Controlling Supply Chain Risks By Ensuring Shipping Quality

Managing supply chain risks is already one of the biggest challenges faced when sourcing internationally. In China, potential damages to shipments are often overlooked by buyers eager to take advantage of bargain deals. To make sure that buyers enjoy the cost benefits of buying from China, smart sourcers need to start minimising losses resulting from leaky containers or careless loading. Learn from an experienced QC expert on how to reduce these shipping risks.

There are many articles and other sources offering information on how to negotiate the best price and most favorable terms when sourcing from China. Of course, you want to obtain the best price and terms if you source from the company next door, too. But there’s one major difference between the two; you can’t just drop by the factory in China to make sure the shipment conforms to your order when they load and ship it.

The quality of the product can be perfect, maybe even inspected (which I highly recommend) by your own personnel or a third-party quality (third-party quality inspection firm) firm and passed for shipment. But the wrong count, wrong mix of SKUs, improper handling during loading, inadequate dunnage and/or the shipment being loaded into a damaged container that will, say, flood enroute, all still leave you with the same result on arrival; unusable product and a long delay to replace it.

Whether you paid for the shipment upon loading or prior to shipment, which leaves you exposed to long debates about who’s responsible for the condition and conformance of the shipment, or you have open terms and the ability to withhold payment, you’re still facing extra costs in the form of missed sales opportunities at best and client fines and/or lost clients at worst.

Three Options for Controlling Shipping Quality

Option 1: Rely on the factory or trading agent’s assertion that all conditions of loading will be ideal. This is the highest risk level where many of the “China horror stories” come from. Remember, they’re highly motivated to get the shipment out the door. They may load the wrong mix of SKUs (Stock Keeping Unit) and plan to sort it out with you later, or they may not refuse that leaky container because they’d have to wait for a replacement. They may cut costs on dunnage, leaving you with a jumble of damaged goods when you open the container doors. Even those with the best of intentions may not have the time to witness the loading, telling you it’s OK, but leaving your business hanging on the actions of their dock workers.

Option 2: Go there yourself and observe the load. You know your product best, but as a practical matter this is not possible with multiple shipments, multiple suppliers, and certainly not the best use of your time in any case.

Option 3: Have someone who works for you, either an employee or a third-party quality inspection firm, observe the load from pre-loading container inspection, staging of the load, count and condition verification of the products to be loaded, and the loading itself through placement of the seal. The loading report is often used to trigger the letter of credit (L/C) payment.

If your product isn’t high unit cost, high warranty or recall risk, or time sensitive, you may have the luxury of using Option 1. Most shipments are at risk under one or more of the conditions that can occur. For Option 2 you have to travel, and you can’t be in two places at once.

Working with Third-Party Quality Inspection Firms

In most cases, working with a third-party quality inspection firm is the best option to minimize your risks that the shipment will arrive with problems.

A good third-party quality inspection firm will dispatch an engineer, not just someone with a clipboard and a camera, who will examine and photograph the product and container prior to loading, document the container markings, confirm SKUs, packaging and counts, verify dunnage, witness the actual handling during loading, photograph the completed load and affix the seal or witness the seal being affixed and photograph the seal in place with it’s serial number in view. The engineer will also order the factory to hold the shipment while you review the report if there are non-conforming conditions. If everything is OK you receive the report via the Internet and can immediately authorize shipment and/or payment.

As with any solution there are remaining risks. Your third-party quality inspection firm has to employ well qualified and honest people to supervise and report on the load. They must not have business relationships with the factories and must represent only your interests in the conformance of the shipment. They must have control of the field engineer, not simply retain a franchisee or subcontractor without connection to the third-party quality inspection firm’s HR and operating policies. And they must have personnel near the locations where you need them.

Many third-party quality inspection firms in China will charge you around US$300 for a day of container loading supervision by an engineer. The lower cost providers may not be using engineers or may be cutting other corners. Remember, any third-party quality inspection firm must comport themselves as your agent on the scene, competently and without compromise, or the $100 you might save on the booking means nothing in the end.

© 2008-2010 ML Hetzel

Michael L. Hetzel is Vice President/Americas with Pro QC International (www.proqc.com), a Taipei based third-party quality inspection and engineering services firm with offices in Shenzhen, Ningbo & Shanghai. Michael is based at Pro QC’s Chicago headquarters, has been engaged in Asian sourcing since 1993, and can be reached at +1-708-710-5935 or at mlhetzel@proqc.com.