0.3 – Useful Definitions

Product Related

MOQ

The Minimum Order Quantity (MOQ) refers to the minimum number of units a supplier will agree to manufacture and/or deliver in one go to accept the order placed.

Product Requirements Document (PRD)

A product requirements document (PRD) is a document containing all the requirements to a certain product. It is written to allow people to understand what a product should do. A PRD should, however, generally avoid anticipating or defining how the product will do it in order to later allow interface designers and engineers to use their expertise to provide the optimal solution to the requirements.

Product Compliance

Product compliance means there is evidence that the product meets the essential requirements in the form of directives, regulations and harmonised standards. Proper management of product compliance and the processes around it save time, reduce costs and enable companies to mitigate risks.

Product Specification

A “Product Specification” is a document providing critical defining information about a product and can include identification of the manufacturer; a list of rules, bans and standards that apply to each item; design specifications and product images that visually illustrate the product and note distinguishing characteristics. By documenting the product and its features, the specification can be a useful screening tool to identify when a pre-production product differs from one on the store shelf, signaling the possibility of a material or design change, and potentially a non-compliant product.

Bill of Materials (BoM)

A bill of materials (BOM) serves as a complete list of all the materials and parts—virtually every item—that a manufacturer needs to create a certain product. To be effective at the product specification stage, the BOM needs to include not only the raw materials but also any subassemblies, subcomponents, and parts including the precise quantities of each to make one complete unit. This helps the supplier to ensure the correct quantities of each are purchased and also aides in calculating production costs.

Quality Management System (QMS)

A quality management system (QMS) is defined as a formalized system that documents processes, procedures, and responsibilities for achieving quality product objectives and avoid defects.

Supplier Related

OEM

Stands for “Original Equipment Manufacturer.” An OEM is a company that manufactures products following a buyer’s specifications. It is a custom designed product.

ODM

An original design manufacturer (ODM) is a company that designs and manufactures a product that then subsequently re-branded by the buyer before sale.

Supplier Previous Compliance Management Records

Documentation and statistics to illustrate a supplier’s adherence to previously manufacturing goods in compliance with set out standard mandatory regulations.

China Business License

Each business license in China is issued by a local branch of the Administration of Industry and Commerce (AIC). It is an official certificate, that proves that a Chinese company has been registered with the authorities and operates legally. Details can be verified online at gsxt.saic.gov.cn however you will need to be able to read Chinese to navigate the site.

Registered Business Scope

The business scope of a company lists the services that it is legally permitted to provide according to its business registration. Companies are specifically prohibited from producing anything or offering any services not specifically described in its business scope therefore checking to see if the company’s scope includes manufacturing will be essential.

Registered Capital

The greatest amount of money that a company can raise by offer of its shares for sale as stated in the company’s formative documents. This may include liquid and non-liquid assets. Extremely useful when sourcing suppliers to ascertain the scale of operations. Small amounts of registered capital i.e. under RMB100,000 will often be trading agents. Suppliers with capital in excess of RMB5,000,000 will most likely be manufacturers.

Registered Address

This is the legally registered business place. It can however be different to the location of manufacturing due to the tax policy or company’s operation cost.

RFQ

A request for quotation (RFQ) is a document that an organization submits to one or more new or potential suppliers requesting quotations for products. RFQ seeks an itemized list of prices for something that is well-defined and quantifiable.

RFP

A request for proposals (RFP), is similar to an RFQ however generally used when the requesting organization’s requirements are more complex.

Alibaba.com

Alibaba.com is the leading platform for global trading business. It is the world’s largest online supplier directory. Alibaba connects manufacturers, suppliers and wholesalers to individuals and businesses around the world looking to trade or resell.

Global Sources.com

Global Sources is a Hong-Kong based (B2B) company and the 2nd largest supplier directory. Mainly used to facilitate trade from Greater China to the world. The company provides sourcing information to volume buyers and organises trade fairs.

Regulation Related

Product Regulations

Legal regulations set out regarding specific categories that set out rules and restrictions regarding material, substance, safety, labeling and documentation.

Labeling Requirements

Regulations applying to labels on products. Mandatory requirements relating to clearly state: the identity of the product, origin, warnings and include other relevant

Product Standards

Standards relating to the design and manufacturing of consumer products to ensure they do not represent harm or hazards to consumers.

Substance Regulations

Legal regulations setting out often mandatory rules limiting certain elements such as metals and chemicals.

Regulatory Compliance Testing

To adhere to certain countries laws mandatory third-party testing is often required. In some instances, regulations will also set out mandatory periodic testing and reporting for ongoing compliance.

EN Standards

European Standards (abbreviated ENs owing to the more literal translation from French/German as European Norms [1][2]) are technical standards drafted and maintained by CEN (European Committee for Standardization), CENELEC (European Committee for Electrotechnical Standardization) and ETSI (European Telecommunications Standards Institute).

ASTM Standards

ASTM International, formerly known as American Society for Testing and Materials, is an international standards organization that develops and publishes voluntary consensus technical standards for a wide range of materials, products, systems, and services.

Incoterms

Incoterms are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. Everyone who works with importation and exportation should know all the Incoterms (International Commercial Terms). These common terms help traders, lawyers, transporters and insurers.

Payment Related

Wire / Telegraphic Transfer (T/T)

A wire transfer payment made through banking channels.

Letter of Credit (L/C)

L/C also known as a documentary credit or bankers commercial credit, is a way to ensure payment will be received correctly in international transactions.

An L/C is a letter issued by the buyer’s bank to the seller. It has three main types L/C which are

  • Sight L/C & Usance L/C
  • Non-transferable L/C
  • Irrevocable L/C

Renminbi (RMB)

China’s national currency, also called Chinese Yuan (CNY).

P/I

P/I or PI stands for proforma invoice. It notes the kind and quantity of goods, their value, and other important information. It could be use as a contract before the official contract is signed.

Paypal

Paypal offers two layers of protection. They themselves offer payment protection. Also if you fund paypal through credit card then you have a level of protection with them also. Paypal should generally only be used for your 30% deposit payments as suppliers will usually pass the paypal fees onto the buyer (4-6%). Try and negotiate a split fee!

Shipping Related

Air Freight – Airport to Airport – (generally air transport for 50Kg’s or more)

Air Carrier – Door to door shipment – For example: FedEX, UPS, DHL (generally a good option for loads of 50kg’s or less)

HTS – Harmonized Tax System

Get the HTS code from the Chinese supplier to calculate your duties. For China to USA can use this site – https://hts.usitc.gov/

FOB (Free on Board):

FOB means that the seller fulfills his obligation to deliver when he places the goods on board at the port departure. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export.

CFR (Cost and Freight)

CFR requires the seller to arrange for the transport of goods by sea to the buyer’s (required) destination.

This includes the cost of shipping but excludes the purchase of marine insurance.

CIF (Cost, Insurance and Freight)

CIF means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

DAP (Delivered at Place):

DAP means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

FCL

FCL, also known as container shipping, stands for Full Container Load. This term refers to a single shipment that has exclusive use of a container.

LCL

LCL stands for “Less Container Load”. If a shipper does not have enough goods to accommodate in a fully loaded container then a consolidator will book his cargo. This type of shipment is called LCL shipment and will involve containers with multiple small shipments owned by different importers. (Not recommended as there are huge fees at the port for commissions and kickbacks called “rebates”)

Freight Forwarder

A service providing company that administers shipping and logistics procedures on behalf of buyers.

Bill of Lading (BL)

Bill of Lading (abbreviated as B/L or BOL) is one of the most important documents used in foreign trade: it is generated by a shipper, detailing a shipment of merchandise, giving title to the goods and requiring the carrier to release the merchandise in the specified place.

In most cases, the Bill of Lading (usually meaning the set of 3 original bills of lading) is signed by the carrier and delivered to the shipper. The draft of the B/L is often prepared before the completion of loading, but the date must always be accurate – cannot be earlier than the date on which the whole or last of the cargo was loaded. Carrier, who is liable for any discrepancies between the quantity and quality of the order and the situation described in the bill of lading, should take extra care – usually the bill of lading is prepared on a basis of information presented by the shipper, but cannot be verified, because the cargo is already packed.

The Bill of Ladingis therefore a conclusive evidence between the carrier and the receiver and between the carrier and the shipper, referring to the number, quality, quantity and the weight of the goods. All the discrepancies noticed by the carrier can be put on the bill of lading (referred as “claused bill of lading”).

The terms on which the received cargo should be transported should also be specified in detail, often on the reverse side of bills of lading.

Commercial Invoice (CI)

A document specifying the value of the goods being transported. This document is also helpful for customs clearance procedures.

Packing List (PL)

A document clarifying and specifying the quantity of goods being shipped.

Country of Origin Certificate

Often used when applying for reduced import duty rates. This document that states the origin of delivered goods.