The question is, how to get more and more suppliers in the white list? This is the key to reducing your QC budget AND your quality problems at the same time.

At the beginning, only the very best suppliers are white. This status is earned by the others, little by little, based on their results. If they fail inspections too often, they never get to be white-listed.

Getting a supplier from red to pink
Train the factory technicians;
Help them improve production processes and the quality system (only if they are interested);
Charge the re-inspections (triggered by the refusal of an inspection) back to them;
Have a dialogue with the management team and write customized recommendations (including, but not limited to, a corrective action plan).
Getting a supplier from pink to white
Keep helping them improve the quality system (only if they are interested);
Train “certified factory-stationed inspectors” and check whether they catch & report quality issues (only if the factory management welcomes this idea);
Charge the re-inspections (triggered by the refusal of an inspection) back to them;
Have a dialogue with the management team and write customized recommendations.
Getting a supplier to remain white:
Spot checks with an element of surprise, to keep a certain level of pressure;
Audit their quality system at least once a year;
Ask for more transparency (no undisclosed subcontracting, identification of managers primarily responsible for your orders…).
One last word. Be clear about this process with your suppliers. It will show them that their interest lies in improving their reliability.

Black list: very frequent controls (because they misbehaved in the past);
Grey list: relatively frequent controls;
White list: relatively infrequent controls (because they never misbehaved).
Similarly, smart importers who deal with more than 10 Chinese suppliers should do the same:

The white list
Most importers have a few good suppliers that are given most of the production. Quality is usually not a problem.

And therefore, systematic quality inspections (before every shipment) are overkill. It is possible to save money by announcing at the last minute to the supplier that certain references don’t need to be checked (that’s what I call “surprise skip-lot QC”).

Now, a word of caution. If you are dealing with pharmaceuticals or car parts, you don’t have a white list. But most importers of consumer goods will recognize that they do have suppliers that consistently produce at, or above, the required quality level.

The pink list
The suppliers on this list make mistakes. They are disorganized and each one of their production batches needs to be checked, without exception.

One final random inspection is usually enough. When they start making a new product, an inspection during production might be a very good idea. But that’s about all the QC you need.

The red list
Your new and untested suppliers come here. If you haven’t been able to negotiate a very low quantity for a trial order, you need to watch them very, very closely.

Your unreliable suppliers are also in this category. You know, the really cheap factory you need for some of your projects. Or the only supplier you found for that cool product that sells like hot cakes.

By default, they are trained on generally-accepted standards in the third-party QC industry. And these standards are suitable for their biggest customers, the large retail and supermarket chains.

The 3 solutions for frustrated importers

1. Prepare an easy-to-read manual
Some importers are very organized and write a clear QC checklist. The best practice is to show a lot of photos. For each potential defect, show one photo on the left (photo of the defect), and another one on the right (photo of what is acceptable).

It is quite helpful to inspectors, but make sure they don’t need 1 hour to read this manual! A good target is 5 min.

By the way, this document is also useful to the supplier and the factory technicians. Write “NO” in red or “OK” in green, on the photos.

2. Hire your own inspectors and train them to their standard
If the factories you work with are in the same area, and if your production is not very seasonal, this can be a good idea. You will be certain the same inspectors will check your products, and you can take time to show them what is acceptable.

3. Work with a smaller QC firm
The 3 or 4 very large QC firms have special teams for their large clients. But they won’t do this for importers with less than 200 containers a month to inspect.

On the other hand, human-size inspection firms will be happy to train their inspectors to your requirements if you represent a steady volume of work. You can require them to use the same 2-3 employees for your shipments. From my observations, some of our clients greatly appreciate this service.

Inspecting a production run gives you some information, which can (and should) be used. If you find that the goods can’t be sold, you should find an immediate solution (sorting/rework/reproduction/cancellation) with your supplier.

But some other conclusions can be reached, for longer term improvements.

If you find some issues that come from a product design mistake, you should take the appropriate corrective measures on your side.
If the goods are not conform to your requirements, it might mean the factory’s quality system has holes. Improving their quality system can be a long and arduous route, but it can also be the most beneficial in the long run:
Audit the quality system to find these holes
Write a procedure to cover these holes
Train the workers to follow the procedure
Audit the workers to verify whether they follow the procedure
What kind of factory can accept this type of involvement from the buyer? In China, not many. If you find a 100-operators manufacturer and if your orders represent half their annual capacity, it might be applicable. Especially if the owner is relatively open-minded, and very motivated.

Once you get a factory up to a higher standard, it can be very gratifying, but it might only last for 2-3 years. They might double in size every year, and reach a point where your orders don’t mean much to them any more…

Unfortunately, it is a continuous cycle. Find a promising factory, invest time and energy into them, see the progress they make, reap the fruits from that cooperation, and then start over with another one.

The “wholesalers-importers”
They are based in the importing country and carry inventory. They typically purchase finished products under FOB terms, and don’t control much about their supply chain. But it is not a big problem. They can tolerate a certain proportion of cancelled/delayed shipments, because of the stock they have in hand.

The “importers-traders”
This category is basically identical to “wholesalers-importers”, except that they don’t carry any inventory and they typically sell each shipment to one specific customer.

This is the most risky situation to be in, since they don’t have much control BUT they have no inventory buffer to keep a customer waiting in case of delays/cancelations.

The “producers-traders”
They control the supply chain as much as possible. Some of them produce in their own factory. Most of them purchase the materials, manage new developments and approvals, and then pay production workshops for the assembly job (that’s called “CMT” in that industry).

If a factory does not give satisfaction, the “producers-traders” can quickly switch production to another, more reliable one.

5. Use a legally-enforceable contract
When things start to go wrong, you need leverage to get the manufacturer back on track. If you have already pre-paid the whole amount and if they have chopped no OEM agreement, you are in big trouble.

Be ready to pay a little more, and try to build long-term relationships with good suppliers.

3. Last-minute surprises WILL happen

You can take some elementary precautions to reduce the impact of these bad surprises:

Add some padding in your schedule (at least 2 weeks, because you have to count on delays).
Try to catch quality issues as early as possible. Inspect quality early in the production cycle, and of course again before shipment.
If possible, keep a certain level of inventory in your warehouse, as a safety measure. There is a cost to it, but it is necessary until you can rely on your source.