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How to Manage Defective Products

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Whether you decide to save this article for your next rainy day with a supplier, or you are facing these issues currently, the bad news is, if you’re in a position where you’ve received defective products from a supplier, and you’re looking for answers, then you have already failed.  Accept defeat, count your losses, learn how to prevent them from happening again, and move on. Usually, you can write-off defective products, and if your products defects don’t pose any risk to a consumer, you can skip to the part where I talk about recycling.

If you are one of the wise ones, who enjoys spending time researching and improving your methods of working with Chinese factories, then following these guidelines will save you a lot of money and headache in the years to come.

Regardless of the way you look at it, preventative action against defective products will cost you money. The costs will usually be less than the costs of paying for an entire botched production, but until you make it a habit of pricing your projects to include quality control measures, it is going to be difficult to come to terms with the added costs of protecting yourself from complete production failure.

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The integral piece to having a reliable quality control plan is to define your strategy early on and get your supplier to agree to it before you ever place an order. This document is known as, quality control notes, and something worth adding to your arsenal of papers you must prepare before getting started on a new product. Quality control notes are the details defining what you would consider a defect, and what is not. As the buyer, only you know what your ideal product looks like, which is why this is a record that should be created by you, and only you. Format your QC notes in any way you feel organizes them the best, but the most important aspects should include descriptions of what would pass an inspection, and what would not.

You might want to consider answering the following questions, and putting them into your QC notes:

  •  How should your product function?
  • Can you identify aspects that would prevent your product from functioning correctly?
  • Imagine all the possibilities of scratches, dents, bends, folds, overhangs, and imperfections. Which ones, if found in a small number of products would you let pass, and, which ones would immediately prevent you from selling the item?
  • How should you product look, and how should it not look?

The direct approach to avoiding the majority of defects in your production is to hire a third-party quality control company. These are companies that will send an inspector to visit the factory to spend a full day inspecting your goods, according to your requirements. This inspector is usually not going to review 100% of the production, and rather, they will identify an average number of units to study, and use those averages to define a conclusion for the entire result.

I strongly recommend every production have at least one quality control inspection. The cost of an examination ranges from $200 - $400, and is a great way to make an educated decision on whether or not your production was a total failure.

A post-production quality control inspection should be your second line of defense. Remember, your first is the QC notes that inform every one of your expectations, and how strict you will access quality control.

If the inspection fails, you can usually communicate with the supplier, point out why the examination failed according to your QC notes, and see if the factory will agree to fix the issues. After they fix the problems, bring in an inspector to perform another inspection.

Pro Tip: During your negotiations with your supplier, get them to agree to pay for the second inspection, in the event the first fails.

Most serious problems arise after multiple failed inspections. At this point, there is usually a stall on the factories side to continue resolving the issue, or the buyer's side to pay whatever final deposit is owed. This last payment is the only leverage you have against the factory. After paying the factory, they have little incentive to continue to work with you. Fortunately, if you’ve structured the payment as the standard, 30% deposit, 70% on completion, the most you’ll be losing is your 30% deposit, which might cost you less than paying full price for defective units.

If the issues are minor, and the factory is still willing to work with you, I usually recommend negotiating that you will pay the full deposit, but the factory will rework or refund a portion of the items that you identify as defective. To do this, you’ll need to send the goods to a sorting facility in China. An inspection service will review all your products and sort them based on your QC notes. Since the products are classified before they leave China, the satisfactory pieces can be exported for sale, and the defects returned to the factory.

If you made the amateur mistake of shipping your products before conducting an inspection, and you find out your products have a vast majority of defects, preventing you from selling them to your consumers, then you have three options. Rework, resell, recycle.

If you are lucky, your defects might be able to be reworked or repaired. Either your staff or a domestic quality control company may be able to fix your products enough, so you would be able to sell them to your consumers. While this will be costly and time-consuming, if you’ve reached this point, your goals should be minimizing your losses to a little as possible.

If you can't rework your defects, take advantage of local junk buyers, Craigslist and eBay. Define the insufficiencies as what they are, sell them in bulk at a steep discount and let them be someone else's problem.

If your products can’t be reworked or resold, your last ditch of hope is to recycle them, and hope whatever you can make from that will cover the bar tab you’ll rack up in an attempt to numb your feelings of failure, and motivate you to start fresh the following day.

Defective products can be a nightmare, and could quickly ruin a business. The easiest way to prevent this is to have a robust quality control plan of action, and place quality gates at every stage of your manufacturing process to ensure the worst does not happen to you. If you haven’t already, create a checklist of things to do for every new project, and add these items to that checklist.

  1. Create quality control notes and make sure every factory understands and agrees to them before starting production.
  2. Negotiate with your supplier what will happen in the event of a failed inspection.
  3. Factor at least one quality control inspection into the cost of every order.
  4. Never risk more than your initial 30% deposit. If your factory shows they are not interested in working with you in an attempt to fix their issues, there is a good chance they have already cut their losses, so be ready to cut yours too.
  5. When in doubt, consult with an expert who can offer an unbiased, nonemotional opinion on your possible options.

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