Before you send your first purchase order to a factory in China, you need more than a competitive quote. You need to know that the supplier is real, capable, financially stable and able to meet your quality and compliance requirements. This article gives you a practical supplier audit checklist tailored to European SMEs that are starting or scaling their sourcing in China.

I have seen too many companies rush into a relationship with a new Chinese supplier based on a few emails, a nice showroom and a great price. Six months later they are dealing with delays, hidden subcontracting or quality issues that could have been caught with a simple, structured audit. The goal of this checklist is not to turn you into an auditor, it is to show you what to ask, what to look for and when you should bring in help on the ground.

1. Company Legitimacy and Ownership

  • Business license: Request a clear scan or photo of the business license and check the company name, address, legal representative and registration date. Make sure the details match their website and email signatures.
  • Ownership structure: Ask if the company is privately owned, state owned or part of a larger group. If you are dealing with a trading company, you want to know who actually controls the factory that makes your product.
  • Bank account match: The name on the business license must match the name on the bank account used for payments. If they ask you to send money to a different entity or a personal account, that is a major red flag.
  • Export history: Check if they can show export records, main markets and long term customers, especially in Europe or markets with similar standards.

Basic legitimacy checks are not about distrust, they are about making sure you are talking to the company that will actually produce your goods and that you can enforce contracts and warranties if something goes wrong.

2. Production Capacity and Capabilities

  • Production lines: How many lines they have for your product category, what machines are on each line and what the typical throughput is per day or per shift.
  • Shift patterns: Do they run one shift or two, and what happens during peak season. This gives you an idea of realistic lead times and flexibility.
  • Peak season behaviour: Ask how lead times change between off season and November to January and what they do to manage capacity for their key customers.
  • Core competency vs outsourcing: Which processes are done in house and which are subcontracted. For example, do they own the powder coating line, the assembly line, the CNC workshop, or do they send work out.

A supplier that is honest about their capacity and peak season challenges is usually safer than one that promises the world. You want a factory that knows its limits and can tell you when you are asking for too much, too fast.

3. Quality Systems and Traceability

  • Incoming QC: How they check incoming materials, whether they have written criteria, and where they record non conforming materials.
  • In line QC: How often they check dimensions, appearance or function during production, who signs off and what happens when something is out of spec.
  • Final QC: What the sampling plan is for finished goods, what they inspect for and how they verify packaging and labeling.
  • Traceability: Whether they can link a finished carton back to a batch of components and a production date, and how they handle recalls or field complaints.
Rule of thumb: A factory with no QC documentation, no QC manager or no clear sampling plan is a high risk supplier, even if the samples look perfect and the sales team is very helpful.

Quality systems do not have to be fancy, but they do need to exist. You want to see some kind of written procedure, simple inspection forms and a way for operators to raise issues without being punished for slowing down the line.

4. Certifications and Compliance

  • Relevant certificates such as CE, RoHS, EN, FSC, REACH, BSCI, ISO9001 or ISO14001 depending on your product category and market.
  • Ask for certificate numbers and scan copies, then verify them with the issuing bodies when possible. Fake or expired certificates are still common.
  • Confirm if they have experience with your specific compliance needs, for example fire tests for furniture, electrical safety for appliances or chemical restrictions.
  • Check if they work with recognised third party labs like SGS, TÜV or Intertek and how often they send products for testing.

Compliance is usually not where you want to experiment. A supplier that already understands your target standards and has passed similar tests for other customers will save you time, money and frustration.

5. Manufacturing Process Flow

  • Process map: Ask the factory to walk you through the full process from incoming material to packed carton. Ideally they have a simple process flow chart.
  • Bottlenecks: Identify stages that are likely to slow production down, such as a single specialised machine, a manual assembly step or an outsourced finish.
  • Rework rate: Ask for average rework percentage over the last quarter and what the top three defect types are.
  • Tooling management: How they store, maintain and log tools and molds, and how often they perform preventive maintenance.

Understanding the process flow helps you see where things can go wrong and where you might need extra checks, for example on complex assemblies or finishes that are sensitive to humidity or handling.

6. Team Competence

  • Factory manager: How long they have been with the company, their background and how involved they are in daily operations.
  • QC lead: Their experience, English ability if you need direct contact and how they handle documentation and reporting.
  • Sales rep: Whether they are direct employees or an external agent, and whether they sit in the factory or in a different city.
  • Engineering: Ability to work with CAD files, speed of sampling and how they approach design for manufacturing suggestions.

You are not only buying capacity, you are buying a team. A strong factory manager and a practical engineer can often solve problems quickly, while a weak team can turn small issues into long delays.

7. Workplace Standards and Social Compliance

  • Rough match between worker count and number of lines. If the factory looks empty but claims high capacity, ask why.
  • Basic checks around age verification, worker contracts, overtime logs and how they handle peak demand without pushing people beyond reasonable limits.
  • Fire safety, visible exits, clear evacuation routes and accessible fire extinguishers that are not blocked by cartons or pallets.
  • Environmental management where relevant, how they store chemicals, handle waste and manage dust or emissions.

Many European SMEs do not need formal social audits on day one, but they still want to avoid being associated with unsafe or clearly non compliant operations. A quick visual and document check goes a long way.

8. Financial Stability Indicators

  • Years in business. Factories under three years old are not automatically bad, but they carry more risk and you should be more conservative with order size and payment terms.
  • Main export markets and customer concentration. Heavy dependence on one or two big customers can be risky if those customers suddenly leave.
  • General activity level. Whether the lines are busy or quiet, and whether there are signs that they recently lost a major customer.
  • Seasonal demand. How their order book changes over the year and what they do to manage cash flow through slow periods.

You will not get full financial statements from most private Chinese factories, but these small signals help you judge if a supplier is likely to be around in a few years or if they are in a more fragile situation.

9. Pilot Run Readiness

  • Gap analysis between sample and mass production. Talk through what needs to change, for example fixtures, packaging, labeling or tolerances.
  • Material availability and supplier relationships. Whether they already have reliable sources for your key materials or need to develop new ones.
  • QC plan for the first batch. How often they will check, what they will measure and how they will report results to you.
  • Clear acceptance criteria and defect thresholds agreed in writing before you start.

A good pilot run is where you find and fix problems cheaply. If a factory is not willing to plan this phase with you, they are probably not the right partner for a long term program.

Frequently Asked Questions about Supplier Audits in China

What is a supplier audit in China for an SME?

A supplier audit is a structured review of a factory in China that checks legitimacy, capacity, quality systems, compliance and basic financial and social indicators. For an SME it is usually a one day visit with a focused checklist rather than a long certification style audit.

When should I pay for a full third party audit?

If your annual volume with a supplier will be significant for your business, if you operate in a regulated industry or if your brand reputation is sensitive to quality or social issues, it is worth investing in a third party audit before you commit to large orders.

What is the difference between a factory visit and a supplier audit?

A factory visit can be an informal tour and a nice lunch. A supplier audit uses a checklist, takes structured notes, collects evidence and results in a written report with clear findings and recommendations. Both are useful, but only the second gives you a reliable basis for decisions.

Can a trading company pass a supplier audit?

Yes, if the trading company is transparent about which factories they use and you include those factories in your audit scope. The key is to understand who is responsible for quality, capacity and compliance at each step.

How long does a basic supplier audit take?

A focused on site audit for an SME usually takes one full day at the factory plus time for preparation and reporting. Remote pre checks of documents can be done before the visit to make the day on site more efficient.

Closing Thoughts

A good price does not make a good supplier. Tight but pragmatic audits, clear documentation and a structured pilot run remove most of the avoidable risk that European SMEs face in their first year of sourcing from China. You do not need to turn every supplier into a long checklist exercise, but for key products and key partners, this kind of structured audit is one of the best investments you can make.

If you need help evaluating factories, I run supplier audits and factory visits across China for European businesses and deliver clear go or no go reports with concrete next steps.

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