10 Steps on the Road to Offshoring

10 Steps on the Road to Offshoring

Some practical tips to make sourcing smooth.

I have worked with China factories for the past 20 years. Although times have changed and costs have risen, I still find China to be the most economical country for producing consumer products.

So, what's the best way to begin the sourcing and manufacturing process?

1. Hire a professional, if possible, for first production run, and check factory references

An experienced sourcing consultant will review your product and have a list of factories to send your prototype to. A sourcing consultant is like a matchmaker between your invention and your overseas supplier. Your consultant can check the background and experience of the factories you'll be working with. Seasoned inventors also can provide referrals to trustworthy factories. Another good source: Certified Professional Members of the United Inventors Association (www.uiausa.org).

2. Prototype/Product Design Evaluation/CPSIA/Safety issues

Take your best prototype and send it, along with product specifications, sales literature, etc., to a Consumer Product Safety Commission-accredited safety lab. Request a product design evaluation. Although this can be costly, it will save you time and money n the long run. The evaluation will help you comply with the Consumer Product Safety Improvement Act (Better Safe than Sorry, www.inventorsdigest.com, February 2009).

3. Translate key issues

Take the list of federal regulations and production tests from your design evaluation and have them translated into the language of the overseas factory you'll be working with. Rather than going with a large (read: expensive) translation agency or an Internet site (not always accurate), try contacting the foreign language department at a local university to see if any of the instructors do translations on the side.

4. Sourcing, counter-samples, price quotes

After you have revised your prototype, prepare your parcels for the prospective factories. Your shipment should contain your prototype, specifications, desired components, packaging samples, desired purchase quantity, the name of the port to where your product will be shipped, a list of possible alternate materials (if applicable), and the translated document containing the list of federal regulations and production tests taken from your design evaluation. Send an e-mail to the prospective factories, advising them of the courier's shipment tracking number so they know to expect it.

5. Get a binding ruling to determine import duties

Most imported products carry import duties. If you are using a sourcing consultant, have her/him prepare a binding ruling request with U.S. Customs and Border Protection. The consultant will need as much information about your product as you can furnish, including a prototype or sample, product literature, alternate materials, etc. Within 30 days after receipt, Customs will review your product, classify it, and determine the percentage of import duties your imported product will carry.

6. Negotiation of pricing, shipping terms

When discussing pricing with the overseas factory, understand the various pricing/shipping terms. Most pricing is quoted either freight on board or FOB point of origin (FOB factory, FOB foreign port, etc.) or cost insurance freight or CIF port of destination (usually a U.S. port city, such as New York, Long Beach, Chicago, etc.). FOB and CIF are part of "Incoterms 2000," which is a guide of the 13 most commonly, universally used shipping terms. See www.iccwbo.org/incoterms/id3040/index.html

7. Purchase Order Contract/Payment terms

Once pricing and shipping terms have been ironed out, you are ready to draw up a purchase order. The PO should include buyer/seller names and addresses, phone/fax numbers, e-mail addresses, quantities, unit pricing and shipping terms, mold/tooling charges if applicable, method of shipment (whether via ocean or air), and a list of production testing -- preferably with an attachment of these tests translated into the language the factory speaks. Provide all specifications, product description, components, anticipated delivery schedule, Customs information, labeling and packaging information, carton marks, and international shipping documentation requirements, as well as the U.S. customs broker information.

8. Pre-production samples/Production Testing

Your PO should also include the number of pre-production samples (PPS) your factory will provide. You need to thoroughly review these samples to make sure the quality meets with your satisfaction. At this stage, typically, a pre-production sample is sent to the CPSC-accredited safety lab for production testing. You, the buyer, are usually responsible for the costs of the initial production testing.

9. Final Shipment Inspections

Once your order has passed all production testing and mass-production is complete, the factory will advise you that it is ready to ship. It should send you photos of shipping marks for your cartons -- proper carton marking is a must for import compliance. Rather than rely on the factory's final shipment inspection, hire an independent agency. It typically costs $300 and it's worth every penny. I normally work with a company called KRT Audit Corp. (www.chinainspect.com), with offices throughout Asia.

10. Shipping/Customs Clearance

If your factory is shipping to you on a CIF port basis, it will arrange to deliver the order to the shipping company at the port of departure. It will prepay the ocean freight and marine insurance, and prepare shipping documentation for your review.

If you lack experience in the various requirements for shipping documentation such as the commercial invoice, packing list, certificate of origin, bill of lading, etc., you can ask your sourcing consultant or U.S. customs broker to check them to make sure all information is in accordance with the terms of your purchase order.

Edie Tolchin, aka "The Sourcing Lady," is an international trade consultant with 35 years of experience, a licensed U.S. Customs Broker, and co-author of "Sourcing Smarts: Keeping it SIMPLE and SAFE with China Sourcing and Manufacturing." www.egtglobaltrading.com (845) 321-2362.

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