How to Resolve Factory Claims in China Most Successfully – Part One – How to Avoid Them

The first thing you want to do, if you haven’t already, is to set up your own internal quality control department. That is the first step in making sure your company has the means to quality control all incoming samples or any other quality issues before placing any purchase orders.

You don’t want to start with too big a department at first because you will learn from experience. Efficiency should be more important to you than size. The composition of your department depends a lot on the nature of your import products. If you are in the textile business, you may want to hire a textile engineer plus an assistant or two. If you are in electrical or electronic products, you need to hire an electronics engineer plus one or two technicians.

To successfully carry out your quality tests, your specialists will need a suitable technical team. A note of caution: don’t rush into setting up a fully equipped lab at this early stage. That would be very expensive. The easiest way to determine the type of technical equipment needed is to rely heavily on your engineers after you hire them. They will know what is needed and where to get it. A discussion of test lab equipment can easily be included in the interview process for engineers.

This is the most reasonable way to get your own quality control department up and running at an affordable cost and in the least amount of time. The second step is to visit your Chinese factories regularly if you want to minimize your risk. As an entrepreneur, you regularly take precautions to protect the interests of your company and visits to your suppliers’ factories should be included as an insurance policy.

If you want to avoid claims, you should discuss your quality requirements in person with factory management to ensure they have a clear understanding of your quality requirements and will implement them accordingly during your production.

The third step is to appoint an inspection company to do an inspection for you. You can choose from the following three main inspection methods:

• Initial Production Inspection (IPI)
• During Production Inspection (DPI)
• Final Random Inspection (FRI)

The most widely used inspection method is Final Random Inspection, which is performed when a shipment is 100% manufactured and at least 80% packed.

The fourth step is to provide accurate information on your P/O, L/C, and any other accompanying documents. This is often overlooked and many claims result from insufficient information from the importer to the factory. Having discussed your company’s specifications with factory management in person doesn’t mean you can omit such vital information from your documents later.

The fifth step is to include a specific provision in their contracts with Chinese suppliers that requires them to obtain and maintain sufficient product and general liability insurance with a reputable international insurance company.

Such insurance should not be seen as a replacement for the other four steps, but it can become your backing. Following this 5-step procedure will surely help you avoid most, but not all, claims with your Chinese factories.