production samples.
How to arrange a pre-shipment inspection
There are three main parts to a pre-shipment inspection. These include the supplier’s factory information and expected inspection date, the product name and specifications, and the inspection details. Here is a sample pre-shipment inspection checklist using solar vacuum tubes as a reference.
Supplier’s factory information
- Factory address in both English and Chinese
- Contact person’s name, telephone, and email
- Date of the scheduled inspection
- Date of shipment
Product name and specifications
Be as specific as possible. Put yourself in the shoes of the inspector. The more reputable inspection agencies will have internal checklists based on product categories that you can use if you’re not sure what to inspect.
- Color, material, finish. List your product specifications including pictures, measurements, materials, packaging requirements, your logo, UPC barcodes and any other details that you want to check.
- Dimensions and weight. Note the accepted tolerance levels that you can accept. For example if the tube is 1.80m long and you can accept a length between 1.79m to 1.91m or “+/- 10mm”. You might say, “Why should I accept any tolerance? I want the product to be exact!” Well in the real world, nobody is perfect – especially factories – so you should decide upon an accepted tolerance limit and note this in your purchase order before production begins.
- Logo and labels. Important for private labelers as well as established brands.
- Any additional comments.
- Reference sample. Optional, but you can provide a sample to the inspector as a reference.
Make sure to list the most common expected problems with your product.
- Test instructions. If you have any specific instructions, note them here. If not, the inspection agency will have a predetermined checklist based on your product category, and you can use that. This depends on your exact product so consult your inspection agency.
- Expected results. What you expect for the product to pass inspection.
- Sample size to test. I recommend you follow the inspection agency’s suggestion.
- Expected defect description. Describe your expected defect. For example: “Glass tube damage”.
- “Defect is considered…” Three main types of defects: Critical, Major, and Minor. I recommend you follow the inspection agencies standards if you are new to this.
- Accepted Quality Level (AQL). Think of this as the upper limits of defects that are allowed. If they find a larger proportion of defective items than this, then the inspection will result in a “fail”. A common AQL is Minor: 4%, Major: 2.5%, Critical: Not allowed. Your inspection agency will have these options for you to choose from.
Hire an inspection agency
I normally budget around $300 per day for inspection. If cost is a concern and you have a large number of units in your order, then you can reduce the sample size to fit one man-day. Of course a smaller sample size may miss some problems, but that is the tradeoff.
In terms of inspection agency recommendations, I’ve used AsiaInspection over the years with good results. The major players in the inspection agency game include multinationals SGS and Bureau Veritas though they may be more expensive.
Normally I expect to receive results within 24 hours of inspection. Based on this you will either (a) approve the lot for shipment or (b) reject the lot and/or work with the supplier to fix the problems.
If the inspection passed, then I review the report details and note any minor defects, then green-light the shipment.
If the result was a fail then it’s purely the your decision whether to accept the shipment, because you have been forewarned.
Besides genuine quality problems, another reason an inspection may fail is due to miscommunications in the quality control criteria. Make sure to double check all the measurements, pictures, packaging, and any other common problems in production.
In my years of sourcing from China, I’ve noticed a common trend. When in doubt, the inspection agency will fail inspections to protect themselves. In other words, if they pass a shipment that has problems discovered later, then the inspection agency can be held responsible. But if they fail a shipment and the buyer agrees to ship it, then it’s purely the buyer’s responsibility for making that decision.
What should you do if your pre-shipment inspection fails?
- Look carefully at the details of the inspection report. Are the reasons it failed enough to refuse shipment? Sometimes if it’s a “minor” defect you should ask yourself if this is acceptable to your customers. Steve Jobs was famous for saying “real artists ship”, which means that it’s more important to actually deliver than delaying a launch trying to make the “perfect product”.
- Show the report to the factory and ask them for a corrective action plan to fix critical problems.
- Depending on the outcome and who’s at fault, arrange a re-inspection. I recommend hiring a different inspector (or agency) to prevent any “buddy-buddy” relationships from forming. (See “Beware of fraud” below).
- Decide whether or not to accept shipment.
- If placing a re-order later, emphasize the problems and the corrective action plan in the purchase order.
- Best practice: If the first inspection fails and the factory was at fault, you should negotiate to have the supplier pay for re-inspection. This will save you $300.
The poor man’s pre-shipment inspection
If you want to save money and are willing to take a risk, you might decide not to hire a third-party inspection agency.
But the least you can do instead is to ask the supplier to self-inspect the order and send you an inspection report. Clearly this option is not as comprehensive as a third party inspection, nor will it come from an unbiased source, but it’s better than nothing.
Remember pictures are worth a thousand words and might help you spot some problems. This is how I would do it:
- Ask the supplier to take pictures of the product, the instruction manual, any inserts and the packaging. For the product and packaging, ask for pictures from different angles.
- Ask them to take measurements and weights (if applicable).
- Ask them to test it based on common problems that occur.
- Optional: If you have a sourcing agent or trusted person in China, ask your supplier to send a few units of actual product to them for inspection.
Beware of fraud
Sourcing in China is a dirty business. Sure there are honest guys out there but there are so many moving parts that can go wrong that it’s hard to keep track of them all. Kickbacks and bribes are not uncommon. Third-party inspection agencies (both big multinationals and smaller agencies) are not immune to this.
So I’m not surprised when newbies report that their factories tell them that the third-party inspection agents asked for a “tip” or else face a failed inspection report. It happens everyday in China. So what can you do?
At the end of the day, I take the inspection agency’s recommendation with a grain of salt. Their decision is one factor but I always look at the details of the inspection report. Ask yourself why was it failed and do these problems matter to me and my customers? Ultimately you are the CEO and it’s your decision whether or not to accept the shipment.
In summary, pre-shipment inspections are an excellent way to reduce your risk of quality problems, which can lead to high customer returns and even an Amazon suspension.
Regardless of whether you hire a third-party to inspect or have the factory self-inspect, the important thing is to try to catch problems before the product leaves the factory floor. That way they can fix it at their own expense, which will save you a lot of time and headaches down the line.
I hope this was helpful. Please visit my website 80/20 Sourcing for a “deeper dive” into these topics. Good luck!
Gary also serves as the co-chair of the American Chamber of Commerce in Shanghai’s Supply Chain Committee. You can contact him via 80/20 Sourcing.