Solving A Production Error On A $40,000 Shipment From China

Solving A Production Error On A $40,000 Shipment From China

October 14, 2018 · by · in Uncategorized

The test order was a blowout success. Of the 4 new colors, customers loved this product the most.

 

We re-ordered quickly, and in larger quantities, but I was surprised when the pre-shipment photos showed over 1,000 units of a new ‘bland yellow’ product we’d never ordered before. The ‘same color’ as the test order was totally different!

 

When you sell on Amazon, any product defect can stop your sales entirely. If you sell a product that is a different color than you have listed, Amazon will quickly suspend selling privileges for that SKU.

 

The factory rep responded “I don’t think color make a big difference. If you don’t buy them, it is a big loss for you.”

 

The Problem: One Of Us Must Lose, Right?

 

Either I pay for the faulty goods or he produces remakes.

 

Is there a way to escape this situation?

 

Without…

  1. Burning the relationship

  2. Taking a huge loss, forcing it upon your supplier, or splitting the loss

  3. Delaying the ship-date (Christmas is coming!)

  4. Ending the relationship, risking my 30% down-payment, and finding a new supplier. (Also delaying the ship date)

 

Here’s what I did:

 

1. Do Not Get Angry And Make Demands

 

You can start making big demands; “You need to remake those 2,000 units, and we will not pay you any more, and we still need to ship next week!”

 

But, whether they made an honest mistake or purposefully skimped on quality, it will mean big losses for them. It’s expensive to rush purchase raw materials in lower quantities, rush manufacture goods and give them priority, and it is a 100% out-of-pocket expense.

 

Your Sales Rep is also not the company boss. He may not be able to authorize a total remake, certainly not right away, even if blame is clearly with them.

 

The factory is a company with it’s own cash-flow issues, a finite bank account, and probably much tighter margins than you. Do not stone wall them, no matter how badly they screwed up.

 

2. Explain That The Customer And The Marketplace (Amazon), Not You, Is Making Their Life Difficult

 

Your factory may feel that you are nit picking. My supplier didn’t think that the change of color would affect customers buying the product.

 

Explain That:

  1. You have already created marketing images and sales copy for the original style, which takes time and money.

  2. You have already proven the market with the old version, and this effectively ‘new’ product is currently unproven and may not sell.

  3. Shipping a product that is different than described will lead to negative reviews and that Amazon will likely block the product.

  4. Negative reviews, and Amazon blocking the product, will decrease long-term sales. This means that the next order may be half the size, or there may be no next order at all!

 

3. If Extra Work Can Solve The Issue, Ask Them To Do It

 

Asking the factory for large cash-outlays to re-manufacture thousands of units is very tough for them to accept, but asking them to do work to at least partially ameliorate the problem is fair and a relative win for both of you.

 

If re-labeling items as a different SKU would help, ask them to do it. Re-printing modified product instructions is relatively low cost, and so is un-palletizing all your units in order to change stickers. If you need the factory to send you more pre-shipment pictures, that is completely justified as well!

 

Asking them to re-do everything is a slap in the face but asking that they re-label 5,000 units is a tap on the cheek.

 

They won’t forget the extra work and they’ll focus more on getting it right in the future, but a little extra labor won’t threaten their P/L.

 

If your factory is being difficult, put it in perspective: “We need you to spend 1 day changing some stickers and sending us pictures of the finished products. Then I will send you $40,000, which is more than most people in my country earn in a year. I will then send you $40,000 every 3 months for the next few years.”

 

4. Buy Some Of The Faulty Units (The Most Important Step!)

 

You don’t want to buy any of these messed-up products. They’re not what you wanted, and damn your factory for telling you “this small change shouldn’t matter.” You know it matters!

 

But… maybe they’re right.

 

So long as the deviation is non-critical to the product’s function, like color, you do not know if customers will love it or hate it until you test the market.

 

Buy 100 units of this product from the factory (for the bulk price) and ask that your factory hold the remaining units. (which you will not pay for yet) Create a new listing if you are selling on Amazon, or copy/paste a new marketing funnel if you sell on your own Shopify site.

 

Try to sell the product like you test all your products: new photos, new sales copy, PPC advertising, etc.

 

One of 3 things will happen:

 

  1. You Get No Sales. Your factory produced something that was materially different and customers do not want to buy. You invested in trying to sell the product. You even tried selling for a 40% discount, but you got no sales. Unfortunately, you will not buy the remaining 1,000+ units. They thought the product was ‘close enough’ but the market proved them wrong.

  2. You Get Sales, But Low Sales. If sales are trickling in, buy the rest of the inventory over the course of your next 5-10 orders. Ship a few hundred units every time you re-order more ‘correct’ units. If sales are very slow, ask the factory to sell to you at their break-even pricing so that you can sell with a 40% retail discount, speed up sales and avoid an outright loss for everyone.

  3. Your Factory Rep Was Right! Customer do like this new color, or at least they don’t mind the change. They are buying normal volumes at full price. You just ran a successful market test, and you gladly re-buy the remaining units on your next order! The factory waited 3 more months to get paid (a potential cash-flow crunch) but everybody profits!

 

Immediate Outcomes For The Buyer And Supplier

 

For both the buyer and seller, a direct financial loss is avoided.

 

For The Buyer:

  1. I spend less money than I planned because I only buy 100 of the off-color units, instead of the entire shipment. (I spend a little extra on marketing the new product.)

  2. I get to test a new product, bought at bulk-pricing and shipping with my other goods. Perhaps customers will like this color.

  3. I miss Christmas for my top-selling color, or at least delay re-stocking. At least this is only an ‘opportunity cost’ loss.

 

For The Supplier:

  • They have NO additional last-minute reworking costs. Their worst nightmare is avoided.

  • They receive less money than they expected today, but they do not take an immediate loss on the off-color units they created. Both parties hope that the test order will sell and that the remaining units will eventually be purchased.

  • The relationship is preserved and you will send them more cash when you re-order in 60-days, and over the next few years.