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Measures for ensuring quality conformance in imports.

When an importer places an order with a foreign supplier it is essential that the goods received conform to those specified in the purchase contract. Although detailed specifications may have been drawn up, and reference made to these in the contract signed, an importer must still take measures to ensure that the supplier provides products that meet the agreed quality requirements. An importer cannot eliminate entirely the risk of supplier noncompliance with these requirements. What an importer can and should do is to minimize this risk to the extent possible. Careful supplier selection and contract follow-up will help to keep supplier nonconformance to a minimum.

Preliminary checking

Before evaluating offers, and in any case before signing a contract, an importer should assess the potential supplier's capacity to meet the contractual commitments concerning quality conformance. This evaluation can be undertaken in several ways, with differing costs and degrees of reliability. The methods that can be used for such an assessment are to review the importer's past performance in meeting quality requirements and draw conclusions accordingly; examine the existing product liability regulations in the supplier's country; evaluate the quality control methods and procedures in the supplying company; and conduct an on-the-spot study of the supplier's ability to comply with quality requirements. The suitability of each approach depends on the nature of the product, the quantity to be purchased and the value of the order.

Past experience:

A simple method to appraise a supplier's ability to conform to quality requirements is to look at the supplying company's performance record. This approach is often used for low-value products and relatively small orders. An importer can make this performance appraisal from his or her own records for suppliers from whom the company has been making purchases in the past. For others the importer could rely on the supplier's market reputation. If the supplier already has a good reputation in the market, the risk of receiving faulty goods from that source is small. Even when the cost of nonconformance would appear low, an importer should make an effort to select reliable sources of supply by determining the degree to which the companies concerned have provided customer satisfaction. Because this approach is used mainly for small, low-value orders, the importer has limited financial loss if the goods do not conform to the specifications, because the shipment can be rejected or compensation claimed. Such a situation is, however, to be avoided to the extent possible because of disruptions that will result in production and delivery schedules.


A second method for assessing a supplier's ability to comply with quality requirements goes a step beyond looking only at past experience or market reputation. It relies on a somewhat more formal approach to minimizing the risk of quality nonconformance by considering the commercial laws, rules and regulations in force in the supplier's country, as well as quality procedures being applied in the company, as evidenced by manuals or other published material used by the supplier outlining the in-house quality control methods. Subjects that arise in this context include product liability and implied warranty, quality certification systems and the supplier's in-company quality management.

Product liability and implied warranty: Some countries have national laws on commercial contracts in general, and/or on the sale of goods in particular. One of the aims of these laws is to protect the interests of the buyer and provide for implied warranties that require that goods supplied be of "merchantable" quality, meaning that they are suited to the use intended.

For example, the provision on merchantable quality in the United Kingdom Sale of Goods Act 1979 reads as follows:

"Goods of any kind are of merchantable quality if they are fit for the purpose for which such goods are commonly supplied as it is reasonable to expect, having regard to any description applied to them, the price (if relevant) and all other circumstances."

Similar legal provisions exist in other countries, e.g. the United States, Switzerland and Germany.

A test of merchantability therefore includes such questions as whether the product performs satisfactorily, meets the need that it should and is safe to use. A supplier does not fulfill the contractual obligations if the goods do not meet these conditions. In such a case the supplier is considered to have breached the implied warranty.

In the case of durable goods, implied warranty also includes the idea of a lasting quality over time. Such goods have a certain number of years of usable life and should not suffer a major breakdown before the end of that period. In general, the intent of legislation is that goods should remain merchantable and fit for the intended use for a time span in line with similar goods sold on the market.

The concept of implied warranty applies only if such a provision exists in the legislation of the supplier's country. Not all countries have laws on the sale of goods with such a provision.

Even if a clause of this type is part of national legislation, goods from a foreign source may be of merchantable quality in relation to local market conditions but not to conditions in the importer's country. For instance the operating or climatic context may be different in the two locations. If such differences exist a supplier will not be responsible for the malfunctioning of a product, unless the importer had made the particular conditions known to the supplier at the time of placing the order.

In general, while laws of merchantable quality and implied warranty do provide a degree of quality assurance, an importer should be cautious and not rely solely on them.

Quality certification systems: Certification is a means to ensure that a product meets a given quality standard. Essentially three types of certification systems are in use, depending on the products and countries concerned: self-certification, third-party certification and export inspection.

Self-certification: Self-certification is an attestation by the producer that the goods being supplied conform to the stated standard or technical specification. Producer warranties of this nature are fairly common in international trade. Self-certification has the drawback, however, that the importer has to accept, in a sense, a one-sided assurance. Using an independent certifying body to attest to the product's fitness for the intended use helps overcome this disadvantage.

Third-party certification: Third-party certification is the attestation by an independent entity that the product conforms to a specific standard or technical specification. While such bodies may be public or private, most are either entirely governmental or approved by the government. In many countries, particularly developing countries, certification bodies are the national standards organizations or related agencies. Professional bodies of industrial organizations have also been active in this function in some developed countries.

Third-party certification has been considerably facilitated by the establishment of standards by industry, national governments and international organizations. A certification programme in a country consists of checking the quality control and assurance system of the producer against specified product standards, through appropriate tests. A manufacturer who qualifies is licensed and is permitted to use a given standards body's mark (by stamping it on the product), which signifies to the importer that the products have been tested by an accredited body and that their quality conforms to particular standards.

An importer buying products from a supplier whose products bear such certification marks therefore has a lower risk of product nonconformance than if the products do not carry that mark.

Since standards among countries vary, an importer should determine if the quality specifications in the contract are the same as those in the supplier's national standard for that product.

Export inspection: Some countries have also introduced legislation for compulsory pre-shipment inspection of specified export goods as part of their export promotion policy. Under this system, products with good export potential can be shipped only after they have been assessed for quality against an established standard. If the importer's specifications for the product are the same as those established for the inspection, it can be assumed with a degree of confidence that such goods conform to the requirements. Many countries, however, do not have a government-approved or a regulated system of pre-shipment inspection. Furthermore those that have such a scheme do not cover all goods exported.

Quality manuals: Another indirect way by which an importer may assess the quality assurance programme of a potential supplier is to request the supplier to provide the company's quality manual and other brochures on its quality assurance programme. Well organized producers, with a commitment to quality, almost always have a manual on quality control. Such publications usually provide a detailed account of the producer's methods and equipment for maintaining the quality of the product line. A close study of this guide can give an importer an idea of the supplier's ability to meet quality requirements. The importer must still determine, however, the extent to which the supplier is actually following the manual.


A more direct method of assessing a potential supplier's ability to supply quality goods is to conduct a study of the quality assurance programme and quality control techniques being applied at the supplier's premises. An importer may do this with company staff or have it carried out by a qualified agency.

The more complex the engineering and design specifications of the product, and its manufacturing process, the greater is the desirability of an on-the-spot evaluation. The team of experts conducting the study should include appropriate professionals, such as staff of the importer's design, engineering, quality control and inspection departments. When the risk associated with supplier nonconformance is significant, the team should also have members from the finance and purchasing departments.

The team of specialists assessing the supplier's quality conformance capability should satisfy itself that a well designed and operational quality assurance programme is in place and could be expected to meet the importer's requirements. The elements of such a programme depend, of course, on the relative complexity of the product - its design, the process(es) involved in producing it, engineering skills required and so on. As a minimum the team should look at some of the key elements of the supplier's quality assurance programme such as quality management, quality control and quality audit.

Quality management: Management's commitment to quality is essential for a company to achieve its quality objectives. One indication of such commitment is the status that the quality control department has in the hierarchy of the company. Another is the size of resources allocated to quality control, including the number and level of professional staff working in the quality management function and the complexity and condition of the testing equipment and laboratory facilities.

Additional indicators of the state of quality management are the company's commitment to promoting quality consciousness and motivation among staff in different departments and at different levels and its assistance in forming quality control circles and other participative quality problem-solving activities.

Quality control: In the case of quality control the aim of the team of specialists should be to evaluate the methods used by the supplier to analyze factors contributing to deviations in quality at different stages of the production process.

The quality of the final product could be affected by a defective design, a faulty manufacturing process, malfunctioning of tools or machinery, operator incompetence or negligence, and the use of poor material. It is therefore important that the supplier's quality control system provide for appropriate techniques to ensure that defects are detected and analyzed and that corrective action is taken.

The supplier will probably tell the team that all of the required tests are being carried out and that the standard statistical techniques are being applied to control product quality. The team should, however, try to see the quality control measures in action at different stages of the production process, including the control of incoming raw materials and components.

Quality audit: Another aspect that the team may review during the visit to the prospective supplier is that company's experience and involvement in quality audits. Internal audit departments are an accepted organizational feature of many major business firms.

A quality audit is an independent evaluation of the quality assurance programme of an enterprise. It consists of reviewing procedures and assessing the degree to which they are implemented. The procedures may be outlined in the company quality manual, if one exists. An assessment of implementation determines whether the procedures in the manual are being carried out appropriately.

The team should try, wherever possible, to obtain copies of past quality audit reports to get a more comprehensive view of the supplier's quality assurance programme.

Inspection of the goods

Although an importer may have taken all of the preliminary steps to ensure that the supplier selected is in a position to furnish quality goods, the importer's concern for quality conformance should not end with signing the contract. Inspection may also be necessary.

Inspecting goods to ensure that they conform to the importer's specifications entails certain costs. If an importer entrusts inspection to the company's own technical staff, the costs will include their salaries, travel expenses to the supplying country, laboratory fees and so on. If the importer decides instead to contract the job to an outside inspection agency, fees must be paid for those services. An importer therefore has to weigh carefully the costs of inspection in relation to the risk of the supplier not conforming to quality requirements, and the costs of such noncompliance.

When an importer has decided to proceed with inspection four decisions have to be taken:

* When inspection should be carried out.

* How it should be done.

* By whom it should be undertaken.

* Where the inspection should be conducted.

The first decision concerns the timing of the importer's inspection and implies the stage in contract implementation when it should be conducted. The second relates to the methods and tools that the importer (or the importer's agent) will use to carry out the inspection. The last two decisions deal with which organization will undertake the inspection and where. These decisions are interdependent. For example, if an importer decides on in-process inspection, it will have to be carried out at the supplier's plant. Thus, the question of the timing is related to that of the place.

These decisions will be influenced by the type of goods being imported, the quantity and value of the order, and the importer's past experience with the selected supplier concerning quality conformance.

Timing of inspection:

The implementation period of an import procurement contract depends, among other things, on the nature of the goods being purchased. Commodities are usually available from stock, except when supplies are tight. Such products should conform to either standard grades and specifications or specifications of a brand name. In-process inspection is not, therefore, usually called for.

Rather inspection usually occurs at the pre-shipment or post-shipment stage. In pre-shipment inspection the products are tested and evaluated for quality conformance before being packed and sent to the buyer. In post-shipment inspection the assessment is carried out at the port of discharge. Each type of inspection has advantages and disadvantages.

Some commodity contracts provide for pre-shipment inspection by the supplier (or an agency nominated by that person) and postshipment inpection by the importer. If the results of the two show a wide variation, a final inspection is often entrusted to an independent inspection agency, whose results prevail.

For nonstandardized products, the decision on the timing of inspection should take into account, besides the size and value of the order, the complexity of the product design and of the manufacturing process. In general, the more complex these are, the greater the need for the importer's inspectors to be present as the product moves from one stage of the manufacturing process to another.

Inspection methods:

The inspection methods that an importer uses to ensure quality conformance are in general similar to those that the supplying company uses in its own product quality assurance programme. In some cases these methods are incorporated into the purchase contract. They can be grouped into the following broad categories: testing, statistical quality control, certification and programmes such as "zero defects".

Testing: The purpose of inspection, as mentioned above, is to verify that the product conforms to the importer's quality characteristics. This is done by, first, checking the presence of each of the qualitative characteristics that the product is expected to have and, second, determining if these are within acceptable tolerances. An important feature of testing is, therefore, measurement.

Testing and measurement require a test method and often, but not always, specialized equipment. For example, the ability of a container (for example a polypropylene bag) to withstand a fall from a given height containing a specified quantity of a product can be tested without any equipment. The measurement of various qualitative characteristics, however, generally requires instruments such as weighing machines, gauges, thermometers, voltameters or magnetometers.

The specifications of the product set down in the purchase contract should be considered to be complete only when they cover, besides the product features, the test methods and equipment that will be used for establishing quality conformance.

An importer's measuring and testing equipment should be checked from time to time and recalibrated when required to ensure accuracy and consistency in measurements. Some products require specialized testing methods and instruments, as well as particular expertise. An importer should not, therefore, expect to carry out the inspection single-handedly. Recognized laboratory facilities at home or abroad can be of assistance.

Statistical quality control: Statistical concepts and methods are aids not only for manufacturers' quality control programmes but also for an importer's assessment of quality conformance. Manufactured products often show variation in characteristics, which may result from the production process, materials used, workmanship or environmental factors such as heat, humidity and light. The likelihood of the presence of such variations is generally recognized both at the design stage and in the purchase contract, where the specifications also indicate the acceptable tolerance limits in measurable characteristics.

Statistical measurement data and analyses help to assess the variability in the qualitative characteristics of a product, based on a sample, and to establish whether the deviations are within acceptable ranges. Statistical methods also make it possible to estimate the probable number of defective items in which the deviations are likely to fall outside these limits.

Testing is costly. The sheer number of units of some goods is so large (for example nuts and bolts) that if each individual item of a consignment were tested, the cost in time and resources would be considerable. Human error is a possibility, so even a complete inspection would not eliminate the chance of defective items being passed as defect free.

The quality characteristics of some products are such that assessing the presence (or absence) of one or more features requires the products to be subject to "destructive" tests, during which the item is destroyed. In such cases, subjecting the entire product lot to a test would mean a total loss of the lot, which is clearly not practical. Similarly, for other products it is not feasible to carry out tests on a 100% basis, because of their physical presentation, for instance rolls of paper (which could not be unrolled to check the entire length of paper without damaging the paper).

In such cases inspection is restricted to a carefully drawn sample, a procedure referred to as "acceptance sampling." Statistical methods are used to determine the size of the sample as well as its composition, to ensure that it is representative of the entire lot. Decisions to accept or reject the lots are based on an examination of the samples instead of a complete inspection.

Acceptance sampling requires selection of the sampling method (for instance random, stratified, double, multiple or sequential techniques), sample size (the number of items from the lot) and the acceptable quality level the maximum number of defective items per 100 units that can be considered as satisfactory).

Certified quality control: The basic principle of certified quality control it that the importer depends on the quality control system of the supplier for quality assurance. This approach usually requires the supplier to issue a certificate attesting that product quality conforms to the importer's specifications. The importer's main objective is to reduce the inspection cost by forgoing the inspection on a shipment-by-shipment basis. Instead the importer checks the goods periodically to see if product quality is being maintained.

This method is most suitable for situations in which the cost of inspection is high and the supplier has demonstrated through past performance the ability to provide a product of suitable quality in a consistent manner.

Zero defects programme: One example of management's commitment to quality is a zero defects programme. Such a programme aims at ensuring that all units of a product manufactured by the supplier conform to given specifications, and that not a single unit is found defective at the final stage, within the acceptable tolerances. The rejection rate is thereby reduced to zero.

A zero defects programme starts with an evaluation by the supplying company of factors affecting quality in its manufacturing process, equipment and operators, through a trial run. All factors contributing to a product's defects are traced and diagnosed. If a change in design or some other specifications is needed, discussions are held with the buyer and revisions are made. A successful zero defects programme therefore requires close understanding between the buyer and the seller.

Once commercial production starts, the success of a zero defects programme is based on three factors: a well designed quality control system to check product quality at each stage of the manufacturing process and identify specific factors affecting quality; management that is responsive to problems and will take immediate remedial action such as ordering changes in processing or materials; and a motivated workforce.

From the point of view of an importer, a supplier's commitment and strict adherence to a zero defects programme means that the importer does not have to carry out acceptance inspection except occasionally.

Responsibility for inspection:

Assuming that an importer decides to have the goods inspected for quality conformance, a decision must be taken on who will carry out the inspection. The choice depends on several factors. For example, if the importer has a group of technically qualified and competent inspectors, the job could be entrusted to one or more of them. The costs must, however, be considered, as well as the nature of the inspection required. Pre-shipment inspection means sending an inspector to the supplier's country. Whether or not the benefit of such inspection is likely to justify the cost has to be determined.

In-process inspection usually requires the importer's inspector(s) to carry out inspection at the supplier's place of manufacture. The duration of the inspector's stay depends on the length of the product manufacturing cycle. In-process inspection is usually recommended, as mentioned above, only if the product specifications and manufacturing process are complex, and especially if the goods are to be produced to the importer's own specifications.

For complex plant and machinery an importer may not have the required in-house expertise. The job will probably have to be contracted out to a recognized agency. It is useful to associate an importer's own inspector with the inspection agency to act as the intermediary between the importer's own design and technical department, on the one hand, and the inspection agency and the supplier, on the other.

Place of inspection:

Determining the place of inspection entails evaluating the relative costs of carrying out this job in either the supplier's or the importer's country. Inspection before shipment is particularly beneficial when supplies are procured from a distant source, if shipping costs are a significant portion of the total cost, when the return of rejected merchandise would be impractical and for situations in which inspection at the point of destination would be unsatisfactory.

In international procurement the importer is free to postpone inspection of the goods until they have arrived at their place of destination. The importer can usually be said not to have accepted the goods until they have been examined after their arrival. Disputes on quality can be costly, however, particularly from the importer's point of view. Whether the contract specifies "free on board" (FOB) or "cost, insurance and freight" (CIF) terms, payment of up to 90% may well take place before the importer has an opportunity to examine and reject the goods. The importer should, therefore, consider inspecting the goods prior to shipment if the nature of the purchase suggests such a course.

Final examination

Even if a supplier has sent the goods according to the importer's specifications and inspection has been carried out before shipment, the goods should still be examined at the end of their international journey. Deterioration in their quality or other damage may have resulted en route for various reasons. Examination of the goods by the importer or agent is important for establishing the cause, the responsibility and the extent of any damage, pilferage and loss. The goods should be controlled immediately after they have been offloaded from the carrier, and the packages should be tallied with the packing list. Each package should be thoroughly checked.

Sometimes the damage and pilferage is visible and is ascertainable in the process of checking. When this is the case, certificates of damage and short landing should be obtained from the customs authorities. If the damage or loss is extensive and was not apparent when the goods were being offloaded, the importer should notify the carrier's representative and formally request to have a survey made while the goods are still at the docks. The port authorities should also be notified. Once the survey report is available, the importer should file a claim on all or any one of those responsible for damage or loss as confirmed in the report.

Hari K. Raina is an ITC adviser on import operations and techniques. This article is based on an import guide that he wrote on supplier quality conformance in import procurement.
COPYRIGHT 1992 International Trade Centre UNCTAD/GATT
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Author:Raina, Hari K.
Publication:International Trade Forum
Date:Apr 1, 1992
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