| Discuss your Purchase Order (P/O) Details In | | | | be the supplier's responsibility. You may say I will |
| China as anywhere else, people are highly | | | | employ a good inspection company, which will help |
| regarded if they take definitive action. If you visit | | | | me to protect my interests. That may be true |
| the same supplier 5 times without placing an | | | | but there is still a risk that something has been |
| order, the supplier will conclude that you are not | | | | overlooked or a defect shows up later in time. |
| sincere about purchasing from them. The | | | | You can imagine that this could become very |
| consequence will be that decision makers will stop | | | | expensive because there will be compensation |
| attending your meetings and you will not have | | | | claims from your customers or demands for price |
| anyone in attendance with the authority to | | | | reductions. |
| negotiate. The attending staff will quote you | | | | 5. Guarantee clause. Most countries have laws |
| higher prices to discourage you from returning. | | | | protecting the end consumer's rights and provide |
| When you issue your P/O (Purchase Order) to | | | | them with a guarantee period of anything |
| your supplier, it is usually your last chance to | | | | between 1-2 years. In some cases, retailers even |
| negotiate prices. | | | | have extended this guarantee period by another |
| At this point, all the information in the P/O needs | | | | year. Three years is a long time for some |
| be final and all of the details included. Everything | | | | products with a limited life cycle. Because it is a |
| should be fully known by everyone and the final | | | | legal requirement (except the additional year |
| price agreed to. | | | | offered by retailers) you must comply with the |
| Something else about Chinese business culture is | | | | law and protect your interests by adding a clause |
| that amending the P/O at a later stage | | | | in your P/O. This gives you the right to ask the |
| demonstrates to the supplier that your company | | | | supplier for compensation. Most suppliers however |
| was careless when originally issuing the P/O. They | | | | will not accept these clauses and you may have |
| will conclude that dealing with your company is | | | | to negotiate to find a way around it and still |
| somewhat risky for them. | | | | protect your company's interest. |
| To avoid this, spend the time drafting your P/O | | | | 6. Indemnification clauses. This is another |
| to get it right before asking the factory to sign it. | | | | important clause that helps you if you become |
| What must be included in a P/O? This list | | | | entangled in copyright claims or patent |
| summarizes what I suggest you include in your P | | | | infringement claims. Unfortunately, Chinese |
| Os, regardless of the kind of products you are | | | | suppliers have a different understanding of |
| purchasing: | | | | copyright and patent infringements from western |
| - Clear and detailed product description including | | | | societies. They think, if they copy a successful |
| color, measurements, sizes etc. | | | | product and apply some design modifications, it is |
| - Clear and detailed packaging information including | | | | their own design and they even go so far to |
| barcodes and shipping marks | | | | have it registered at the Beijing Patent Registry |
| - Order quantity | | | | under their company name. If you ask them, you |
| - Delivery date | | | | will usually hear "No problem - it is our design and |
| - Port or airport of loading | | | | we have already registered it". This will be of no |
| - Port or airport of landing | | | | help if the original designer sues you in your home |
| - Price | | | | country. Without an indemnification clause you |
| - Payment terms | | | | would be in deep trouble and pay everything by |
| - Spare parts or spare units if any | | | | yourself. |
| - Agreed defective rate | | | | 7. Late delivery clause. This is relatively easy to |
| - Guarantee clause | | | | understand. If your goods cannot be shipped on |
| - Indemnification clauses | | | | time due to the supplier's fault, they will probably |
| - Late delivery clause | | | | arrive too late for your customer's promotion and |
| - Transshipment clause | | | | that can become expensive as well. You have to |
| - Clause for compliance with requirements in your | | | | be careful here because sometimes it can be |
| home country | | | | your own fault because you failed to give your |
| - Information whether goods must be inspected | | | | supplier the needed information, documents, or |
| and if so by whom | | | | approvals to start or finish production on time. I |
| - Clause that mass production must comply with | | | | cannot provide exact figures because they vary |
| the submitted and approved samples | | | | from product to product and company to |
| However don't overdo the P/O. I have seen | | | | company but you should at least request your |
| some that read as if lawyers issued them. | | | | supplier to use an express vessel at their cost to |
| Suppliers do not have the time or money to | | | | make up the lost time. In the worst case |
| employ lawyers for the sake of reviewing | | | | scenario, the supplier should share or completely |
| customers' P/Os. | | | | pay the compensation cost which your customers |
| Remember, this is all about partnership. If you are | | | | negotiated with you. Some importers may even |
| afraid that your supplier will cheat you, then you | | | | include a clause that asks their supplier to ship |
| have not conducted a thorough evaluation of the | | | | goods by air but in all my years, I have seen |
| factory. | | | | very few cases where this really happened and |
| Here are other things to consider when writing | | | | usually suppliers will not agree to such clause. |
| your P/O. | | | | 8. Clause for compliance with requirements in your |
| 1. Order quantity. This should match the container | | | | home country. This is as another important clause |
| loading capacity or the total quantity of all | | | | because if the Government Authorities in your |
| products if you are purchasing several different | | | | home country perform random checks at retail |
| products from the same factory and plan to ship | | | | outlets, you may be in for a surprise when they |
| them in one container. | | | | find that the goods you supplied, do not comply |
| 2. Packaging information. This is very important | | | | with local directives or laws. You should not |
| because it is a cost to the supplier and when not | | | | assume that all suppliers are fully aware of all |
| clearly spelled out they will use lower cost | | | | requirements in your home country. The opposite |
| materials. For instance, there are several grades | | | | is mostly true. You, as the importer, are |
| of corrugated cardboard that are measured in | | | | responsible to import only goods that comply with |
| grams per square meter. If you did not specify | | | | your country's laws and you must protect your |
| the weight, you could end up with a 2-layer | | | | company from damage for non-compliance by |
| corrugated cardboard sheet which is so thin that | | | | adding a clause in your P/O. |
| you could easily punch a hole through it with your | | | | 9. Information whether goods must be inspected |
| fist. This quality is unacceptable because you | | | | and by whom. This clause is easy. If you want |
| cannot stack sufficient cartons on top of each | | | | the goods to be inspected which I strongly |
| other. The barcode information is also very | | | | recommend, then you have to inform the supplier |
| important because the inspector has to verify it | | | | about the details. |
| during the inspection. If the barcode cannot be | | | | 10. Information that mass production must |
| read by a bar code scanner properly, the product | | | | comply with the submitted and approved samples. |
| will not register at a hypermarket/supermarket | | | | You have set the quality standard by approving |
| checkout stand. Companies like Wal*Mart consider | | | | the samples and must enforce it now by not |
| this a major defect and do not accept the goods. | | | | allowing the supplier to produce anything else. If |
| 3. Spare parts or spare units. This depends on | | | | you are lenient in this request, your efforts |
| which kind of products you import. For technical | | | | evaluating the samples and supplier will have been |
| products, you can negotiate to have 1 or 2% of | | | | a waste of time. |
| free spare parts/spare units included in the buying | | | | Your specific product requirements may deem |
| price. Your supplier will of course calculate it. If the | | | | other P/O clauses be included. In general you are |
| goods come without a guarantee or service | | | | supposed to be the expert for your products and |
| agreement, you had better negotiate net prices. | | | | should have the knowledge to figure out any |
| 4. Defective rate. Putting a clause in your P/O will | | | | other needed clauses. |
| help protect any compensation claim in case of | | | | Other than adding and your specific terms, try to |
| epidemic defects or overall poor product | | | | write P/Os that are easily understood and are no |
| performance. It splits responsibilities between your | | | | longer than 2-3 pages. Anything else becomes too |
| supplier and your company. Nobody can demand | | | | complicated and requires too much effort on both |
| that production be completely without faults and | | | | sides to read and comprehend. |
| defects. Therefore, it is fair enough to allow the | | | | Do not underestimate the importance of this part |
| supplier a certain percentage of defects as an | | | | of your business trip preparation. If you make |
| upper ceiling limit. You have to negotiate this and | | | | mistakes here, it usually will cost you money and |
| usually the supplier will have some historic figures | | | | respect. |
| in mind. Everything exceeding this percentage will | | | | |