Supplier evaluation: What should I look for during my visit?

by Etienne Charlier

It is probably clear to most now that we strongly recommend on-site supplier evaluation prior to any purchase from a Chinese factory. Whether you do it yourself or use the services of a third-party firm, the on-site visit is the only reliable way to fully understand the real capabilities of your potential supplier. Most problems you may face in the future can be perceived and often prevented at that stage.

But going on-site is one thing, knowing what to look for is another. I thought it useful to describe the key areas any person visiting a potential China supplier should actively observe and even investigate. Each industry will have it own specifics, but they will all fall in the key areas I list below.

1st supplier evaluation key area: ability

The first question to get an answer to is: “Is this supplier able to make the product I need?“ A good supplier will tell you if they are able to make a product in compliance with your requirements. However, many poor suppliers will bluff they way into your business, hoping to get away with it once you have placed an order.

Of course, this is precisely what you want to screen out.

To be able to make your product, a supplier needs each and all of these:

• The right production equipment and tools on the shop floor;
• The right test equipment and measurement instruments on the shop floor to verify quality and tolerances;
• Experience in purchasing the material or commercial parts required in your product;
• Workers with the right skills, and in some case, with right certifications (e.g. welding);
• Real experience in a similar product or technology

You know your own industry and you know which equipment and tools are key. You also probably know what type of testing and measurement are required.

Here are some typical examples of how suppliers fail or pass for one of these requirements:

• A supplier claims he can make a 800 mm long metal part that requires a dimension accuracy of +/- 0.1 mm. But when he is asked to show how they will test whether the parts are within tolerances, he shows a class III tape measure that has a tolerance of more than +/-1 mm.
• A supplier of a very high-precision power supply could show a small stock of a specific current sensor used to control power stability. Most other companies visited for the same project had no such sensor or even could not find the agent selling them.

2nd supplier evaluation key area: consistency

The second question to get an answer to is : Is the supplier able to make the product I need all the time? Even when a factory has all the equipment, tools and experience to make a product, there is no guarantee that it will make quality product consistently. Consistent quality requires good and strict processes. Processes to make the right product first time, as well as quality control processes to catch any product that displays a problem, before being shipped.

To be able to make your product consistently, a supplier needs each and all of these:

• Clear and adapted production processes, including a good industrialization process, clear work instructions to workers, a reliable document and version management system, a fault-proof system to select components and materials used to make the final product;
• Solid quality control processes, including incoming good inspections, in production quality control at various steps of the fabrication process, reliable rejected parts system, final good and packaged good inspection.
• Systematic data collection and storage, for instance, to allow problem root cause analysis in case the product displays failure after shipment.

This is harder to really evaluate. All Chinese supplier will know what you want to hear and they will know what to answer to you when you ask about process.

The only way to get reliable information is to see evidence of the process on the shop floor. For instance:

• Seeing a specific caliper next to the machine where a metal part is formed is decent evidence that some in-production quality control (IPQC) is done. Especially if you also see a record sheet attached to a production batch file;
• Seeing a dedicated location for quality control, with dedicated technicians performing checks and completing a quality record sheet is a good evidence of IPQC.
• In electronic product factories, you may see automatic testing systems running in line. If you also can see that these data are stored in the ERP system and can be retrieved on a batch per batch basis, you got strong evidence as well

All these do not have to be high tech. Many smaller suppliers will use paper work and simple filing systems, but they are able to catch problem and trace causes of the problems even if they do not have a fancy ERP system. Here, the spirit and mindset are at least as important as the technology.

3rd supplier evaluation key area: maturity

The third question to get an answer to is : Are the supplier and its internal systems mature and solid enough to withstand a small crisis or the loss of a key person? Many smaller companies are able to provide their customers with decent quality and good service, but this is based on a few experienced people only. For instance:

A strong factory manager enforces the processes in place, but if he is not there, suddenly the shop floor gets messy. A very experienced technician is able to set up the machines for your product but after he left the company, no one could make it any longer because the documentation was not clear enough for the other workers. A very dynamic salesperson has good project management skills and is able to get the factory do what his or her customers require. But when he moves to somewhere else, the replacement is more junior and has less influence on the factory. Client experience degrades quickly.

If point 2 is hard to evaluate, point 3 is even harder. It will be hard to be sure the problem will not arise at seemingly good factories. But it is possible to screen out poor factories where problems will certainly occur.

4th supplier evaluation key area: formal documents

Finally, what actually should be the first thing to be checked, “Is the supplier a properly registered and certified company?“. This is the easiest thing to verify. You ask a copy of the documents and read them. Points to check include company official title/name (in Chinese), address (should be the same on all documents or there should be a very good reasons for the discrepancy, and validity dates. The minimum list of documents to check is:

• Company business license: also check the business scope of the company and see that it covers the product you need;
• Company ISO 9001 certificate: also check that it covers the product and services you need;
• Any other company-wide certificates such as ISO 14001, TS16949 or many others;
• Export license: this is not a must but if they have it it should be in order.

Obviously, much more can be done.

But if everyone already covered all the 4 areas above when evaluating Chinese suppliers, most of the horror stories we hear of would go away. All it takes, is one day on site, if you have experienced people to do the work. Probably a little longer if you are starting with this.

You can do it yourselves, for instance by having your company quality or operation manager visit the factory, or you can use companies offering factory evaluation services.

Most of our clients ask us to do the work first and then send someone in China for an intensive final evaluation tour for the short list we kept.

Etienne Charlier is the founder of procurAsia and assists companies in sourcing industrial equipment and parts from China. He writes about sourcing trends and practical tips on his China Industrial Sourcing Blog. Etienne lives in Shanghai since 1995. You can contact him here.