From: "Saved by Internet Explorer 11" Subject: How to avoid working with factories that close unexpectedly Date: Wed, 9 Nov 2016 08:54:22 -0800 MIME-Version: 1.0 Content-Type: multipart/related; type="text/html"; boundary="----=_NextPart_000_0021_01D23A66.DDAAD000" X-MimeOLE: Produced By Microsoft MimeOLE V6.1.7601.17609 This is a multi-part message in MIME format. ------=_NextPart_000_0021_01D23A66.DDAAD000 Content-Type: text/html; charset="utf-8" Content-Transfer-Encoding: quoted-printable Content-Location: http://www.globalsources.com/NEWS/SIC-how-to-avoid-working-with-factories-that-close-unexpectedly.HTM =EF=BB=BF
=20
=20
=20
=20
=20
=20
=20
=20
=20
=20
Path: Sourcing News & = Advice=20 >> Smart=20 Sourcing >> How=20 to avoid working with factories that close unexpectedly
By Stacy Bruce
You=E2=80=99ve=20 been watching the calendar, anxiously awaiting that first shipment of = leather=20 handbags that=E2=80=99ll mean the beginning of your online business. = You=E2=80=99ve already=20 received orders, and it=E2=80=99s looking like your bags will be a = sell-out=20 success.
But=20 you haven=E2=80=99t heard from your factory contact in a few days, and = you=E2=80=99re feeling a=20 little nervous. You=E2=80=99ve tried calling and emailing, but to no = avail.
Then=20 two days before your shipping date you suddenly lose contact with your = supplier.=20 They don=E2=80=99t respond to your emails or answer your phone calls. = Soon you learn the=20 factory is no longer in operation. And your order might=E2=80=99ve been = forgotten, or=20 worse, sold to someone else.
Factories=20 that close unexpectedly can leave importers in a serious situation. Not = only are=20 they likely to lose the deposit on their order, but they also face a = huge=20 setback in finding a new supplier. They basically need to start again = from=20 scratch.
Let=E2=80=99s=20 look at the ways importers can avoid working with factories that close=20 unexpectedly, as well as what you can do if you find yourself in a = situation=20 like that above.
Auditing=20 a supplier=E2=80=99s factory to determine risk
You=20 wouldn=E2=80=99t start a long-distance sailing trip without first = checking the weather=20 forecast along your projected path. Similarly with a factory, you need = to=20 understand what its present and potential future conditions look like so = that=20 your business doesn=E2=80=99t suffer. Conducting an audit of the = facility is one the=20 best ways to assess your level of risk working with a = factory.
Conducting=20 a supplier review
Auditing a = factory=E2=80=99s=20 quality management systems is often considered the final step in the = sourcing=20 process. It=E2=80=99s generally best to perform this kind of audit, = sometimes called=20 a supplier review, well before placing an order with a supplier. This = type of=20 audit, typically based on ISO 9001 standards, focuses on the = factory=E2=80=99s quality=20 management systems.
But=20 the supplier review can also quickly confirm or eliminate any doubts you = have=20 about a potential supplier. An auditor or trusted agent can often report = on any=20 glaring issues or signs that the factory may be in financial trouble or = at risk=20 of closing (related: 3 Telltale Signs of a Bankrupt = Factory).
Some=20 key areas that a supplier review or similar audit covers = include:
=E2=80=A2 = Factory layout and=20 capacity;
=E2=80=A2 = Certification and=20 licensing (e.g. import license, business license);
=E2=80=A2 = Engineering &=20 design capabilities;
=E2=80=A2 = The status of the=20 factory=E2=80=99s business development and administration; = and
=E2=80=A2 = Any quality controls=20 in place (e.g. where are QC staff present, what checks are = performed)
The=20 result of this kind of audit helps you make a decision about whether to = work=20 with a particular supplier or avoid a risky one (related: 5 Key Findings of a Supplier Review).
Performing=20 a social compliance audit
The=20 issues that cause a factory to close are sometimes the same issues that = make the=20 facility hazardous. Earlier this month, a Bangladesh factory fire killed at least 23 people. = And this=20 isn=E2=80=99t an isolated incident. The BBC reported back in 2013 that = 40 percent of factories in Bangladesh have = =E2=80=9Cmajor safety=20 issues=E2=80=9D.
Factories=20 that fail to meet safety standards and other requirements set by = retailers, such=20 as Walmart and Target, risk losing customers, or worse, closing down due = to=20 issues like the one above. One of the best ways to see if the factory = you=E2=80=99re=20 working with is vulnerable to safety or other compliance issues is to = conduct a=20 social compliance audit. Such as audit typically follows a general = standard,=20 such as SA=20 8000 or a brand-specific framework (related: How to Use Retailer Standards for Social=20 Compliance).
A=20 factory might seem stable. But if it fails this audit with serious = violations,=20 then you may have a major problem on your hands. The reason could be = anything=20 from working hour violations to not paying insurance to structural = problems with=20 the building. Not only might your supplier=E2=80=99s factory be in = danger of closing,=20 but your retailer might refuse to stock your product.
Social=20 compliance audits help you avoid working with factories that close = unexpectedly=20 in the future. As an added benefit, you can ensure your customers and=20 distributors know that your products are ethically sourced.
Tracking=20 order status with product inspection
Audits=20 are helpful in providing a detailed look at a factory and alerting you = of any=20 problems. They also provide insight into product quality, capacity and=20 management. But another recommended step is to inspect the order before=20 shipping. You can inspect on your own. But it=E2=80=99s generally better = to hire a=20 professional inspector or third-party QC company to help.
Product = inspection=20 allows you to see a timely and detailed report of the goods. In addition = to=20 finding any quality defects or other product problems, inspection shows = the=20 status of an order in the factory. If the factory making your leather = bags is=20 supposed to ship them next week, for example, an inspection report would = show=20 you whether the order is on track to meet that deadline. Likewise, if = the=20 factory hasn=E2=80=99t even started production, it will be clear to you = from looking at=20 the report.
Production=20 monitoring for more routine reporting
Those=20 importers that need regular updates of order status often rely on = production=20 monitoring. Production monitoring is inspection performed routinely, = often daily=20 or less frequently. By visiting the factory routinely to check the = product,=20 importers can track their order throughout production. This gives them = assurance=20 that their order isn=E2=80=99t falling behind schedule. And if the = factory is keeping up=20 with production, you can be confident the owner isn=E2=80=99t preparing = to close it=20 (related: 3 Reasons to Conduct Production = Monitoring).
The=20 importance of clear communication with the supplier
When=20 working with suppliers overseas, there are often language barriers that = make=20 communicating your questions and requirements more difficult. = That=E2=80=99s one reason=20 that importers should assess quality of communication as part of the = sourcing=20 process when looking for the right supplier.
But=20 better communication can also help you to avoid working with factories = that=20 close unexpectedly. There are certain best practices recommended for=20 communicating with suppliers to keep them from being caught off=20 guard.
Getting=20 suppliers on the phone
It=E2=80=99s = common to communicate via email so that everything is written down, = which allows=20 for easier translations. But communication via a phone or Skype call is = also an=20 important way to establish rapport with your supplier contact. Even if = there are=20 communication barriers, a simple call and your = effort to=20 communicate often help personalize the relationship.
That=E2=80=99s=20 why a vital step to protecting yourself against being out of the loop is = obtaining the phone numbers of important decision makers as soon as you = choose a=20 factory to work with. You don=E2=80=99t need every single phone number = =E2=80=93 just the ones=20 you deem vital to your operations.
What=20 to do if your supplier is unresponsive
You=20 find that your supplier contact is unwilling to speak over the phone or = isn=E2=80=99t=20 very responsive to your emails. This could be a sign of problems. It may = just be=20 that it=E2=80=99s a busy time for them. Maybe a natural disaster or some = other disruption has occurred. But the supplier could = be=20 avoiding communicating because of more serious problems they=E2=80=99d = rather you not=20 know.
If=20 you receive an email saying the factory is no longer in operation, = follow up=20 immediately with a phone call. You might find out more information over = the=20 phone about the state of the factory and your products than what the = factory or=20 supplier contact is willing to put into an email.
Calling=20 or visiting the factory
If=20 you normally communicate through a trading company or vendor and that = contact=20 isn=E2=80=99t answering your calls, it may be time to directly contact = or visit the=20 factory to verify that it=E2=80=99s still operational. You may not know = the location or=20 contact details of the actual factory. But if you=E2=80=99ve hired = someone to audit or=20 inspect at the facility before, they should be able to visit the factory = again=20 on your behalf.
Taking=20 legal action against a fraudulent supplier
Importers=20 typically consider pursuing legal action against a supplier a last = resort. In=20 most cases, it=E2=80=99s costly and time consuming. You=E2=80=99d also = need to find a lawyer in=20 the country where your factory is located. Although there=E2=80=99s no = guarantee of=20 success using a lawyer to act against the supplier, you may be able to = recoup=20 some or all of the payment you made to the supplier. But due to the = difficulty=20 involved in many countries, generally only very large multinational = companies=20 will bother taking their suppliers to court.
Conclusion
It's=20 not ideal for your factory to shut its doors unexpectedly. It=E2=80=99s = a nightmare=20 situation for many importers and can lead to headaches, dissatisfied = customers=20 and financial losses.
Thankfully,=20 checks like audits and product inspections can help determine if a = factory is=20 headed for trouble. And by employing people on the ground to help with = follow up=20 phone calls and factory visits, you=E2=80=99ll have local support in the = event that the=20 factory becomes unresponsive. You=E2=80=99ll have resources available to = guarantee your=20 goods don=E2=80=99t suddenly become inaccessible.
Want=20
to learn more sourcing best practices?
Join the Global=20
Sources Summit that combines conferences and networking, co-located =
with our=20
Hong Kong trade shows. The event will be held October 17-19, 2016, and =
is geared=20
toward online and Amazon sellers.
Stacy=20 Bruce is a Client Manager at InTouch=20 Manufacturing Services, a QC firm that performs product inspections = and=20 factory audits in Asia for clients in the US, EU and=20 Australia.
Read more Sourcing=20 News & Advice