Below is a true story.
In 2009 a German importer purchased a batch of aprons from China. This importer will be called Mr. A hereafter. Mr. A was close to his retirement. He was the Procurement President of that company with extensive purchasing experiences and thorough understandings of the supply chain in China.
One of Mr. A’s heavy customers had an apron project totaled 70,000 pieces almost amounted to US$140,000. Mr. A won this project and placed the order to a trading company in Guangdong, China. Trading companies can be big or small. In most of the cases, foreign importers are far away from another continent, they assess suppliers through email and phone calls to judge whether the supplier is trustworthy or not. The basis of their judgments is mostly through the sample quality. In their minds, most of the Chinese suppliers are honest and trustworthy.
The apron is a thing that many may not know regulations in Germany. To export aprons to Germany, it is mandatory to pass LFGB (Lebensmittel- und Futtermittelgesetzbuches). Among most apron suppliers Mr. A contacted quoted a price above his target, even none of them mentioned the LFGB report. After Mr. A asked them for it, they didn’t have it but kept emphasizing that they chose environmentally-friendly materials and their aprons met requirements of the US FDA so their quality should be good enough for the German market. What those suppliers didn’t know was that without LFGB, Mr. A wouldn’t be allowed to import and distribute it in Germany.
In the end, one of the ‘trading companies’ replied Mr. A’s inquiry and pointing that they were very familiar and professional with the German Market for aprons. Sure they claimed that they had the LFGB report. Most importantly, this trader quoted a very attractive offer. Mr. A sensed that this was it, this supplier was the perfect match for this order. Either the email exchange or the conversations on the phone or the trader’s knowledge of the German market for the apron made Mr. A firmly believe in and trust this trader. Mr. A was 100% sure he had found the right supplier.
Later apron order was placed to this trader and goods were shipped punctually without any problem. Everything looked good, this deal should have come to a beautiful end, right?
Unexpectedly, during the selling process in Germany, one official of consumer product quality surveillance, disguised as consumers, bought the apron and tested the quality. That was only a spot check. The testing result was a disaster. The testing item of heavy metal migration failed, even the basic test for phthalic acid failed. Those aprons were not qualified at all to be sold in Germany.
Later a total product recall was enforced. And all the loss caused to the customer would be borne by Mr. A’s company. Because they were the importer of it and consequently they shoulder all responsibilities for it. The cost of total recall, with associated costs caused to the customer plus punitive fines by authorities, amounted to about 1 million euros. Though 1 Million Euros were not astronomical, it was heavy enough to collapse Mr. A’s company.
Mr. A, of course, disagreed with the testing and thought it was a misunderstanding. He applied for second testing from a third-party facility. Of course, the testing facility gave the same failed testing results as the official lab.
Even more, the third-party pointed out that the report provided by the trader belonged to another supplier, different from the company name on the certificate. In other words, this report was fabricated by the trader.
Mr. A was shocked. He took a flight to China trying to find the apron supplier in person and make him take the relevant responsibility, he also planned to file a lawsuit against the supplier in China. What was unexpected was the apron trader, they just vanished.
The email not replied and the phone out of service. Later it even seemed more impossible for Mr. A to go to court with the trader, not to mention he was unable to find the defendant. Because the trader was a Hong-Kong-based company, aprons were produced in China mainland. It took cooperation between the mainland and Hong Kong to enforce the law. It was very difficult for Mr. A to obtain all the solid evidence. The matter was dragged on and on to the end, nothing was done by the polices. Pretty soon Mr. A’s company officially filed for bankruptcy.
To sum it up, how did this happen to Mr. A?
1. He failed to verify the certificate provided by a new supplier but chose to believe in the new supplier by his instinct and experience.
2. He didn’t visit the trader or the factory before the order due to urgent lead time. At least he can ask one of his old suppliers to do a background check.
3. The offer by the trader was lower than the majority of the suppliers and suppliers claimed good quality. Mr. A didn’t pay much attention. The product price for the German market can’t be too low. I guess Mr. A didn’t bother to know the reason why the trader’s price is so good either.
4. Mr. A didn’t get a safe payment term for the first order. Technically no exporters are willing to give credit for new buyers, credit is only for regular customers who have built their credit through year-long orders. But he can try l/c 45 days if 60 days are too long for the exporter.
How can the certificate-fabrication case be avoided?
Mutual trust between supplier and buyer is required to do so.
How to build mutual trust between importers and exporters?
Importers should sign a contract or an agreement to lay obligations for buyers and suppliers clearly: Suppliers will only supply goods from GMP manufacturers the same as shown on the GMP certificate and CoA. After the manufacturer’s docs are provided, buyers should not contact manufacturers to skip the trader. Or there will be punitive clauses for parties who broke the rules.
Though the story above was not one of the cases in the pharmaceutical and chemical industry, it was alarming enough to have all importers’ attention.
For international tradings, certificate fabrication has been going on for a while and many suppliers have their reasons to do it. There is no doubt fabrication is also happening in chemical trading business and we hope this story will serve all pharmaceutical ingredients importers as an ALERT: verify the Chinese GMP certificates before you order. You can verify Chinese GMP Online or you can simply contact us, we will help you to verify GMP for free if the Chinese FDA website is too complicated for you.
Also, all goods ideas are invited and please leave your comment below so we all can have a simpler and healthier trading environment.