Importing From China Ebook

2008 ChinaDirect Sourcing Services Pty Ltd 1
Table of Contents

HOW TO USE THIS BOOK .............................................................................................................. 2
ABOUT THE AUTHOR ................................................................................................................... 3
PART ONE - .................................................................................................................................. 4
BEFORE YOU START ................................................................................................................. 4
THE VALUE CHECK ....................................................................................................................... 4
SPECIFICATIONS ........................................................................................................................... 7
PART TWO THE CHINADIRECT IMPORTING PROCESS .......................................... 11
OVERVIEW OF THE CHINADIRECT IMPORTING PROCESS .............................................................. 12
WEEK 1 & 2 - RESEARCH & TENDER ......................................................................................... 14
WEEK 3, 4 & 5 SAMPLING & NEGOTIATION ............................................................................ 34
WEEK 6, 7, 8, 9 & 10 ORDER, PRODUCTION MANAGEMENT & INSPECTION ............................ 60
WEEK 11 & 12 DELIVERY MANAGEMENT .............................................................................. 73
PART THREE .......................................................................................................................... 91
IN SUMMARY ............................................................................................................................ 91
IN SUMMARY ............................................................................................................................. 92
GLOSSARY ................................................................................................................................. 93
CONTACT DETAILS .................................................................................................................. 101
THANK YOU FOR READING IMPORTING FROM CHINA HOW TO START YOUR OWN IMPORT
BUSINESS WITHOUT LOSING YOUR SHIRT. ................................................................................. 102


How to Use this Book

Welcome to Importing From China How To Start Your Own
Import Business Without Losing Your Shirt.

In this book, you will find the breakdown of the ChinaDirect Importing
Process - a well-planned system for importing from China that has
evolved over many years, utilising and combining the best practices from
both the East and the West.

This book promises to show you how to have Chinese suppliers
manufacture and deliver competitively priced, high quality products on
time, and also to provide you with guidance and advice on what to do if
things dont go as they have been planned.

To create the maximum value for you as the reader and importer, this
book has been set out in an easy-to-follow, step-by-step format.

Work through this program week by week. If you follow the instructions
carefully, you can confidently expect to have your products delivered to
your door within 16 weeks. Custom manufactured products may take
longer.

To get the most value out of this book, keep it where you work, and refer
to it continually throughout the importing process.

When you read a new principle, I advise that you apply it immediately,
instead of waiting and putting it off, saying I will do that soon. The more
action you take now, the more you and your company can reap the many
benefits of importing from China TODAY.

From myself and the team at ChinaDirect Sourcing, thank you for
purchasing this book, and good luck with your importing!

Enjoy the program!

Lindy Chen
Managing Director, ChinaDirect Sourcing


About the Author

As Managing Director and Founder of ChinaDirect
Sourcing, Lindy Chen is regarded as one of the worlds
foremost experts on doing business with China.
She was a finalist in the 2008 an 2007 Women In
Business Awards.
Lindy formed ChinaDirect in 2005 with the mission to
assist Western companies to see China not as a threat,
but as their competitive advantage.
Lindy has extensive experience in business with China, including:
15 years experience in international trade in China and Australia
Lecturer, International Trade, TAFE SA
Lecturer, Business Administration, The City Business College, SA
Board Member, Focus Certification, Quality assurance company
offering certification in ISO 9001 and ISO 14001
Bachelors in Science and Education
Lindys contribution to ChinaDirect and its success has been in
developing a unique business model and then systemising the business.
Lindys willingness to take risks and do things differently has had her
overcome many obstacles to achieve great success.
Before settling in Australia, Lindy held senior management roles in
Chinese companies, and ran a successful management consultancy.
With Lindys strategic project management skills and strong business
acumen, she continues to assist many Australian companies grow
through product innovation and bottom line savings.


PART ONE -
BEFORE YOU START

The Value Check

The first step before you begin sourcing from overseas is to
determine whether the cost savings of sourcing direct from the factory in
China exceed the fixed costs like freight, customs, duties and your
investment in professional assistance for importing.

As a rule of thumb, if your order is a minimum of US$20,000 to purchase
from a factory/importer/wholesaler/retailer in a Western country, it is likely
to be feasible for you to purchase directly from the manufacturer in China.

As part of the process of determining if Importing is for you, it is
recommended that you complete a Value Check.
A Value Check looks like the following:
Current Sourcing (AUD$)
Item Description Cost/
unit $
Qty
per
order
Order
value
$
Tooling
/moulds
(if any) $
Other
costs
$
Total
$
Freq. of
purchase
Comments


Generally, you can expect to save at least 30% to 50% on product cost by
sourcing direct from the factory. But then you have to add back in on-
costs such as freight, Customs, duties and your investment in an import
assistance company. So you need to establish the breakeven point for
the value of an order locally when it starts to become feasible to go direct
to China.

During the Value Check process, you need to find out what the current
product cost is.

Your current product cost simply provides a benchmark cost for you, so
you can work out your break-even volume for buying direct from the
factory in China.

If your product has never been produced before, it is a good idea to get a
local manufacturer to quote on your prototype, or to get an industrial
designer to have a Computer Aided Design (CAD) completed, and then
get a local quote from a manufacturer. This will assist greatly in getting
clarification on both the product specifications, and also on the savings to
be made.

When you complete the Value Check, remember to calculate packaging
as a separate item.

A copy of the Value Check template can be downloaded free from the
ChinaDirect website, www.chinadirectsourcing.com.au


In summary, what do you need to be ready to source from China?
1. Identify a product you want to import.
2. Research the market to ensure there is demand for your product.
3. Determine how youll sell it out once you get it here.
4. Find out if its actually feasible to source direct from China
(sometimes its more feasible to source locally!).

If it is feasible:
5. Compile detailed specifications of your item(s).
6. Arrange the necessary funding.
7. Arrange a prototype or example of your item(s). It's generally
quicker and easier to have this made locally, not in China.
8. Ensure that the timing and time frames of importing from China
work for you and your business. Allow a minimum of 3 months to
receive your goods from the factory in China.
9. Find out if any product standards, import licenses, permits or
approvals apply. Note: For many basic products, these are not
applicable.


Specifications

Know what you want in detail

When you are importing from China, it is crucial that you do your
homework and prepare detailed specifications for your supplier. Quality
products start with your specifications.

The more information you provide to the supplier, the greater chance
there is of your product being produced to your requested standard.

The following are some general specifications to provide a starting point
for your specifications:

Item name
Alternative names - to assist the Chinese suppliers understanding
of what you want
Description
Material
Colour
Finish
Dimensions: Depth x Width x Height
Outside diameter (if applicable)
Weight
Volume capacity
J oints (if applicable)
Standards that apply
Size chart (e.g. for clothing)
Accessories
Other special specifications
Common/possible defects

Remember to include the specifications for packaging too, if applicable.

Sometimes it helps to explain to the supplier why it is that you need the
product to be produced this way. If you neglect to do this, the Chinese
supplier may just assume that you are a Crazy Westerner, and also
conclude that they have a better way of doing it.


Including photos and artwork (if applicable) will significantly increase the
chances of getting what you want, and are a very powerful tool to utilise
when importing.

The next level of specification is to give the supplier a sample of your
product, but bear in mind that this is only required once youve selected
your supplier. Information on how to select a supplier is covered in Part
Three.

Think in great detail, and communicate all expectations clearly with your
chosen Chinese supplier.

To get you started on your specifications using the ChinaDirect Importing
Process, use the Specifications Form template
at www.chinadirectsourcing.com.au

******


Get professional advice

Like any unknown area that you move into in your life, when you are first
dealing with China, it can appear to be quite daunting. J ust as you use
accountant to do your tax, a bookkeeper to do all your books, and a
lawyer to do all law-related business, you can also seek an import
consultant to deal with your importing matters. Getting professional advice
from an import consultant will assist you throughout the whole importing
process, allowing you to have a better insight and understanding into your
rights, the rights of the supplier, trade laws, and so on.
One of the common questions that I have been asked by clients is about
Chinese agents that will source products from China for a 5% commission
(or less).
On the internet, you can find agents who will source your products for a
commission of around 5%. However, these agents also receive a
commission from the manufacturer or supplier who supplies your
products, and to cover this cost the manufacturer or trading company will
build in their commission into the offer price for the goods. The result is
that the commission paid by you to the agent can be anywhere from at
least 12% to 100% and not 5% - you can never be 100% sure. As most
agents are profit driven, they may refer your business to the supplier with
the cheapest price, resulting in substandard product, or to the supplier
which offers them the highest commission (which isnt necessarily the one
with the most suitable product for you!).

We have prepared a special report for you in how to choose an import
agent and a questionnaire for you to use when you interview them. You
can find this report at www.chinadirectsourcing.com.au

******

Checklist of Progress

By this stage in Importing from China, you should have completed the
following tasks:

Completed a Value Check
Compiled your Specifications


PART TWO
THE CHINADIRECT
IMPORTING PROCESS

In this Part of Importing from China How To Start Your Own Import
Business Without Losing Your Shirt, you will find the following things:

1. An Overview of the 12 Week ChinaDirect Importing Process

2. A Detailed Break-Down of the ChinaDirect Importing Process

3. Advice, guidance & pointers throughout each step

4. Forms, Diagrams and Templates for you to follow

5. A detailed explanation of each phase


Overview of the ChinaDirect Importing
Process

The following is a timeline for a relatively simple product, which can be
sourced off-the-shelf, and assumes everything runs smoothly without
delay. The length of the final stage will depend on where it is being
shipped to.

Week 1 & 2 Research & Tender

1. Prepare a Request for Quote document
2. Research potential suppliers
3. Send Request for Quote to potential suppliers
4. Obtain quotes and evaluate offers
5. Qualify and shortlist appropriate suppliers
6. Prepare necessary reports

Week 3, 4 & 5 Sampling & Negotiation

7. Send your samples to suppliers
8. Arrange supplier samples to be sent to you
9. Supplier sends samples to you
10. Negotiate price, terms and conditions with the final supplier
11. Arrange branding (if applicable)
12. Draft the Purchase Order
13. Finalize the Purchase Order with the supplier

Week 6, 7, 8, 9 & 10 Order, Production & Inspection

14. Place the Purchase Order
15. Monitor the Purchase Order progress
16. Perform final quality check

Week 11 & 12 Delivery Management

17. Organize delivery
18. Organize Customs clearance
19. Organize the suppliers Quality Assurance report
20. Organize product delivery to your door
21. Receive products at your door successfully


Week 1 & 2 - Research & Tender

The first two weeks of the process is where all of the planning is put
into practice. Like anything in business, if you fail to plan, then you plan to
fail.

During the Research & Tender stage, you will need to perform the
following tasks:

Prepare Request for Quote document
Research potential suppliers
Send Request for Quote to potential suppliers
Obtain quotes and evaluate offers
Qualify and shortlist appropriate suppliers
Prepare the following reports:

1. Supplier Summary report with each suppliers details and contact
person
2. Quote Comparison report
3. Landed Cost Analysis report

I will explain each of these in this Part and give you an example of what
each phase looks like.
When you have prepared the detailed specifications for your product/s,
the next step is to prepare a Request For Quote.


Request for Quote
The Request for Quote is a very important document.
Receiving quality products through the importing process starts with your
specifications. Remember; the more detailed information that you provide
to the supplier, the more chance there is of your product being produced
to the standard that you desire.
The following points need to be included in your Request for Quote
document:

Opening statement

What kind of supplier are you looking for? Writing a simple statement
about this will help provide clarity for you as you begin the process.

Example:

We seek a manufacturer to manufacture high quality mens
underwear.

Item Details
You need to provide as much information as you can for the product you
are looking for.

Example:

Item: Mens boxer underwear
Material: Lycra
Labels: One small logo, heat pressed on the front of the waistband
One transfer heat pressed on the inside of the waistband at
the rear
Colour: 5,000 pieces black
5,000 pieces white

There have been clients of ChinaDirect who have come to me and said, I
just found this T-shirt on the market, and I just want to find a supplier to
copy and produce it. This is possible, if its not infringing intellectual
property rights, however, it will take much longer to produce it and be
more costly if you neglect to do any homework before you advance with
importing.

The research you need to complete involves getting specific on what
products you want to import, how much they cost in a Western country to
buy wholesale, and what quantity you want to order.

Quantity
In a consulting project, a client may ask, I dont know what quantity I
need to have. I just want the Minimum Order Quantity. In this case, some
homework needs to be done before you send the request for quote to any
of the suppliers that you have identified. Always advise a quantity for the
initial order.

Example:

Quantity: 10,000 per order

Clients have also asked if they should exaggerate the quantity required to
get a better price and/or deal from the supplier, as well as attracting the
suppliers attention.

We dont recommend this strategy. It is better to provide a realistic
estimation of what you actually want to order in your first contact with the
supplier. If, when you place your order, the quantity that you want has
dropped from the quantity on the initial Request for Quote, the Chinese
supplier is more than likely going to lose interest in completing your order,
and may become irritated.

Also, it is important to remember that the quote will be priced differently
according to the amount of product that you are placing an order for.

Certain suppliers that you come across will only want to run large
quantities, and they will find all sorts of excuses to delay your order, or
even worse, not ever produce your order.

This can certainly be a pitfall.

In this situation, we advise clients to re-select suppliers.
Another question regarding the quantity of the order is What are the
Minimum Order Quantities (MOQs)?

Some factories advise their Minimum Order Quantity, and for others it will
depend on factors like product value, product type, tooling requirements,
product dimensions (how many fit in a container), frequency of purchase
etc. On your first order, you need to balance getting a reasonable size
order to cover the fixed costs involved in importing, with being
conservative to reduce the risks.
Size chart - clothing
Chinese suppliers deal with many different countries, exporting to large
markets such as Europe and the USA.

Because of this diversity, standard sizes are therefore quite different.
Normally the best action to take is to actually provide a size chart to your
supplier, allowing them to accurately produce what you want.

Remembering to complete this step thoroughly will eliminate a lot of back-
and-forth style of communication in an attempt to meet your expectations.

Example:

Size: Waist (cm) Waist (inches)
Small 75-80cm 30-32
Medium 85-90cm 34-36
Large 95-100cm 38-40
X-Large 105-110cm 42-44
XX-Large 115-120cm 46-48
XXX-Large 125-130cm 50-52

Information to provide later
There is certain information which is not critical in this stage, but will need
to be provided later. For example, details such as pattern and logo
artwork. You will also need to provide sample pieces.

Advise your supplier you will provide this information at a later stage.

Example:

We will provide:
Pattern
Logo artwork
Sample piece for the above (if you are selected as our chosen
supplier)

Questions to ask the supplier:
There may be a lot of questions you would like to ask the supplier, but
in the Request for Quote letter, focus only on asking about the
following points:

The suppliers experience and track record in export
Pricing of products and shipping
The product quality
Suppliers workmanship
Professionalism of the person managing project/staff
Wiliness to comply with the quality standards provided by you

These are some of the basic Supplier Selection Criteria, which will be
discussed in detail later in this Part.

In your Request for Quote letter, you can ask questions to address the
above points, but ensure that you make it very easy to answer, and, most
importantly, in plain English and in simple language.

In China, even though most staff in foreign trade companies and export
departments understand English, the level is not sophisticated. To ensure
you get good results, the best way is to keep your language simple and
straight.

You can ask:

Has your company exported before? If so, to which country?
Does your company export to your country? If so, which
company have you exported to?
Has your company exported this kind of product before? If so,
what exactly is your export product?
Do you have any suggestions regarding the packaging and
transportation?
If you dont have the material we require, please recommend a
material with the specification.
Please send photo of your current similar product
Please send a one page introduction about your company (in
separate word or PDF file)

Please send a description of your quality control system (in
separate word or PDF file)
Please advise your Minimum Order Quantities
Please provide your best quote for FOB

Emphasise on long term relationship
In the Request for Quote, it is wisely recommended that you put great
emphasis that this business relationship will be a long term relationship,
and also share with the supplier what you would like to achieve.

From the Chinese suppliers point of view, your mentioning of a long term
relationship in your Request of Quote letter, demonstrates you are playing
their game.

Request for sample
During the Request for Quote process, you can request that the supplier
provide you with sample material, or a sample which shows the suppliers
workmanship.

Most of the suppliers are quite happy to do this for you, but they will more
often than not request you pay for the freight. Sometimes it can be quite
costly for each international courier.

******


Research Potential Suppliers

Once you have drafted your Request for Quote, the next step is to
research potential suppliers.

There is an abundance of information that is provided on the internet that
will allow you to find the supplier to produce the product you require.

The following websites can be used for locating a Supplier:

www.alibaba.com
www.made-in-china.com
www.3271.com
www.yahoo.com.cn

At ChinaDirect, we currently have more than 30,000 suppliers registered
in our company database. However, we also search beyond our
database by using, local Chinese phone directories and trade directories,
and Western and Chinese search engines and websites.

In this stage, Chinese language does play a very important role to find the
right information.

As they say: In China, nothing is impossible but nothing is easy either.

Learning from various challenges and pitfalls paves the way toward
successful sourcing. The main difficulties relate to identifying suppliers,
sorting the good ones from the others and finally, ensuring that selected
suppliers remain as good as they appeared to be when the initial contract
was signed.

The mere task of identifying suppliers is not as easy as it would seem to
be. Everything changes at high speed in China; this is why supplier
directories you might find often do not cover the most interesting
companies. The most informative directories, online or offline, are in
Chinese.

Later in this chapter, we will clarify the selection process for suppliers.

Send Request for Quote to Potential Suppliers
Once you have identified several potential suppliers who can
produce the products that you want and completed the Request for Quote
document, it is then time to make contact with them.
In any given project, we usually contact more than sixty suppliers within
China, and send the Request for Quote email to them.
To get the best results in your tendering process, it is best you contact a
minimum of 10 suppliers to cover the range. It is wise for you to try
different provinces within China, and in different categories. Chinese
suppliers sometimes accidentally misplace themselves into incorrect
categories, meaning the suppliers in the category may not be the ideal
factory for your needs.
It can become time consuming to contact this number of suppliers,
however this first stage is critical for you to find and select the best
supplier. The work will be well worth it in the end, create greater success
for you, and reduce your set-backs.

A related pit-fall is that many searches for suppliers fail because the initial
sample of potential suppliers was too small. In many segments, only 5%
to 15% of all existing suppliers will fully comply with Western standards.
Many will have a good enough product but would fail in processes
management or reliability. If you start with a small initial sample of
suppliers, the chance of ending up with lower end supplier is high.


Obtain Quotes and Evaluate Offers

By this stage of the process, you will have now have received
between 4 to 6 quotes from a range of suppliers, and you can start to
evaluate their offers.

The best way to summarize all the tenders is to prepare three reports.
The first report is the Supplier Summary Report, which will give full details
of the suppliers who are interested in your project, including their contact
details and website. This is so you can quickly reference their website
anytime and see what other products they have available for production.
The template is like the following:
Supplier Summary Report
Product name:

No. Factory name Contact person E-mail Mobile Tel Fax Address Remark
1
2
3
4

The second report is the Quote Comparison. This is a comparative
market report, which is a snapshot of the pricing in China. This is a very
powerful tool because this comparison will give you substantial Chinese
market knowledge.
In particular, you will have a guide as to what a fair market price is.
The Chinese suppliers strategy is generally to quote low initially, and then
have price increases. Having full market knowledge allows you to
negotiate a fair price.


There are usually three levels of pricing in China;
1. International price,
2. Good international price, and
3. Local price.
This report gives you power, not only initially, but also for down the track
when the supplier inevitably tries it on for a price increase. Suppliers can
and will get online and research the type of margin that you are going to
make on the product, so they not afraid to go for price increases when
they are negotiating with you.
With this report, you will know who else is in the market, and you can use
this as leverage in any negotiations with suppliers.
The template is like the following:
Quote Comparison Report
Supplier Name: ShenZhen Paper Products DongGuan Printing J inHua Package
Contact person Liang J essica Linda
No
Product
name
Qty FOB
USD/pcs
Amount FOB
USD/pcs
Amount FOB
USD/pcs
Amount
1 Small box 4000*6 0.500 12,000 0.200 4,800 0.100 2,400
2 Large box 4000*6 0.600 14,400 0.310 7,440 0.143 3,432
Total 26,400 12,240 5,832

Supplier Name: Liaoning Group Co.,Ltd. Yonte Co. Ltd. Shanghai Industry
Contact person J idan Bryant Penny
No
Product
name
Qty FOB
USD/pcs
Amount FOB
USD/pcs
Amount FOB
USD/pcs
Amount
1 Small box 4000*6 0.160 3,840 0.240 5,760 0.185 4,440
2 Large box 4000*6 0.240 5,760 0.320 7,680 0.336 8,064
Total 9,600 13,440 12,504

Supplier Name: Yuyao Paper Co., Ltd. Glee Ltd Shanghai Packing
Contact person Kathy Flowery Stephen
No
Product
name
Qty FOB
USD/pcs
Amount FOB
USD/pcs
Amount FOB
USD/pcs
Amount
1 Small box 4000*6 0.122 2,928 0.150 3,600 0.160 3,840
2 Large box 4000*6 0.186 4,464 0.185 4,440 0.230 5,520
Total 7,392 8,040 9,360

The third report is the Landed Cost Analysis.

The Landed Cost Analysis demonstrates what the product will cost you,
after you have factored in all of the on-costs such as freight, Customs,
wharf charges and other relevant investment in the sourcing process.

This report gives you the ability to determine your profit margins, set your
prices, approach potential customers to get their interest, complete a
sales forecast, and complete your budgeting for the project.

In the Landed Cost Analysis, you will need to give consideration to the
following variables:

The United States Dollar (USD) exchange rate
Customs Duty
Customs GST (Goods & Services Tax)
Import Adviser Management (if applicable)

Other costs will be fixed, no matter the quantity or cost of the goods that
you are ordering. Keep in mind that when you import from China, these
minimum costs will be incurred, such as;

Port Service Charge
Terminal handling charge
LOLO Lift On Lift Off
Carrier Documentation
Port Security
CMR Fee
Sea Cargo Automation
Delivery Order
Customs Clearance Fee
Cartage
Fuel Levy

In the below Landed Cost Calculation, I have bundled these costs into
Clearing Agent Charges.

Landed Cost Calculation
The following is a simple formula for calculating the Landed Cost.

Cost of goods - Free On Board (FOB)
+Freight
+Insurance
+Custom duty
+Custom GST
+Clearing agent charges
+Cartage from port
= Landed cost

Example:

Product: Blanket

Cost of Goods - FOB Total
Unit price FOB: USD $5
USD Rate: $0.85
$5 x 2,256pcs =USD$11,280 (AUD$13,270)

Freight
Box size: 30cm x 38.4cm x 10cm
Weight: 3.5kg/ piece
20ft container hold: 188 packages (2,256 pieces)
20ft container China to Australia:
Allow USD$1,500 (AUD$1,764)

Insurance
Allow $117 USD

Customs Duty
In this case allow 17.5%
17.5% x $13,270 =$2,322
Note: Australian Customs duty range 0% - 17.5% of Customs value of the
cost of goods


Customs GST
10% of (the Customs value of Cost of Goods +Freight +Insurances +
Custom Duty)
Customs GST =
10% x (13,270 +1,764 +117 +2,322)
10% x $17,437 =$1,743

Clearing agent charges
Range: $500 to $2,000
In this case allow AUD$1,000

Cartage from port
In this case allow AUD$800

$13,270 Cost of Goods (FOB)
+$1,764 Freight
+$ 117 Insurances
+$2,322 Customs duty
+$1,743 Customs GST
+$1,000 Clearing agent charge
+$ 800 Cartage from port
$21,016 Total Landed Cost


Qualify & Shortlist Appropriate Suppliers

Selecting a good supplier in the first place is the main key for the
success of importing from China.

The selection of a good supplier does not happen by luck, contrary to
what many people assume. The selection of a good supplier requires a
system just like selecting a good manager or a good employee for your
business.

Remember that this round is only the first Shortlist process. Currently, we
will are only looking at short-listing two or three suppliers from the
suppliers who have just replied to your Request for Quote for your
projects.

More information is included in this Part on how to select and qualify
suppliers.


Supplier Selection Criteria

Selecting a supplier is both a quantitative and qualitative process.

A supplier should offer more than just the parts that meet specification.
Selecting the supplier that provides the manufacturing expertise as well
as an understanding of the Western standards can make your product
more competitive and cost effective.

Supplier Selection Criteria for a particular product or service category
should be defined by you with consideration of your particular project
such as the quantity you are looking for, the quality, and also the
frequency of your purchasing (i.e. are you intending to buy once, many
times, and how often).

The basic principle here is: if there is any risk of any problem in any area
(product, logistics, process etc) it must be explicitly covered in the
qualification. Western companies and Chinese companies have totally
different sets of expectations. Assuming that the other knows what is
expected always leads to trouble. Think that whatever can go wrong will
go wrong, unless it is explicitly managed. The fact that data is not readily
available and that Chinese companies are very protective of some type of
information, does not make qualification any easier. Furthermore, one of
the essential factors in a suppliers value is the quality of its management.
Recognizing dynamic and effective managers from ineffective bosses, in
the Chinese context, is important in the qualification process as well.

Common supplier selection criteria are:

Supplier experience and track record in exporting:
The suppliers track record is based on their previous experience and past
performance with the particular product/service to be purchased. As well
as a track record of their past performance, you will also be looking at
their track record for business-performance improvement.

Quality and workmanship
When examining the quality of the product and workmanship of the
suppliers company, you will want to ensure that there is a relative level of
sophistication in the quality of the system by which the supplier operates.
Make sure that the supplier meets regulatory requirements, and any
mandated quality system registration.

Capability core competencies
Check the suppliers ability to meet the current and potential capacity
requirements, and do so on the desired delivery schedule.

Service level & partnership
Check the technical support availability of the Supplier, and their
willingness to participate as a partner in developing and optimizing design
and a long-term relationship.

Price
Check on the total cost of dealing with the supplier. This includes;
material cost, communication methods and inventory requirements.

******

Once you have read through and understood the essential criteria for
determining the right supplier for you, review the following methods to
determine how well a potential supplier fits the criteria:

1. By requesting a formal quote, which includes providing the supplier
with specifications and other requirements (for example, testing).
2. Through visits to the supplier by management and/or the selection
team.
3. Through confirmation of quality system status either by on-site
assessment, a written survey or request for a certificate of quality
system registration.
4. Through discussions with other customers served by the supplier.
5. Performing a review of databases or industry sources for the
product line and supplier.
6. Through evaluation such as prototyping, lab tests, or validation
testing of samples obtained from the supplier.


Supplier Selection Procedure

Ensure that you have checked all of the following boxes as you
make your selection of Supplier.

Selection Criteria

1. Quality/workmanship
2. Price
3. Service
4. Credibility
5. Track record, history and experience
6. Capability - core competences
7. Capacity - total resources available
8. Person managing the project
9. Honesty
10. Image

If you are in doubt about any of the ten aspects on this check-list, it will be
up to your own personal judgment as to whether to proceed to source
your products through that supplier.

Once you have completed the checklist, begin your Supplier Selection
Procedure.

Step 1: Elimination Process

After the initial quote and research on a selection of 10 Suppliers
minimum, usually the most expensive supplier can be eliminated.

Suppliers with non-professional quotes and those which are trading
companies should receive less consideration from you as potential
suppliers. Trading companies are wholesalers with a license to export,
and sometimes misrepresent themselves to be the factory. If you dont
speak Chinese, and have little experience in international trade, they can
be easier to deal with, as they are generally more Western savvy than the
factories.


Step 2: Shortlist Up To Three Suppliers

Visit the suppliers website to determine:
Level of professionalism
Export experience (preferably has exported to Europe, U.S or
Australia)
Size of their company
History of company

After your first round selection of suppliers, you need to carry out further
communication to confirm your specific product requirements with each
supplier.

******
Communication Diary

The best way to manage your supplier is to keep a Communication Diary
between yourself and the Chinese supplier.

The Communication Diary looks like the following:

No
Item we
need or
asked for
Date
requested
Description Suppliers reply Date
replied

1
2
3

The way the communication diary works:

Throughout the importing process, you will have requested several things
from your supplier. From each of the things you have requested, you will
have received a response to some, and no response to others.

List each of the items in detail in the column, and send the list to the
supplier every 2
nd
or 3
rd
day. This will allow the supplier to be on the same
page as you in terms of what you have requested, and give both you and
the supplier an accurate picture of what has and hasnt been replied to,
and how long it has been since that item was requested.

This is a very subtle and effective communication tool with Chinese
suppliers. It has helped ChinaDirect Sourcing to successfully deliver more
than 100 projects and communicate with 1,000 suppliers, whilst
maintaining good relationship between the importer and the supplier.

It is not hard work, and will definitely reduce your stress levels!

Start your record right from the start of Product Specification, and
document everything you have asked for. This way, all requests will be
reflected and followed in all of your communications.

Note that it is too late to correct orders and specifications when the goods
have already arrived at your port, and you have discovered that the
product is not what you want or the quality of the product does not meet
your expectation.

State to your supplier in clear terms that there will always be a
consequence for them if they choose to ignore your request. Be
persistent, yet polite, in your approach so the supplier knows clearly from
day one what you want, what you expect, when you need it, and what will
happen if they dont deliver them on time.

Over time, your suppliers will learn if they dont follow your instructions
and deliver on time, they will be followed up again and again, and
possibly even penalized. J ust as a mother is unable to ignore her crying
baby indefinitely (for the baby simply wont stop crying until its been seen
to), your supplier cannot ignore your request and your instruction that
apply to this system!

******

Now we have short listed 3 Suppliers, we will move to next stage of
Sampling.


By this stage in the ChinaDirect Importing Process, you should
have completed the following tasks:

Prepared the Request for Quote document
Researched potential suppliers
Sent Request for Quote to the potential suppliers
Obtained quotes from the potential suppliers
Evaluated the offers you have received from the potential suppliers
Completed a Supplier Summary Report, Quote Comparison
Report, and the Landed Cost Analysis
Qualified and short listed appropriate suppliers
Filled out the Supplier Selection Criteria
Shortlisted up to three potential suppliers
Created a Communication Diary between yourself and the Supplier

Week 3, 4 & 5 Sampling & Negotiation

By this stage of the ChinaDirect Importing Process, you now have
three reports in your hand:

1. Supplier Summary Knowing who can supply the product you
want
2. Quote Comparison Report Knowing what the fair market price for
your product is
3. Landed Cost Analysis Knowing how much it will cost you
(estimated) to get the product imported into your country, as well
as what margin you can achieve through your importing

From the information gleaned from these three documents, you now be
clear whether importing will provide a good return for your investment.

If so, the next step is to send your sample or prototype to each of the
shortlisted suppliers and have the suppliers make and send a sample
back to you for your evaluation and final selection of your supplier.


Sampling Overview

Most importers require an exact sample from the supplier prior to
placing an order for the full quantity.

This is achievable; however the first samples you receive from China may
not always exactly match your specification and/or sample.

The Sampling Stage can be a back and forth process between you and
the Chinese supplier, even when youve provided as many specifications
as you can in the first instance.

Normally we send samples from our clients to a minimum of 3 suppliers.

You will need to send samples directly to the supplier and ask the supplier
to send the sample back however this will cost money.

It is important to realise that sometimes the supplier will ask for your
international courier account, (e.g. DHL account), and send a lot of
unnecessary stuff to you, which can create high costs for you
unnecessarily.

Because this process can be so complicated and involves a lot of sending
back and forth, it is both effective and convenient to have a China office
who acts as the central point for your samples and deliveries.

In our system, the sampling process is illustrated by the diagram below:

Client provides three samples to our Australian office.
Those same three samples then sent to our China office, who then
communicate directly with the shortlisted suppliers.

China office sends the 3 client samples to the short listed potential
suppliers, and re-confirms the quotes for production.

China office collects samples from those suppliers, checks their
workmanship and material, compares the samples and then shortlists a
potential supplier .

When you are carrying out the Sampling process by yourself, you can
utilise the same method, however it will take longer and will cost more
money to do it without the support of a local presence in China.

Once you have the Shortlisted Potential Suppliers you can start the
process of sending a second round of Request for Quotes to your three
Shortlisted Suppliers.

See over the page for the sample letter of a second Request for Quote.

Second Request For Quote Email (example)

Dear _______,

Thank you for your detailed quotation and congratulations, you have been short listed as
a possible supplier for the supply of _______________.

We have just finalized the product specifications. These are:

Material:
Outside:
Inside
Stitch:
Colour:
Printing:
Artwork:
Dimensions:
Weight:
Quantity:
Packing instruction:

We are looking for a long-term manufacturing and supply agreement.

Please:
1. Advise packing dimensions. We need to know the total cubic meters (CBM) to
determine how many fit in a 20 container
2. Give us your best quote FOB and CIF into <port and country>in USD per piece
for _____________, so you can be competitive.
3. Advise on the conditions of making exact sample prior to the mass production:
1. What do you need from us for making exact sample?
2. How long it will take?
3. How much it will cost?
4. How much will be the setup fee if any?
4. Give us a breakdown of cost percentages including major material cost, other
materials, labour, overhead, and profit. For example:
* Polyester =20%
* Recycled cotton =7%
* Other materials =3%
* Labour =45%
* Overheads =13%
* Profit =12%

After we receive the above information, we will then select the final supplier.
If youre selected, we will ask you to make an exact sample and sign the Purchase
Order.

If you have any questions, please contact us.

Thank you!

Sample Making Comparison Report

After you have sent the second Request for Quote letters, you can
then prepare a Sample Making Comparison report.

The template for this report is as follows:

Project name:

SUPPLIER 1

SUPPLIER 2 SUPPLIER 3
Company/Supplier
Names:

Exact cost to make sample:

Tooling fee
Mould fee
Die cut
Printing set up film
How much of the above
cost will be refunded?

Other fee(s) involved?
Exact material required
available now?

Time to make exact
sample?

Comments:

By filling out the above form, you can then finalize one of the Shortlisted
Suppliers to make the sample for you.


Sample Making

Now youve found the supplier you want to work with, youre
satisfied that theyre reputable, and youre happy with the price of
producing your order, the next step is to get a sample from that supplier
If you have minimal experience dealing with the Chinese, or in
international trade, the balance of power in your relationship with the
supplier, will lie with them.
To show that youre serious about dealing with your Supplier, proper and
thorough documentation is required to create a foundation of
understanding, and minimize the inherent risks.
Most suppliers that you interact with will prefer loose arrangements to
supply a sample, because it minimizes their risk and liability. We
recommend minimizing your risk by the use of a Sampling Agreement.
The Sampling Agreement can be just one page long, and include:

The agreed commitment from the supplier of a date by which they
will have made the sample for you
The consequences for the supplier of not producing the sample on
time, and
The specifications of the sample, as the sample may vary from the
final mass production.


Sample Improvements

After the sample has been made by the supplier, it can then be
sent to you. It is normal for it to be your responsibility to pay for the freight
of the sample.

Before the supplier sends the sample to you, you can request that the
supplier take detailed photos of the finished sample ahead of time, so that
you know in advance what you are receiving.

In the Sampling Stage, you may want an exact sample from the supplier
prior to placing any orders. This is achievable; however remember that
the first samples you receive from China may not always exactly match
your specification and/or sample. Also remember, the Sampling Stage
can be a back and forth process between you and the Chinese supplier,
even when youve provided as many specifications as you can in the first
instance.

From the photos you have received, if you see any improvements
required, the best way is to list all of them on the following Sample
Improvement Requirements Form. Using this format is the most efficient
way of communication with the Chinese supplier to receive an accurate
sample.

Sample Improvement Requirements

Item

Current
sample
Picture
File name
Requirements Factory
answer
Defects
Category


Example:
Orthotics (Shoe Insole) Sample Requirements

Item

Current
sample
Picture File
name
Requirements Factory
answer
Defects
Category
Orthotics
logo
Orthotics logo
is very blurry

<logo
blurry>
The logo should be
clear, as the new
sample sent

Minor defect
Colour
consistency
on bottom
side
Discolour on
the bottom side
<discoloured
on the
bottom side>
The bottom should
be even colour
Major defect
Side Side splitting or
cut
<side
splitting>&
<side
splitting or
cut>
The side shall be no
split at all.
Major defect
Colour on
hard
Orthotics
The colour is
light blue
<hard one
dark blur>
The hard Orthotics
shall be the dark
blue we provided.
Major defect
Edge trim Some edge is
not smoothly
trimmed
The edge shall be
trimmed smoothly.
Minor defect
Dirt on the
orthotics
There are dirt
on the orthotics
It shall be cleaned
properly; final
products shall be
cleaned by damp
cloth.
Minor defect
Incomplete
patterning
The pattern on
the orthotics is
not completed.
<incomplete
patterning>
The pattern on the
Orthotics shall be
complete.
Minor defect
Size
statement
Size statement
is not
consistent,
while XXS on
one side and
K on the
bottom
<size
statement
matching>
The size statement
shall be the same,
with XXS on both
side
Major defect
Size
statement
Double size
logo
<double
logo>
There should be
only one size logo
needed on this side
Major defect

Purchase Order Negotiation

By this stage of the importing process, you have selected one
supplier, you are satisfied they are reputable, you are happy with the price
of the product, and the sample you received was up to standard.
The next step in the process is to draw up and negotiate the Purchase
Order (PO) with the selected supplier.
The Purchase Order will need to include clauses covering the following
areas:
Quality control procedures
Terms of payment
Moulds ownership
Packaging requirements
Penalties for quality issues and delivery delays
Any other additional clauses defined by individual project
The ChinaDirect Sourcing Services Purchase Order is a tried and proven
document to get the correct product delivered to the correct location at the
correct time.
If you wish to arrange a Purchase Order through ChinaDirect Sourcing,
contact us at info@chinadirectsourcing.com.au


Key Points for Negotiation
Before defining and explaining the information and clauses that
you will need to cover when preparing your Purchase Order (PO), it is
important that you have an understanding of the negotiation process.
Lets go through some of the key points for negotiation.
1) Format
It is always good practise drafting the Purchase Order from your side then
send it to the Chinese supplier for negotiation and finalisation.
Most Chinese suppliers have their own Purchase Order format, which can
be too basic for the proper formal agreement you will require. More often
than not, it does not protect your interests. Some of the suppliers utilise a
simple, one-page, standard international proforma invoice, and some
suppliers use a standard Chinese domestic Supply & Purchase
agreement. If you construct your Purchase Order based on theirs, it is
going to create unnecessary hard work for you in the PO negotiation
process.
It is most beneficial that you do most of the work for the Purchase Order
yourself, and have everything prepared for negotiation.
If by chance your supplier asks you to use their format, you can say to
them: This Purchase Order is from our lawyer, and I cant change the
format. At ChinaDirect, we do not recommend you agree to use the
Chinese suppliers version of the Purchase Order. By investing the
necessary time to prepare the document, you will minimize your risk in the
importing process.
2) Language

In a Purchase Order there will often be some sentences that are difficult
for the Chinese suppliers to understand. Sometimes the Chinese supplier
may ask you to provide them with the Chinese version of the PO. It is best
that you provide a Chinese version as the English speaking person that
deals with you may not always be the person who can authorize the
acceptance of a PO, and the boss may not speak English. To make
his/her job easier, it is well advised that you send a Chinese version.

One way to obtain a Chinese version of the PO is to contact ChinaDirect
Sourcing.
If you are unable to do this, you can still explain and send the PO
document to the supplier in English, making absolutely sure that the
document is explained in plain English.
3) Basic information on the Purchase Order
a. Vendors details
Include all of the details of the vendor on your PO, such as:
Name:
Telephone:
Fax:
Contact person:
Date:
Delivery Date:
Delivery To:
Also include detailed information about the Product;
- Description;
- Quantity;
- FOB Unit price (USD)
- FOB Amount (USD)
- Total
In the PO, you can give a detailed description on separated pages such
as Appendix A, B, C etc.
b. Purchasers details:
Include all of the purchasers details on the PO, such as:
Name:
Telephone:
Fax:
Contact Person:
Date:

c. Marks & Numbering
Include the specific instructions to the Supplier on how you want them to
package and pack the products, and what text you want them to include
on the outer carton or box.
d. Other Instructions
The following photos need to be provided at completion of each stage,
prior to the balance of payment being made:
1. A photo of each individual finished product type
2. A photo of specific packing
3. A photo of goods loaded on a pallet
4. A photo of loading to container.
e. Product Completion Date to be filled in by the Vendor
The product completion date section of the PO should be clearly specified
in the PO document, and agreed upon by both parties the importer and
the supplier.
f. Inspection
Its at this stage you need to decide whether an on-site inspection of the
goods will be conducted or not.

There are three basic options you can elect when it comes to Product
Inspection. They are:

1) Inspection by third-party
2) Inspection conducted by yourself
3) No inspection conducted

If electing to do an on-site inspection, I suggest you elect Option 1 when
importing your goods from China.
Please refer to the section on Product Inspection for full explanations and
an understanding of the importance of Product Inspection, before making

your decision on the inspection of your goods. It is essential that you
complete this.
Informing the supplier of your exact standards at this stage reduces the
risk of unfulfilled expectations, or price increases because of newly
introduced standards after the deal has been negotiated.
All travelling, transportation and other expenses incurred will be on the
vendors account if inspection after confirmation by the vendor is not
possible.
******
Above is a list of the basic information which is included on the Purchase
Order. This information will constitute the cover page of the PO only, with
the key points, and the rest of the Terms & Conditions to follow.

The Terms & Conditions of Purchase Order

It is essential that the following aspects be included in the Terms &
Conditions of the PO.
Delivery time:
Delivery time can be discussed and agreed upon with the supplier. It will
involve what responsibility the supplier will take if the delivery is late.
ChinaDirect use a sentence like the following:
In case of non-delivery within the contracted time for shipment, the
Vendor agrees to be held responsible for any consequences arising there
from.
This can sound vague, however it will set the tone for the delivery, and
the supplier will understand that you are serious about receiving your
order on time and in appropriate quality.
Requirement fulfilled:
It is essential that you have the suppler fulfil each one of the requirements
that you request in your PO, such as the description, quality, quantity and
other necessary conditions.
These requirements shall be listed in detail and repeated over and over
for strict emphasis.
Regardless of whether you have discussed these details with the supplier
at an earlier date (or not) via correspondence, it is good practice to list
everything down again in document form. In China, details and
requirements written in contract form are more likely to be enforced and
have a better chance of being actualised.
If you are going to conduct inspections, or have a third party conduct an
inspection for you, you can also mention that any inspection of the goods
prior to shipment shall not constitute a waiver of any condition or an
admission that any condition has been fulfilled. This is necessary, as
inspection is random checking, and no one can check the goods one by
one if you are going to order 200,000 pieces of, for example, an ice cream
cup, or even 10 pieces of complex machinery.

Some Chinese suppliers may not agree with you in this clause, however
when you raise the issue, it is a good discussion point. Remember that
negotiation in Terms & Conditions shall not be regarded as a single
activity, but a rather important process of educating suppliers in
performing to your expectations.
Therefore, allow some time and patience to go through finer details with
your selected supplier.
Quality Requirement:
It is regarded good practice to ask the supplier to supply the product in
accordance with your requirements for quality. Not only that, you should
also state within your PO, what will happen if the supplier does not follow
this requirement, and fails to provide a good quality product.
You need to give the standard requirements to the supplier, and state
how you will define the inferior quality and/or breaches of the contract,
and what evidence you will provide to the Vendor for them to accept the
claim. You also need to state who will take care of the expense of return
and re-shipment of the defective and repaired merchandise, if applicable.
These requirements may sound harsh, however in our experience, it is
better to be prepared beforehand rather than be caught out down the
track. Discuss all of this with the supplier before you sign the PO and pay
any deposit, and make sure you are managing the supplier and not letting
the supplier manage you. You are the active manager in the relationship,
rather than a passive importer.
Improvement Requirement:
If you are dealing with the supplier for long term relationship, and the
goods are machinery or involved with new technology that is to be
updated continually, you can ask the supplier to make sure that the goods
supplied under the Purchase Order are new, unused, of the most recent
or current models, and incorporate all recent improvements in design and
materials, unless provided otherwise in the contract.
If the goods are machinery and concerning some design, you can ask the
supplier to make sure that the goods supplied under this contract shall
have no defect arising from design, materials or workmanship or from any
act or omission of the vendor that may develop under normal use of the

supplied goods in the expected operating conditions in the end-users
country.
Trademark & Copyright
You may find that sometimes the suppliers you import from are also
supplying some similar product lines to other countries. The supplier may
have copied from other machines or products they have seen elsewhere,
and they want to sell it to you.
You need to make sure that the product you have purchased is not
subject to registration or established usage under trademark, copyright,
design, and license or business name.
In order to determine whether the product you are purchasing falls under
any copyright, patent, trademark or licensing, it is best to use your
common sense. Ask your supplier to document in writing as part of the
Purchase Order that they understand that the product is not subject to
intellectual property rights breaches, and that they will be responsible for
all penalties, if this is the case.
Standard Requirement:
It is good practice to ask the supplier to take full responsibility that the
merchandise supplied conforms to the safety and health regulations of the
importing country.
If the supplier has exported to your country previously, they should know
this already; if they dont, then it is best for you to simplify it for them and
make a list, allowing them to easily understand. For some products, it is
particularly important, and in fact critical, to make sure that the standard
requirements are met, otherwise you may not be allowed to sell your
product once it has been imported into your country.
For the standard requirements, each product is different. For instance for
ice cream cups being imported to Australia - Australian food and health
safety standards will apply. For machinery, the Australian safety
standards will apply. For chemical products, the Duties Of Manufacturers,
Suppliers, Importers And Installers For Dangerous Goods will be outlined
in the Australian Dangerous Goods code.


Freight measurement:
When outlining freight measurement in the Purchase Order, it is
considered good practice to provide detailed dimensions to calculate the
freight. At ChinaDirect we ask the supplier to pay any additional freight
charges incurred due to in-exact freight measurements supplied by them.
This can be very effective as it makes the supplier responsible for the
work they do, and also for the information they have provided.
Force of nature:
Always discuss with the supplier what will happen in the event of unseen
force of nature, strike, riot, civil commotion, war, epidemic, quota,
embargo, interruption or congestion of transportation, inability to obtain
shipping space, or other causes or circumstances beyond your control,
which interfere with the completion of the contract. Make sure you dont
have to pay the supplier any damages or compensations in these events.
You shall also have the right to postpone the shipment.
Marks:
If you are a wholesaler, you more commonly than not, dont want your
customer to know where you import your goods from. When you arrange
the Purchase Order, ask the supplier not to put on your goods or
packaging their name, address or other marks of the supplier and/or any
other information that is disadvantageous to your interest on the goods,
inner box, export package, or any packaging.
If a manual for the product is required, you will need to provide a version
in English if the supplier doesnt already have one. Also ask the supplier
to put any signage on the goods, inner box, export package, and any
packaging in English only, or, alternatively, packed with the label that you
have provided.
Disputes and Differences:
Whilst using the ChinaDirect Importing Process reduces the chance of
disputes arising between the supplier and the importer, you still need to
advise where the case will be held - your country or in China.
In Chinas commercial law system, arbitration is the most common legal
path, with no direct arbitration between the supplier and the importer,

rather the Chinese supplier will send the dispute straight to the
government body.
Currency and price change:
The US Dollar versus Chinese currency fluctuates a lot. In ChinaDirects
PO, the currency is written in words such as: The goods to be purchased
at USD currency on the FOB delivery to the port in Shenzen.
We also request that the supplier confirms the price is fixed and firm for a
minimum of 12 months, and is free from any exchange rate variations.
Request that you need to agree upon any price increase of no more than
3% after 2 years.
This may not always work with the supplier, however it sets the tone and
is a good point to start. In negotiation, the key point is to anticipate what
may happen. If you understand most of the situation at hand, and get to
know the suppliers habitual way of thinking, you have already won half of
the game.
It is common practice for Chinese suppliers to quote low initially, and then
increase the quote upon receiving a sample and specific quality
expectations. In the first order they will provide you with a good price. In
the second order, they may raise the price 20% to 30% if you are not
skilled in the process of importing.
It is very important at this point in time to set the tone and gain a full
understanding of each others position. Then by the second order, you will
be in a much better position to negotiate, even if the supplier may still
want to increase the price.


Example
Recently a supplier asked to increase the price from $2.16 to $2.96 per piece,
and gave the following reasons:
a. The decrease of refunded tax percentage from the Chinese Government
b. The rise of RMB exchange rate
c. The increase in labour cost
d. The mistake from the calculation of needed fabric/material
I used the following points to negotiate:
I requested they use the percentage increase instead of the dollar
amount as I thought the increase was too deep.
I asked for a break-down of their costs, in itemized format.
I told the supplier that I am just the person in between, and let them
know that the client may not be happy to place an order like that.
The outcome of the negotiation was a price increase of only 11%, instead of the
original 37% increase.
Payment terms
It is common practice to pay a 30% to 50% deposit to the supplier upon
the signing of the Purchase Order contract. However, in some cases you
can discuss with the supplier that you will pay a deposit as little as 10%,
once you have established a good relationship with your supplier. This is
especially relevant if you are going to have a long-term relationship with
your supplier and if it is a large amount of money.
The remaining balance of the payment is usually made after the
presentation of the copy of the Bill of Lading (this Bill will be defined under
Week 11 & 12).
The payment method usually will be Telegraphic Transfer or by Letter of
Credit, also explained later.
Moulds Ownership
It is important you discuss with the supplier about the moulds required for
the production of your products. If you have paid for the moulds and the
equipment, those moulds and equipment shall remain your property. You

have the right to ask for the moulds and equipment to be returned or sent
within seven days to the nominated address with freight to be paid by you.
You can also put a restriction on the supplier using the moulds and
equipment paid for by you for any other reason other than for your
instruction.
For this clause, you can use a practical way to penalize the supplier.
Be sure to include a detailed list of the moulds and equipment in an
Appendix of the Purchase Order.
Outstanding claims
This is especially relevant for long-term relationships. You can state within
your Purchase Order that you will withhold payment for subsequent
orders on any shipments made not to your satisfaction.
Perfect sample before or out of production
In the case that you are not going to inspect the product yourself or have
a third party to inspect the product on your behalf, it is better to ask the
supplier for an exact sample of each model/size for final approval prior to
production.
These samples of finished products will usually be sent by air-freight, and
you will be responsible freight costs. You can start by asking the supplier
to pay for the air-freight, and use this as a negotiation point.
In this section, you must also state when the sample shall be sent, such
as: No later than 15 days from the signing of the Purchase Order", and
you shall also state that once the sample has been approved, future
production shall match the approved sample.
Penalty for late delivery
ChinaDirect always advises the supplier the implications a late delivery
will have on our client. This can be things such as;
o The client has already done a marketing campaign and it will cost a
lot of money for the client if they receive the goods late.

We include a practical penalty for the delay per day from the due date for
delivery of the sample and of the final products.
If the delay is caused by you, then these penalties cannot be applied.
Requirement for packing
Australian Customs has very strict requirements for packing.
If the goods contain any straw, cereal, rice hulls, and any other
unprocessed plant materials, even if the packaging includes any timber
crates, pallets or skids, the goods and container will go through
quarantine this can cost money and cause some delay on the delivery
due to Customs.
I always remind the suppliers that under no circumstance should they use
any straw packing, and preferably no timber packing either, in the
container. If timber packing has to be used for packaging since there are
no other options available, ask the supplier to provide the Fumigation
Certificate as fumigation in China is much cheaper than quarantining
service charges in a Western country.
Your Intellectual Property (IP) protection
In this clause, you can remind them that no information regarding this
particular product shall be revealed in any of the suppliers websites,
leaflets, advertising material and promotional activities, including showing
prospects and third parties, examples of the work if the product is very
unique and contains your IP.
There are many ways to reduce the chance of Intellectual Property
infringement. The appropriate tactics will depend on your objectives.
Chinas Intellectual Property laws are similar to the laws governing
copyright, trademark and patents in Western countries. Chinas entry to
the World Trade Organisation has resulted in very positive developments
on the legislative front, and enforcement of IP rights is catching up.
Before the Purchase Order is complete, you can have the supplier sign a
Non-Disclosure Agreement.
To arrange a template of the Non Disclosure Agreement in English and
Chinese, email info@chinadirectsourcing.com.au

Summary of Purchase Order

In summary, the Purchase Order shall cover most of the points
mentioned above. Most suppliers prefer loose arrangements to supply the
product because it minimizes their risk and liability. ChinaDirect
recommend that you minimize your risk as the importer by utilising a
properly written Purchase Order.

The Purchase Order only needs to be two or three pages in length, but
will include a commitment from supplier for all above mentioned points,
and specify what will happen if any of these commitments are not met.

By utilising the information provided above, you can draft your Purchase
Order. Having an established Purchase Order document creates efficient
and effective production and importing processes.

As mentioned earlier in this section, you can arrange a Purchase Order in
English and Chinese from ChinaDirect by contacting us at
info@chinadirectsourcing.com.au
Once the negotiation of a Purchase Order is done, a letter to the supplier
will be sent along with the Purchase Order document to be filled out. The
sample letter is as follows:


Instruction to Supplier Fill in PO
Dear Supplier,

Congratulations! You have been selected as our supplier for this project. I know
we have come a long way already, but this is just the beginning of a long term
and prosperous business relationship together.

Please print this page and the attached Purchase Order, and use the checklist
below to ensure the attached Purchase Order has been completed correctly so
we can make a deposit to you as soon as possible.

PURCHASE ORDER COMPLETION CHECKLIST
Action Completed?
Page 1 Vendor: Confirm the following:
- Company name
- Address
- Contact person
- Phone number
- Mobile phone number
- Fax number
- Email
Delivery date: Confirm delivery date on Page 1
Product: Confirm the product name
Product description: Confirm the full description of the
product

Packing description: Give full description about the packing

Page 4 Bank details: Fill in the following:
Beneficiary
Bank address
Bank name
Bank account
SWIFT

Final Actions
Read and be clear on the terms and conditions (any questions,
please call)

Print the Purchase Order
Sign and chop with company chop on each and every page
(total 3 pages)

Scan and email each and every page to <Company name>
total 3 pages) at
<Insert Email address>


The format of the Purchase Order is the standard format used with many
suppliers around the world. However to help you understand the PO, we have
translated it into Chinese. Please see the template document attached.

If you have any other questions regarding the Purchase Order, please contact
our office at:
<Contact Details>

This is only our first trial order. Once we are happy with everything, we will
place regular orders.

I hope this is a smooth process, and a good start to our long-term relationship.
Regards,

<Name>
<Company/Position within Company>


Deposit Payment

As soon as both you and the supplier have signed the Purchase Order, it
is now time to pay your deposit. The total percentage that you will pay of
the total amount to the supplier as a deposit needs to be outlined in your
Purchase Order document.

There are a number of ways you can make your international payment.
Two of the most common are:

1) Telegraphic Transfer (T/T)
2) Letter of Credit (L/C)

Normally, if the payment amount is under US$50,000 ChinaDirect will
usually prefer to pay the supplier by Telegraphic Transfer. Remember to
always keep the receipt of the payment and send the supplier the bank
slip. After the deposit has been paid, you need to send a letter to the
supplier, to confirm the following things:

Confirmation that the deposit has been paid
The amount of the deposit, and
Proof of payment (receipt)

HOT TIP

Remember here, during the deposit stage, that it is very important to show your
supplier you are a person with integrity. When you say you will make a payment
at a certain time, make sure you follow through with it, and show the supplier
with the bank slip.

Even if the supplier does not receive the money for another week, as an
international payment takes time, this will establish their trust in you, and further
develop your relationship. Because, in deposit payment, you demonstrated your
sincerity by showing them the bank slip, the supplier will then trust you in the
payment of the full balance.

When the deposit payment has been made by you to the supplier, the
production process begins.


By this stage in the ChinaDirect Importing Process, you should have
completed the following tasks:

Gained an understanding of the Sampling Process
Understood the complexities involved in Sample Making
Sent a 2
nd
round of Request for Quote letters to your three
shortlisted suppliers
Created a Sample Making Comparison Report
Created and sent a Sample Making Agreement to your three
shortlisted suppliers
Received samples of your product from the three shortlisted
suppliers
Selected one supplier
Filled out the Sample Improvement Requirement Form (if
applicable)
Understood the key points of negotiation with your supplier
Completed a final draft of Purchase Order
Had the supplier fill out and sign the Purchase Order
Made your deposit payment to the supplier


Week 6, 7, 8, 9 & 10 Order, Production
Management & Inspection

The next step in the ChinaDirect Importing Process is for you to
control the quality of your goods, manage the production, and decide
whether you will be performing an inspection on the products or not.

Quality control is absolutely imperative it is the key in making sure that
your supplier really delivers what they promised to deliver. And an on-site
inspection is one of the steps in the process of quality control.
Chinas supplier base is improving year after year. Still, it is safer to
assume that You get what you INSPECT, not what you EXPECT.
Supplier management must be an active and hands-on activity in China.
Many suppliers have not institutionalized the processes and attitudes that
make a company fully reliable. You need to assume the worst and may
need to perform regular inspections and supplier audits. When such
pressure lessens, quality of the product or service tends to start slowly
degrading. The minimum goal of such quality assurance and control is to
prevent any sub-standard good from leaving China. Once the defective or
wrong product has left China, it becomes significantly more difficult to
solve problems.
At ChinaDirect, quality control is not just a last minute process it begins
right from the start. Ensure that you make it known to the supplier that you
will inspect the goods prior to shipment.

Quality Control is a step-by-step process, an education process, and a
process to create a partnership with your supplier. You tell the supplier
what you want, explain to them which criteria you are going to utilise to
check them, and have the supplier complete the checks against the
criteria.

We will now address and explain the Production Management and
Product Inspection of the ChinaDirect Importing Process.


Production Management

There are several strategies which you can utilize when it comes to
managing the supplier and the production process to make your order run
smoothly order placement through to the end result of receiving your
goods.

Once you have signed the Purchase Order between yourself and your
supplier, it would be fair to assume that you will have your products
delivered to you on time, and meeting the level of quality that you
specified in the PO.

However, it is not always the case. It is nave just to assume your PO will
run on autopilot. If I was running a manufacturing business and never
took time to look after the most important machine on the factory floor,
then Id be asking for problems to arise within in my business.

This is also the case with your Chinese supplier. Chinese suppliers
require constant attention and management in order to have them meet
your expectations. Without ever checking (but just assuming) that things
are running as they should, early warning signs go unheeded and only
once theres complete breakdown (when its usually far too late) is urgent
action taken.

J ust because the manufacturer supplied correctly the first time (with the
sample/s), it doesnt mean that they will do it correctly and to standard the
second and third times especially in international trade, where there can
be many complications.

Compounding on all the previous challenges comes the China factor.
Things do not get done the same way in China as they do in Western
countries, affecting every stage in the process - the way to negotiate, the
way to supervise, the way to solve problems when they appear, and also
the way to get relevant information are quite unfamiliar to Western
business people.

Lots of problems that have arisen with your supplier can be solved very
fast when action is taken at the right moment and at the right level. But
the geographical and cultural distance between China and the West
makes it hard to catch early warning signs and to swiftly react and resolve
the problem.

To effectively and sustainably source from China its recommended to use
a trusted Chinese team on the ground. Whether it is an in-house team or
a trusted service organization that represents you, this is a must.

For example, it is not uncommon when re-ordering, for the supplier to
increase the price dramatically, taking considerable time to negotiate.
When re-ordering, make sure that you reconfirm all details of the supply
arrangement, including the price.

You will need to establish all of the critical dates with your supplier, such
as the product completion, delivery and inspection dates; so that you may
ensure that the whole transaction can be carried out effectively and
efficiently.

Prior Production Sample

You need to establish with your supplier what the date will be for the PP
Sample (Perfect Sample Prior Production) completion after the deposit
payment has been made to the supplier.

The PP sample completion date is the date by which you have received
the final sample from the supplier that matches all of your necessary
requirements and the standard of quality you have specified.

Product Completion Date

The Product Completion Date, in particular, should be emphasized, and
you need to tell the supplier when you will have the Freight Forwarder
contact them regarding the delivery of the goods. Usually you will have
the Freight Forwarder contact the supplier between 7-10 days before the
Product Completion Date.

Photos

Another strategy you can implement to ensure that all standards and
deadlines are met for your production is to ask the supplier to provide you
with photos at every stage throughout the production process.

You can ask the supplier to email the following photos at an appropriate
time to you, so you can check on and be up to date with the process and
progress of your order:

Each individual finished product type
Packaging of the product
Product being loaded onto pallets

Product Progress Report

Ask your supplier to send you a Product Progress Report every two
weeks throughout the production process. You can draft the report into a
basic format for the supplier to fill out.

This way, youre always in control, and ensure you receive the information
you want. When all of this is completed, you can then schedule a regular
time to check the progress with the supplier.

You can find a template for the Product Progress Report over the page.


Product Progress Report

Dear <Supplier name>,

How is the production going?

What % of the total product have you finished so far?

Can you please confirm that your Final Delivery Date (FDD) remains ___

And when will you be ready for shipping?

Please send a photo of the product in production to us.

Please keep me informed about the progress of the project.

Thanks and regards,

<Your name>

Outer carton making

Sample of outer cartons:
Main Markings:
BUSINESS NAME:
GENDER:
SIZE:
COLOUR:
MADE IN CHINA

Side Markings:
QTY PER CARTON: X PCS
G.W.: X KGS
N.W.: X KGS
MEAS: XX CM

Product Inspection

Product Inspection is a very important step in the ChinaDirect Importing
Process. The decision to inspect your products or not can significantly
affect the results you achieve through importing from China.

The purpose of Product Inspection is to ensure that the suppliers
consignment complies with the contractual requirements. When product
safety is involved, the inspection must be conducted with the aid of
measuring instruments or testing equipment.
There are three main types of on-site inspection:
I. Factory Audit
During this type of inspection, the inspector/s may:
a) Verify the factory existence
b) Check the core production competencies and capacity claims
c) Check the bona-fides of the representatives youve been dealing
with
d) See first-hand the quality procedures employed
The Factory Audit report may include a Factory profile, Factory
organisation, Production equipment and capacity, Quality
assurance system, Technical standard, R&D, Supplier
management, Hygiene, Environment, Security and Social
accountability.
II. During Production Inspection (DPI)
During DPI a selective inspection of products occurs at different
stages of the production line, focusing on the following aspects:
a) Checking the sample for any defects or deviation from quality
parameters
b) Find the root causes of production defects
c) Suggest practical and effective ways in which these can be
rectified
d) Inspect and detect poor quality linkages at different production
stations

e) Indentify supplier production weaknesses in the product system
that lead to defects
f) Product and component quality inspection before assembly
g) Issue an In-Line Inspection Report complete with digital pictures
h) Issue a Corrective Action Report complete with digital pictures
i) Verify the execution of the Corrective Action Report (CAR)
III. Pre-Shipment Inspection (PSI)
This form of inspection occurs when the merchandise is completed,
packed and ready for shipment, or at least 80% of the products are
packed.
Pre-Shipment Inspection is performed to an agreed Acceptable
Quality Level (AQL) established between you and the supplier. AQL is
defined in Single Sampling Plan and also in the Glossary.
At inspection time, inspectors check the available quantity, and then
take samples based on the internationally recognized statistical
random-sampling technique, commonly known as ANSI/ASQC Z1.4,
BS 6001-1, and ISO 2859-1.
Inspector/s will verify the quantity, style, color, workmanship, size,
packing and shipping mark of the products - all with a view to ensure
that the merchandise meets the contract specifications, or conforms to
the approved sample.
If the importer is going to perform an on-site Pre-shipment Inspection,
the supplier needs to submit to you a detailed Packing List (explained
in Week 6, 7, 8, 9 &10) five days prior to production completion date to
arrange for your or independent surveyors inspection of the
merchandise.
******

PSI reports are the most essential form of inspection when importing from
China. For Product Inspection via a PSI, there are the following three
options:


Option 1

Complete a PSI via a third party. During this inspection, the Inspectors will
enter onto the suppliers site and complete a Final Inspection Report.

The Final Inspection Report is completed according to an AQL
(Acceptable Quality Level) agreed between you and the supplier.

Option 2

The second option is to perform the PSI personally. In this inspection, you
will personally enter onto the suppliers site and complete a Final
Inspection Report.

The Final Inspection Report is completed according to an AQL
(Acceptable Quality Level) agreed between you and the supplier.

Option 3

The third option is not to conduct an on-site inspection. In the case you
elect this as your option, you will have to rely on the supplier to meet the
standards and fulfill your requirements with your products. Ive provided a
Quality Assurance Checklist which you can have your supplier complete,
on the next page.

******
Inspect or Not?

Some factors to consider when deciding whether to undertake an on-site
inspection or not include:

The value of the order
The safety criticalness of the goods
Your level of trust in your supplier
Your own personal preference

Regardless of which option you take with regards to the inspection of your
goods, we strongly recommend you complete a Quality Assurance
Checklist with your supplier to help minimize your risks involved in
importing. The Quality Assurance Checklist can be found over the page.


Quality Assurance Checklist

Below, we have provided a template of the Quality Assurance
Checklist.

This form is designed to be filled out and sent to your Supplier during the
Purchase Order negotiation, and will become a part of your Purchase
Order document.

No. Aspects Test
Criteria
Results Comments
1 Product
Appearance
Does the product conform with
respect to
shape,
appearance,
style and
colour?

2 Performance

Does the item function as
required, and does it meet other
rudimentary tests as requested
by buyer?

3 Workmanship

Does it correspond with the
sample supplied and were the
numbers of detected defective
samples within AQL acceptable
limits?

4 Assembly

Are the components of the item
well assembled without loose,
missing or damaged parts?
Does the product function
properly after repeated
manipulation?

5 Accessories
Are all the accessories included
and do they match the sample
description?

6 Material Whether the material is the
same as the reference sample
description.
How does it hand touch and feel
compared with the sample?

7 Colours
Do they match the reference sample
and are the colours uniform
throughout the sample selection?

8 Size and
Measurements
Does this comply with the reference
sample?


No. Aspects Test Criteria Results Comments
9 Weight Where applicable is this
consistent with the reference
sample and the quantity?

10 Assortment Where goods need to be
packaged in assortment,
compliance with this is checked.

11 Quantity
Status
Does the quantity conform to
your request (PO)?

12 Shipping
Marks:
Do these conform to your
request (photos to be provided)?

13 Carton
Status
Are they packed and sealed
appropriately and fit for transport
(dry, clean and stored
correctly)?

14 Packing
and
Marking
Does this conform with your
request; including packing
method, packing material,
barcode, printing and so on?

15 Factory
Warehouse
An on-site inspection and
factory photos will be taken and
provided; and

16 Container
inspection
Is the container in good
condition, dry, clean and in a
suitable condition to undergo the
voyage?


Product Rejection, Rework and Re-Inspection

The product is rejected when its quality level, as determined by the
random sampling, does not comply to the contractual requirements.
Product rejection may result in a delayed shipment or you cancelling the
order.

In the case that the product is rejected or re-worked for re-inspection and
this therefore causes a delay in the shipment, you can refer back to the
Purchase Order for clarification of this penalty. In the PO, you will have
clearly specified the penalty clause for delayed shipment.

In exporting, a rejection normally applies to the entire lot. Most often, the
vendor has to sort the acceptable from the unacceptable in a lot and
rework the unacceptable, and then submit the lot for a re-inspection.
In the case of a rejection, the importer may conduct 100% inspection of
the lot, sort the acceptable from the unacceptable, then ship the
acceptable only and return the unacceptable. In practice, however, this
approach may not happen due to the restrictions stipulated in the Letter
of Credit (L/C), for example, when the partial shipment is prohibited or
when the L/C stipulates the quantity in terms of a stated number of
packing units or individual items.
Not all products can be sorted to separate the acceptable from the
unacceptable. Whether the whole lot or only the unacceptable is
reworked, the vendor's resubmission of the lot is subject to examination
in the same manner as a homogeneous lot being submitted earlier. The
criteria during the re-inspection are more often than not, stricter than in
the previous inspection where faults and/or defects were discovered.
Under certain circumstances, such as the expiration of the Letter of
Credit or export (or import) license and the short market supply in the
product, sometimes a concession to accept the lot has to be made
despite the fact that the lot did not meet the Acceptable Quality Level.
The decision to reject or accept the products, given their defects and/or
failure to meet the AQL, has to be made by you, the importer.
And you may use this to negotiate a discount on the products with the
supplier.


Unauthorized Product Substitution

The delivery of goods can be from the vendor's premises directly to
Customs or to the trader's premises first and then to Customs, depending
on the arrangement between you and the vendor. In either case, most
product inspections are conducted at the vendor's premises.

In the FCL (Full Container Load) shipment, it is a common practice that
the loading or stuffing of a container after the inspection of goods is left
completely to the vendor.
A fraudulent act carried out by unreliable vendors is termed Unauthorized
Product Substitution. For example, after the lot has been inspected and
accepted for shipment, the supplier may arrange for part of the lot to be
substituted with the previously unaccepted products. Such a fiendish act
is extremely detrimental to the reputation of the trader.
There have been fraudulent cases in the past involving dry cargo FCL
(Full Container Load) shipments. The goods had been inspected but the
stuffing of containers went unsupervised by the importer. The end door
layers of the packages in the container contained the goods ordered,
while the rest were substituted not with unacceptable but with 'phony
cargo'---a combination of cheap bricks and 'rubbish' in the export
packages. The 'phony cargo' evaded the Customs detection.
Some of these cases stemmed from the trader going bankrupt and the
work of a swindler. In certain cases, the manufacturer was not the culprit;
it was the work of the trading company with the intention to defraud the
overseas buyer.




Implemented strategies on Production Management
Made the decision on what methods you will utilize to perform an
inspection on your goods
Completed the Quality Assurance Checklist
Had the supplier fill out the Quality Assurance Checklist
Gained an understanding of product rejection, rework and re-
inspection
Gained an understanding of Unauthorized Product Substitution


Week 11 & 12 Delivery Management

By this fourth and final key stage of the ChinaDirect Importing
Process, you have stepped out the following actions:

1) Research & Tender
2) Sampling & Supplier selection
3) Negotiation & Purchase Order
4) Deposit & Final Purchase Order
5) Established key production dates
a. Prior Production Sample completion
b. Inspection date
c. Production completion date
6) Production management & Progress checks
7) Inspection & Quality Assurance

It is now time for you to act on the Delivery Management phase of the
importing process. This phase includes selecting a Freight Forwarder,
booking the shipping, completing the applicable documents with the
supplier and Freight Forwarder, and electing and confirming the final
dates for the delivery of your goods.


Booking Shipping

Finding a good Freight Forwarder to bring your products from China to
your port can seem like a real challenge. You will need to establish a
good relationship with a Freight Forwarder, bearing in mind that this will
benefit you in the future if you are importing a second, third or even on-
going orders from China. Focus not only on the price, but on the service
that the Freight Forwarder provides.

HOT TIP

It is important you remember that the Freight Forwarder is your partner in the
completion of the importing process, just as much as the supplier. You need to
be in full communication with the Freight Forwarder to make sure that they have
all of the documents prepared and ready before you make a balance payment.

This is done so that the Freight Forwarder can communicate with you about any
potential issues that you may have/encounter regarding the Customs clearance
and quarantine requirements.

As you have already learned, you can take action when you are first organising
the order from China, to avoid large costs at the end.

You need to provide the details of the supplier to the Freight Forwarder
when you have chosen the company to operate through.

A sample of the Shipping Booking can be found over the page.


Sample of Shipping Booking

To <Freight forwarder>,

Please contact the following supplier:

Example:

Shaoxing XXXX Furniture Industry Co., Ltd.
Contact person: <Name >
Phone: XXXX
Address: XXXX, Shaoxing County, Shaoxing City, Zhejiang Province. China

Please send me your local agents details as well.

We have a 40ft container of XX product from them; please ensure it is a direct
ship to Brisbane.

Please keep me informed of the progress.

The production shall be finished prior to <28
th
Sep, 200X>as this is urgent
shipping, and Customs is waiting for the goods.

Please let me know the following:

1. When the ship is booked
2. Estimated leaving date
3. Estimated Time of Arrival (ETA)

Please also let me know when you have collected all the documents you need
for Customs clearance, before I make the balance payment.

Thank you and regards,

<Your name>


Completing the Inspection

If you have decided to perform or have an inspection carried out on
your goods, you can do the inspection when the merchandise has been
completely produced, and is packed and ready for shipment, or at least
80% of the product has been packed. After the inspection report is done,
and you are happy with the result, then it is time for shipping.

If you are not happy with the inspection result, then utilize the inspection
result to negotiate with the supplier item by item for a discount and/or
reduced price on your goods. For details, see the previous discussion on
Product Rejection, Rework and Re-Inspection.


Delivery & Shipping Documents

After the supplier has sent the goods to the port and the products are on
board, you will need to ask the supplier to provide the following
documents:

Commercial Invoice
Packing List
Bill of Lading
Packing Declaration

These four documents are defined over the following pages of the book.
The most appropriate method of delivery will be determined according to
the urgency of delivery, cost and weight of the products being sourced.
These include air freight for lower weight, or urgently required products.
Delivery can occur within one week. For heavier products or larger orders,
we generally use sea freight. Ask your Freight Forwarder for approximate
shipping times.

Commercial Invoice

A Commercial Invoice is simply a bill for the goods from the Seller
(Supplier) to the Buyer (You). Commercial invoices are utilized by
Customs Officials to determine the value of the goods in order to assess
Customs Duties & Taxes.

In general there is no standard form for a Commercial Invoice, although
they tend to contain many of the following features:

Seller's contact information
Buyer's contact information
Consignee's contact information (if it is different from the buyers)
Invoice date
A unique Invoice number
Sales terms
Payment terms
Currency of sale
Full quantities and description of merchandise
o Generally this includes unit price and total price. Product
descriptions should be consistent with the buyer's purchase
order.
Certification that the invoice is correct (Standard language is "We
certify that this invoice is true and correct.")

It is very critical that any discount of the transaction be reflected on the
invoice, as this is the basis that Customs uses to calculate the import duty
and Customs GST. If you are paying anything separate than the goods,
make sure you ask for a separate invoice.


Packing List

The Packing List is an extension of the Commercial Invoice, and as
such, it looks like a Commercial Invoice. The Packing List will be a match
to the Commercial Invoice; the difference is that the Packing List doesnt
show the value of the order, only the details of the volume.

The exporter or his/her agent the Customs broker or the Freight
Forwarder reserves the shipping space based on the gross weight or
the measurement of the goods as shown in the Packing List.

Customs utilises the Packing List as a checklist to verify the outgoing
cargo (in exporting) and the incoming cargo (in importing). The importer
uses the Packing List to perform an inventory on the incoming
consignment.

In general there is no standard form for a Packing List, although they tend
to contain many of the following features:

Catalogue or item number

Number of pieces per inner box and number of boxes in an
export master carton

Each master carton:
1. Net Weight (N.W.)
2. Gross Weight (G.W.)

Measurement (Meas)

Package No.
The entries preferably arranged in sequence from the lowest number
to the highest, that is, from package No. 1 and up.

Item No." and " Description of Goods"
The description of the goods in the packing list can be in general
terms, provided it is not inconsistent with the description in the L/C
the Letter of Credit.


Quantity
It shows the total quantity within a stated range of the package
number and the breakdown in each package.

" Weight"
The Packing List shows the total weight within a stated range of the
package number and the weight of each package. As far as the
carrier is concerned, the gross weight or measurement of a
consignment is needed to calculate the freight. In the case that the
goods are assessed in the importing country or exported on the net
weight basis, it is necessary to show the net weight and gross weight
in the packing list.

" Measurement "
Ocean shipments are often charged by the cubic meter (CBM or cbm).
Sometimes, it is necessary to include the size or dimensions (length-
width-height) of the master package.
Some carriers may calculate the freight on a cubic feet (cft. or cu. ft.)
basis. In the case of an irregular shaped cargo, take the three widest
dimensions that describe the smallest cubic space enclosing the cargo
to determine the measurement.

" Signature and/or stamp "
The Packing List and Commercial Invoice do not need to be signed,
unless otherwise stipulated in the Letter of Credit (L/C). In practice, the
original and the copy of the Packing List and Commercial Invoice are
often signed.


Corrections or Changes in the Packing List

Any visible corrections or changes made in the Packing List must be
initialled, as in the Commercial Invoice and all other export documents, by
their respective issuers. In practice, the initial usually is done using a
rubber stamp bearing the word "CORRECTION".

Summary of Totals in a Consignment
Total Number of Packages
Total Quantity
If a consignment consists of different units, preferably show all
the units used in the summary of totals.
Total Weight and Total Measurement

If the net weight and gross weight are used in the break-down, the
summary must show the total net weight and the total gross weight. If
kgs., lbs., CBM and cft. are used in the breakdown, the summary must
show the total of kgs., lbs., CBM and cft to ensure that the
measurements are consistent and accurate.

Under certain circumstances, such as in a consignment consisting of a
few master cartons where each carton contains several small items of
different sizes, it is necessary to show the break-down of the quantity of
each item. There is no need to show the break-down of the weight and
measurement of each carton.

Simply entering the total weight and the total measurement of the
consignment in the row summary would satisfy the export requirements.


Bill of Lading

You will need to let the Supplier know who the consignee is and
who will be the notifying party. Usually the consignee is yourself; the
notifying party can be yourself or the Freight Forwarder.

A Bill of Lading is a type of document that is used to acknowledge the
receipt of a shipment of goods.

A transportation company or carrier issues this document to a Shipper. In
addition to acknowledging the receipt of goods, a Bill of Lading indicates
the particular vessel on which the goods have been placed, their intended
destination, and the terms for transporting the shipment to its final
destination.

Inland, Ocean, Through, and Air Waybill are the names given to Bills of
Lading.

An Inland Bill of Lading is a document that establishes an agreement
between a Shipper and a transportation company for the transportation of
goods. It is used to lay out the terms for transporting items over land to
the exporter's international transportation company.

An Ocean Bill of Lading is a document that provides terms between an
exporter and international carrier for the shipment of goods to a foreign
location overseas.

A Through Bill of Lading is a contract that covers the specific terms
agreed to by a Shipper and Carrier. This document covers the domestic
and international transportation of export merchandise. It provides the
details of the agreed upon transportation between specific locations for a
set monetary amount.

An Air Waybill is a Bill of Lading that establishes terms of flights for the
transportation of goods both domestically and internationally. This
document also serves as a receipt for the Shipper, proving the Carrier's
acceptance of the Shipper's goods and agreement to carry those goods
to a specific airport.


Essentially, an Air Waybill is a type of Through Bill of Lading. This is
because Air Waybills may cover both international and domestic
transportation of goods.

By contrast, Ocean shipments require both Inland and Ocean Bills of
Lading. Inland Bill of Lading are necessary for the domestic transportation
of goods, and Ocean Bills of Lading are necessary for the international
carriage of goods. Therefore, Through Bills of Lading may not be used for
Ocean shipments.

Inland and Ocean Bills of Lading may be negotiable or non-negotiable. If
the Bill of Lading is non-negotiable, the transportation carrier is required
to provide delivery only to the consignee named in the document. If the
Bill of Lading is negotiable, the person with ownership of the Bill of Lading
has the right of ownership of the goods and the right to re-route the
shipment.

Packing Declaration

It is an Australian Customs requirement to have each and every
supplier fill in the Packing Declaration. You need to write step-by-step
instructions to ask the supplier to fill it in, so they avoid mistakes, and
therefore delays at Customs.

Balance Payment

After you have received the Bill of Lading it is time for you to make the
balance payment.

ChinaDirect will usually ask the supplier to do a telegraphic release for the
Bill of Lading so that the supplier doesnt need to send the original
documents to us.

Make sure that you send the bank slip to your supplier to show them that
you have paid the money to them, remembering that this will build trust
between you and your supplier for future transactions.


Sea Freight Container Dimensions

To assist you with the booking shipping for your goods to be
transported from China, we have provided you with the dimensions of Sea
Freight Containers as a reference.

General Purpose Container 20'x8'x8'6

Millimetres Feet
Internal
Dimensions
Length L1 5,898 19' 4.2"
Width B1 2,352 7' 8.6"
Height H1 2,391 7' 10"

Door
Opening
Width B2 2,340 7' 8"
Height H2 2,280 7' 5.8"

Kilograms Pounds
Weight Max Gross 24,000 52,910
Tare 2,289 5,090
Max Payload 21,720 47,885

Cube Meters Cube Feet
Internal Capacity 33,2 1,171

General Purpose Container
40'x8'x8'6
Millimetres Feet
Internal
Dimensions
Length L1 12,040 39'5.3"
Width B1 2,353 7'8.5"
Height H1 2,383 7'9.7"
Door
Opening
Width B2 2,340 7'8"
Height H2 2,280 7'5.8"
Kilograms Pounds
Weight
Max Gross 30,480 67,200
Tare 3,830 8,450
Cube Metres Cube Feet
Internal Capacity 67.7 2,390

High Cube General Purpose Container
40'x8'x9'6
Millimetres Feet
Internal
Dimensions
Length L1 12,040 39'5.3"
Width B1 2,353 7'8.5"
Height H1 2,697 8'10.1"
Door
Opening
Width B2 2,340 7'8"
Height H2 2,597 8'6.2"
Kilograms Pounds
Weight
Max Gross 30,480 67,200
Tare 3,830 8,450


Open Top Container 20'x8'x8'6'
Millimetres Feet
Internal
Dimensions
Length 5,902 19' 4.3"
Width 2,240 7' 4.1"
Height 2,352 7' 8.5"
Door
Opening
Width 2,335 7' 7.9"
Height 2,240 7' 4.1"
Kilograms Pounds
Tare 2,440 5,380
Open Top Container 40'x8'x8'6
Millimetres Feet
Internal
Dimensions
Length 12,021 39' 5.2"
Width 2,350 7' 8.4"
Height 2,330 7' 7.7"

Door
Opening
Width 2,338 7' 8"
Height 2,234 7' 3.8"

Kilograms Pounds
Tare 4,430 9,760



Flat rack Container
40'x8'x8'6
Millimetres Feet
Internal Length 12,032 7' 6.2"
Width 2,240 7' 4.1"
Height - Unfolded
- Folded
2,034
570
6' 8.1"
1' 10.4"

Kilograms Pounds
Tare 5,530 12,190

Flat rack Container 20'x8'x8'6
Millimetres Feet
Internal Length 5,727 18' 9.4"
Width 2,240 7' 4.1"
Height - Unfolded
- Folded
2,170
420
7' 1.3"
1' 4.6"

Kilograms Pounds
Tare 2,950 6,500

Internal Capacity 27.9 986


Refrigerated Container
20'x8'x8'6
Millimetres Feet
Internal
Dimensions
Length 5,455 17' 11"
Width 2,294 7' 6.2"
Height - Nominal
- Useable
2,288
2,188
7' 6"
7' 2"

Door
Opening
Width 2,268 7' 5.3"
Height 2,215 7' 3.1"

Kilograms Pounds
Tare 2,950 6,503

Internal Capacity Nominal
Useable
28.6
27.4
1,010
967
Refrigerated Container 40'x8'x8'6
Millimetres Feet
Internal
Dimensions
Length 11,587 38' 0.1"
Width 2,259 7' 4.9"
Height - Nominal
- Useable
2,219
2,119
7' 3.4"
6' 11.4"

Door
Opening
Width 2,283 7' 5.9"
Height 2,117 7' 1.7"

Kilograms Pounds
Weight
Max Gross 32,000 70,550
Tare 4,350 9,590
Internal Capacity
Nominal
Useable
58.1
55.5
2,051
1,959


Summary

Your dates for the shipment of your goods from the supplier in
China to you, have been set, and organised with your selected Freight
Forwarder.

After you have made your balance payment, and sent the Commercial
Invoice, Packing List, Bill of Lading and the Packing Declaration to the
Freight forwarder, they will carry out the Customs clearance.

As the importer, you must specify where the containers of goods are
going to be delivered to. There are requirements for the time period that
you have to unload your goods and return the containers to the shipping
company. You can check these requirements with your Freight
Forwarder.

When all of your transportation and delivery arrangements have been
decided and specified, it is then on to the final step of the importing
process waiting for the Freight Forwarder to deliver your goods to your
door!




Gained an understanding of whats involved in Delivery
Management
Understood the following things: Commercial Invoice, Packing List,
Bill of Lading, Packing Declaration
Sent these four completed documents to your Supplier
Commercial Invoice, Packing List, Bill of Lading, and Packing
Declaration
Gained an understanding of the different sizes of Sea Freight
Containers that your goods will potentially be transported in


PART THREE
IN SUMMARY

In the final part of Importing from China How To Start Your Own Import
Business Without Losing Your Shirt, you will find the following things:

1. A Summary of the ChinaDirect Importing Process

2. A Glossary of Terms

3. ChinaDirect Contact Details

4. Thank You from ChinaDirect


In Summary

Congratulations!!!

You have successfully completed the ChinaDirect Importing Process.

It is always good practice to send a Thank You note to your supplier, and
also to your Freight Forwarder to acknowledge the people who have
delivered the services and quality they promised , and also to provide
them with any feedback you may have.

This can also strengthen your relationship with your supplier and/or
Freight Forwarder for future interactions and business contracts.

ChinaDirect always complete a project summary after the goods have
arrived at the destination, and been delivered to the clients door. The
project summary includes the following:

An analysis on how much time we invested in the project
An analysis on how much money was invested in the project
A comparison to the costs of buying from the local manufacturer
and/or wholesaler, and
A determination of the overall saving that was made by importing
from China.

The Project Summary takes on a similar format to the Landed Cost
Analysis, as shown in Part Two of the book.

Remember the most important thing for you to do is Take Action and
Have Fun!

Glossary

Tariff
A duty (or tax) levied on goods transported from one customs area
to another. Tariffs raise the prices of imported goods, thus making
them less competitive within the market of the importing country.

International Commerce (INCO) terms

Shipping terms set the parameters for international shipments,
specify points of origin and destination, outline conditions under which
title is transferred from seller to buyer, and determine which party is
responsible for shipping costs. They also indicate which party assumes
the cost if merchandise is lost or damaged during transit. To provide a
common terminology for international shipping, the following INCO terms
have been developed under the auspices of the International Chamber of
Commerce.

Cost and Freight (C&F)
The exporter pays the costs and freight necessary to get the goods
to the named destination. The risk of loss or damage is assumed
by the buyer once the goods are loaded at the port of embarkation.

Cost, Insurance and Freight (CIF)
The exporter pays the cost of goods, cargo and insurance plus all
transportation charges to the named port of destination.

Ex Works (EXW)
The price quoted applies only at the point of origin and the seller
agrees to place the goods at the disposal of the buyer at the
specified place on the date or within the period fixed. All other
charges are for the account of the buyer.

Free on Board (FOB)
The goods are placed on board the vessel by the seller at the port
of shipment specified in the sales contract. The risk of loss or
damage is transferred to the buyer when the goods pass the ship's
rail.

Free on Board Airport (FOB Airport)
Based on the same principles as the ordinary FOB expression, the
seller's obligation is fulfilled by delivering the goods to the air
carrier at the specified airport of departure, at which point the risk
of loss or damage is transferred to the buyer.

Transportation and Delivery Terms

The following are common terms used in packing, labeling, transporting
and delivering goods to international markets. They are in addition to the
above INCO terms.
Bill of Lading (Ocean or Airway)
A contract prepared by the carrier or the freight forwarder with the
owner of the goods. The foreign buyer needs this document to take
possession of the goods.

Certificate of Origin
A document that certifies the country where the product was made
(i.e. its origin). A common export document, a certificate of origin is
needed when exporting to many foreign markets.

Commercial Invoice
A document prepared by the exporter or freight forwarder, and
required by the foreign buyer, to prove ownership and arrange for
payment to the exporter. It should provide basic information about
the transaction, including description of goods, address of shipper
and seller as well as delivery and payment terms. In some cases,
the commercial invoice is used to assess customs duties.

Customs Declaration
A document that traditionally accompanies exported goods bearing
such information as the nature of the goods, their value, the
consignee and their ultimate destination. Required for statistical
purposes, it accompanies all controlled goods being exported
under the appropriate permit.

Customs Invoice
A document used to clear goods through customs in the importing
country by providing documentary evidence of the value of goods.

In some cases, the commercial invoice (see glossary entry) may
be used for this purpose.

Ex Factory
Used in price quotations, an expression referring to the price of
goods at the exporter's loading dock.

Export Permit
A legal document that is necessary for the export of goods
controlled by the Government of export country, specifically goods
included on the Export Control List.

Freight Forwarder
A service company that handles all aspects of export shipping for a
fee.

Insurance Certificate
A document prepared by the exporter or freight forwarder to
provide evidence that insurance against loss or damage has been
obtained for the goods.

Landed Cost
The cost of the exported product at the port or point of entry into
the foreign market, but before the addition of foreign tariffs, taxes,
local packaging/assembly costs and local distributors' margins.
Product modifications prior to shipment are included in the landed
cost.

Packing List
A document prepared by the exporter showing the quantity and
type of merchandise being shipped to the foreign customer.

Pro Forma Invoice
An invoice prepared by the exporter prior to shipping the goods,
informing the buyer of the goods to be sent, their value and other
key specifications.

Quotation
An offer by the exporter to sell the goods at a stated price and
under certain conditions.


Financial and Insurance Terms

The following are the most commonly used terms in international trade
financing.
Consignment
Delivery of merchandise to the buyer or distributor, whereby the
latter agrees to sell it and only then pay the exporter. The seller
retains ownership of the goods until they are sold, but also carries
all of the financial burden and risk.

Document of Title
A document that provides evidence of entitlement to ownership of
goods, e.g. carrier's bill of lading.

Letter of Credit
An instrument issued by a bank on behalf of an importer that
guarantees an exporter payment for goods or services, provided
the terms of the credit are met.

Letter of Credit (Confirmed)
A local bank confirms the validity of a letter of credit issued by a
foreign bank on behalf of the foreign importer, guaranteeing
payment to the local exporter provided that all terms in the
document have been met. An unconfirmed letter of credit does not
guarantee payment so, if the foreign bank defaults, the local
exporter will not be paid. Local exporters should accept only
confirmed letters of credit as a form of payment.

Letter of Credit (Irrevocable)
A financial institution agrees to pay an exporter once all terms and
conditions of the transaction are met. No terms or conditions can
be modified without consent of all parties.

Open Account
An arrangement in which goods are shipped to the foreign buyer
before the local exporter receives payment.


Partnership, Alliance and Market Entry Terms

The following expressions define the various types of partnership
or alliance arrangements as well as methods of market entry common in
international trade.
Agent
A foreign representative who tries to sell your product in the target
market. The agent does not take possession of and assumes no
responsibility for the goods. Agents are paid on a commission
basis.

Distributor (Importer)
A foreign company that agrees to purchase a local exporter's
product(s), and then takes responsibility for storing, marketing and
selling them.

Franchise

This is a more specific form of licensing. The franchise is given the
right to use a set of manufacturing or service delivery processes,
along with established business systems or trademarks, and to
control their use by contractual agreement.

Joint Venture
An independent business formed cooperatively by two or more
parent firms. This type of partnership is often used to avoid
restrictions on foreign ownership and for longer-term arrangements
that require joint product development, manufacturing and
marketing.
In a specifically American legal context, however, a joint venture is
a collaboration between two companies to carry out a particular,
individual project. The venture lasts only as long as the project
does and is governed by the partnership laws of the state where it
was formed.
Licensing
Although not usually considered to be a form of partnership,
licensing can lead to partnerships. In licensing arrangements, a
firm sells the rights to use its products or services but retains some
control.

Trading House (or Company)
A company specializing in the exporting and importing of goods
produced or provided by other companies.

Legal Terms

The following are some of the more common legal terms
encountered in international transactions.
Arbitration
The process of resolving a dispute or a grievance outside of the
court system by presenting it to an impartial third party or panel for
a decision that may or may not be binding.

Contract
A written or oral agreement which the law will enforce.

Copyright
Protection granted to the authors and creators of literary, artistic,
dramatic and musical works, and sound recordings.

Intellectual Property
A collective term used to refer to new ideas, inventions, designs,
writings, films, and so on, protected by copyright, patents and
trademarks.

Patent
A right that entitles the patent holder, within the country which
granted or recognizes the patent, to prevent all others for a set
period of time, from using, making or selling the subject matter of
the patent.

Trademark
A word, logo, shape or design, or type of lettering which reflects
the goodwill or customer recognition that companies have in a
particular product.


Sampling and Inspection Terms

Lot Size and Sample Size
The lot size - batch size or shipment size - is the total units in a
consignment. The sample size is the total units of product that
have to be drawn from the lot for inspection. Referring to the Single
Sampling Plan, a lot size of 12 requires a sample size of 3, and a
lot size of 300 requires a sample size of 50.
AQL%
The AQL% stands for the Acceptable Quality Level. In the Single
Sampling Plan the AQL% ranges from 0.25 to 6.5. The lower the
AQL%, the stricter the requirement. The letter A is the Acceptance
number of the Total Demerit Rating, while letter R is the Rejection
number. For example, a lot size is 800 and the sample size is 80, if
the prior agreement between trader and vendor calls for an AQL%
of 0.25, it means that at least one (1) defect found in the lot
constitutes grounds for the rejection of the entire lot.

The AQL agreement, if any, between trader and vendor (or
between importer and exporter) usually calls for two AQL%, that is,
one Major and one Minor. For example, a lot size is 5,000, the
sample size is 200, and the agreed AQL% for Class A is 0.40 and
Class B is 2.5. If the Total Demerit Rating from the Inspection
Report for Class A is 3 or more, the lot is rejected. If the Total
Demerit Rating for Class B is 11 or more, the lot is rejected too. In
other words, if either Major or Minor is rejected, the lot is rejected.
On the other hand, if the Total Demerit Rating for Class A is 2 or
less and for Class B is 10 or less, the lot is accepted for shipment.
In practice, the AQL% is rarely specified for Class C. In the event
of many Class C defects and no AQL% is specified, the inspector
may decide or refer to the management for a decision. Products
with a Class C defect are usually easy to rework.

Description and Item No.
Description and Item No indicates the product that is to be
inspected in the Description (e.g. Photo frames). An Inspection

Report normally is issued to each item number. However, different
item numbers belonging to the same group can be treated as one
lot.
For example, a table lamp has six different colours and each colour
has an independent item number. One Inspection Report can be
used to cover the group, instead of six reports.
Contents of Defects
Write the description of the defect on the pertinent defect class and
put a Roman numeral one 'I', or a letter 'A', 'S', 'B', or 'C' as the
case requires, under the Rating column. At the end of inspection,
count the number of defects and record the totals in the Total
Demerit Rating, which is used to gauge the acceptance or the
rejection of the lot based on the agreed AQL%.
Cost Implication of AQL%
The lower the AQL%, the higher the cost of production. For
example, in the normal production of 1,500 pieces of product X, the
manufacturer attains a Major AQL% of 4.0 (i.e., 10 or less Class A
defects occur out of 125 pieces of sample). If the buyer requires an
AQL% of 0.40 (i.e., 1 defect or none), the manufacturer needs
tighter quality control over the incoming components, work in
process, and finished goods.

Contact Details

Head Office: +61 7 3392 1421

Fax: +61 7 3112 4357

Address:

155 Lytton Rd
East Brisbane Queensland 4169
Australia

Email: info@chinadirectsourcing.com.au

Web: www.chinadirectsourcing.com.au

Thank You for Reading Importing from
China How To Start Your Own Import
Business Without Losing Your Shirt.

From the team at ChinaDirect Sourcing, we hope you
have thoroughly enjoyed reading this book, and
received incredible value in the process.

We welcome you to contact us when you need
assistance, and wish you every luck and prosperity in
your journey!

Thank You.

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