The Kloepfel etiquette for supplier audits in China

“And therefore, those who wish to bond eternally should examine”: To ensure that you find a strong Chinese partner, we provide you with ten tips for on-site auditing.

More than half of German companies purchase in China. In order to live the quality assurance of production processes at the supplier with conviction, German companies send their own employees as well as external contractors to China to take a close look at the targeted potential suppliers. But such an audit can quickly become costly and inefficient. Instead of an exotic and exciting business trip, employees are often stressed and angry after the trip. So the question is: How can auditing be made more efficient?

1. More time buffers in planning

A detailed hourly planning is indispensable. Every flight should be booked in advance and every trip can be calculated with Google Maps. The airports in China are usually one size bigger than those you are used to and the delay of the departure times is no exception with such an order of magnitude. Due to the bad rush hour traffic and the speed limit on the Chinese highway you are allowed to drive a maximum of 80 km/h and in the city it is 40km/h. The meeting usually starts ten minutes later and usually ends faster than initially agreed. Plan about 20 percent buffer time, as your Chinese friends usually plan for less time. For lunch you should expect one to one and a half hours, while dinner lasts at least three hours. Send the planning to your business partner beforehand and let him participate in the planning so that you can check whether your planning in China is feasible. Assume that a Chinese supplier will always invite you to dinner, and don’t refuse.

2. The way to an audit

In recent years, more than 200 billion yuan have been invested in the Chinese high-speed rail system project. In the area of the Pearl River Delta around Hong Kong, the Yangtze Delta around Shanghai and the Beijing region, the express train network extends at every corner. Tickets can be booked online at Unfortunately, you will have to ask your business partners for help to book your tickets, as the website is Chinese. You can pick up your train tickets yourself at the Beijing and Shanghai international airports at the Chinese Railway Agency. You will need to present your booking number and identity card. You can have all tickets for your stays in China printed out at once on arrival. Travelling by train is a great way to keep to your local schedules, as this is the fastest and safest way.

3. Gift to less important employees of the supplier

Every Chinese business partner is pleased by small gifts. But also think of less important employees such as those from sales, management assistance or quality assurance. With a gift you show respect for these employees and they will work more proactively for you during the audit. You will get good accommodation more quickly and the trip will be better organized and coordination. If you make friends with these people, they will also help you to solve organizational problems that you have not taken into account before more easily and quickly. The gift does not have to be ostentatious. Chocolate and other sweets from the supermarket, cigarettes and cigars from the kiosk or music and souvenirs from the gas station are welcome. In an emergency you can also buy presents at the airport. Here the Chinese saying applies: “The gift can be as affordable as a goose feather, but the gesture conveys deep respect”.

You should always pack the gift, preferably with red paper. The color red is the color of happiness in China. Please do not be surprised if the recipient does not open the gift immediately. This is from the time when the emperor gave his subjects money in red envelopes. So that nobody loses face, because he perhaps got less than his neighbor, the gift may be opened later.

4. Business etiquette

Please put on a suit or a business dress as a woman, even if your business partner receives you in a robber civil. The suit increases the esteem and corresponds also to the expectations of the Chinese business partners. Thereby one sees you quite also as a role model. One must not forget that the auditing not only critically questions the system of the Chinese partner, but that system problems are also made transparent to the supplier in order to jointly find solutions. In other words, you teach your business partner, and this is also expected, how his system can work better.
However, you can leave the tie out, as it is often overdressed in China. In China, service staff in restaurants, at the reception desk in hotels or insurance brokers is more likely to wear suits with ties. An appealing presentation about your company is also part of the business etiquette. The company history, philosophy and tradition should be presented. But also present the positive future, vision and industry experience of your company on the screen with lively stories.

5. Lunch breaks

Your courteous host may offer you a three-course menu and a bottle of French red wine. But be very careful when consuming alcohol. It is better to politely decline such an invitation beforehand and make it clear that lunch should be easy and quick. For example, fast food chain orders are clean, fast and safe. If the supplier’s factory is located far inland, the popular fried noodles and rice fast-food restaurants can also be found there. Use the lunch breaks to get to know your counterpart better and chat about private matters or your experiences in China. Avoid talking about politics. In addition, you should not complain about China. In such relaxed and non-committal conversations you have the chance to get unexpected information about how the business is doing, about employee satisfaction, what they earn per capita, how employees are trained, where your counterpart has important suppliers, how the managing director thinks and so on.

6. Dinner with the management

Business in China works best on the basis of a good human relationship, and then you can also look forward to a harmonious dinner. Invitations to dinner with the management are a very positive sign that the supplier is really interested in a future cooperation. You will also get to know the managing directors personally and their philosophy better. Do they value quality? Would they like to make further investments to increase productivity and quality levels? How do they see the future cooperation with your company etc.? After a couple of toasts with the managing directors, the conversation will be intensified both about the business and privately. Use these moments to address open issues and communicate honest demands. To protect your face, the supplier will most likely agree with your opinion and accommodate you.

7. Bring a video camera

Good video recordings of the plant tour are the best raw material for the audit report and also provide important information for the subsequent cost calculation. The potential quality deficit of the plant can be made transparent by analysing the video recordings. The analysis can also be used to create an FMEA analysis (Failure Mode and Effects Analysis) and design preventive measures. Most business partners will not prohibit such video recordings. If no recordings are desired, you can argue by signing the non-disclosure agreement (without penalty clause) or by referring to your company’s auditing rules. In the best case, you record every step of the production process. Document the entire production process as well as the interfaces (e.g. intra-company transport and quality assurance inspection, material preparation, etc.).

8. Auditing of subcontractors

Even if the supplier makes a good impression, you should definitely try to check his main and sub-suppliers. Many Chinese companies buy from smaller suppliers they know. There is hardly no company in China that has a working supplier development system. However, the quality deficit could be pre-programmed due to sub-suppliers. Most Chinese manufacturers source their goods from nearby subcontractors. The visit of these sub-suppliers must be spontaneous, otherwise a fake sub-supplier is often introduced. Let them explain to you where the main suppliers are located. Then use the planned buffer time for a surprise visit. Insist on your request even if there is counter pressure and refer to the auditing regulations of your management. But don’t let a possible first negative impression of a subcontractor put you off, rather concentrate more on whether the production process meets your quality requirements.

9. Living processes (better quality control)

Check every work step instead of the QA documents. The QA documents may have been refreshed before your arrival, but the production process and employee habits cannot be changed overnight. The following points have to be considered: How should QA be organized? By In-Process Quality Control (IPQC = Random inspection of each work step in the plant by the in-house quality assurance team) or by plant self-inspection? (As part of the factory self-check, the employee himself checks the parts produced by him for defects and releases them for the start of the next work step in accordance with the present work and test instructions). Should the test results be entered in a standard document? How should the test results be evaluated? Where should the results be stored? Is there a final inspection at each step? How can you make sure that the parts are produced and tested correctly, etc.? Statistical Process Control (SPC) is not used properly in China; instead, factory self-testing is often used to ensure production quality. If the SPC is used in practice, you should also check exactly how it is implemented. Traceability at a Chinese factory is hardly possible. Therefore, you should completely redesign the system together with the supplier. Even if a traceability system exists, this does not necessarily mean that it is logically structured and works.

10. Goodbye

When saying goodbye one should thank for the warm and cordial meeting. Praise the auditing. Don’t let your business partner take you to the next destination or airport, because the chauffeur could hear your discussion and comments about the company and thus spy on your audit in the end. In the supplier’s vehicle, avoid too open conversations about the business with his “chauffeur” in general. You must assume that the driver can understand you, even if he does not make the impression.

Supplier audits in China do not differ so much from supplier audits in other countries. The general principles and processes should also work well in China, when taking these tips into account.

Authors: Thomas Wandler & Alexander Hornikel