Do you remember as a kid your parents always asking you if you had to go to the bathroom before a long car trip? Of course, the answer was always no. As a kid, you are as equally stubborn as you are excited to be bothered with minute details like peeing. Only, 5 minutes on the road and you’d be squirming in your seat, begging you parents to pull over.
The reality for many of us that plunder into adulthood is that we never got the message: Always be prepared! It’s better to play on the safe side than the illustrious “sorry” side. Of course, risk-taking can be fun and highly desirable for the more free-spirited types, but it is not good practice to go into business with a gambling attitude.
Let’s talk about the ever-so-sexy side of being an Amazon seller which is ensuring the quality control of your products overseas. Clearly, it’s not a wildly popular topic for two reasons: 1) It’s boring. I admit it. I see your eyes glazing over when I start talking about AQL, defective discoverability rates, and sample sizes. 2) It’s really tough to understand, particularly if you haven’t been hands-on with the process. But, just like preparing yourself for a road trip, one must prepare themselves for all the possible scenarios of product inspections and how to ensure you are doing everything you can to safeguard you company and your customers.
What Is Involved with A Product Inspection?
A product inspection (when done properly) is a careful and thorough examination of your products at the manufacturer to ensure the quality of the product being produced is up to your (and any necessary certification) standards. Here are some of the tests the inspector will conduct:
Visual check – a visual check is an overview of the entire sample size for labeling, visible defects, color inaccuracies, and lousy packaging.
Function tests - pre-defined tests that confirm that the product functions as intended (i.e., plug in a lamp, add batteries to a toy).
Safety tests – ensures the product is not a hazard to anyone using it (I.e. a short-circuit or a choking hazard)
Wear & tear tests - Simulated wear and tear and abuse testing to simulate customer use and ensure your products are built to last.
Crate Drop test – This test is to ensure that everything is packaged properly and won’t break during transit
Many customers falsely assume that all they need is a visual check rather than a full product inspection, but even the simplest product has a number of tests that should be done. Take for example a pasta strainer which seems simple enough. I mean, it would intuitively seem like you would just need a quick visual product inspection to determine it non-defected. However, a pasta strainer should undergo the following tests:
water flow testing (to ensure the holes are big enough)
handle weight tests (to make sure the handles don’t break off with normal wear & tear)
rubbing tests (to ensure the metallic coating doesn’t come off)
handle leveling test (to ensure the handles are level)
These are all a combination of function, safety, and wear & tear tests.
Many sellers think that these tests only need to be performed pre-shipment (as in, right before your order leaves the factory and gets to your freight forwarder). But that is really dependent on your risk tolerance. Remember earlier, when I mentioned some people are intrinsically gamblers? Well, that’s very true when it comes to how they handle product inspection – particularly if they are trying to save time and money.
But having an inspector on location during the actual making of your product helps ensure that production Is happening on time, that no work is being outsourced, and that any issues can be resolved before the batch is made. This is called a mid-production inspection and is highly recommended, specifically for complex products and expensive products. If you can catch problems at 10%, 20%, and 50% of production, then the factory can correct mistakes early on which is just another step in assuring quality control.
Mid-inspections PLUS pre-shipment inspections are more costly and timely, but it pays in dividends in the long run.
Why? A LOT of reasons.
Amazon’s Order Defect Rate Can Get Your Listing Suppressed
Online ecommerce platforms like Amazon or Walmart often set quality targets to ensure sellers meet standards to protect customers from defective products. You might need to increase inspection frequency to ensure your business meets these standards. Order defect rate is a common ecommerce quality target. Amazon sets an order defect rate of less than 1 percent, calculated from card chargebacks and 1- or 2-star ratings for its sellers. Remember their ONLY goal is customer satisfaction and they will do whatever they can to ensure it.
Of the many things Amazon can get you for, having a high return rate of your product is one of them. Of course, merchants don't want a high product return rate because of the implied costs and potential bad reviews, but they have little control over what happens on Amazon - other than doing everything from their end to make their product high quality and to ensure it fits their product description.
Amazon has a big problem with brands that have a higher return rate than what they deem normal for each category, and usually, they will investigate such cases.
The acceptable average product return rate for Amazon can vary from category to category. Here is the breakdown of product returns on Amazon and how a high product return rate could influence the success of your brand:
Typically, products with reasonable return rates have less than 10% returns.
Products like books and media: 5-7%
Home, kitchen, and garden, and sports and outdoors: 8-10%
Consumer electronics: 25-35%
Clothing and fine jewelry: up to 40%
How Is Your Order Defect Rate Calculated?
The Order Defect Rate (ODR) is a key measure of your ability to deliver a good customer experience. It includes all orders with one or more defects represented as a percentage of total orders during a given 60-day time period. This is measured in 3 ways:
Negative Feedback Rate, represented as a percentage, is the number of orders that have received negative feedback divided by the number of orders in the 60-day allotted period.
A-to-Z Guarantee Claim Rate, represented as a percentage, is the number of orders with a relevant claim divided by the number of orders in a given 60-day time period.
Credit Card Chargeback Rate, represented as a percentage, is the number of orders that have received a credit card chargeback divided by the number of orders in the relevant period.
You will receive a performance alert from Amazon to notify you if your product return rate is over the acceptable percentage. They will then take down your product page due to your Order Defect Rate (ODR) and you’ll have to file for an appeal to get your listing reinstated.
To check your product return rate and your product return dissatisfaction rate in Seller Central, click here.
Inspections Can Save You on Money and Bad Reviews
Statistics show that 91% of 18–34-year-olds trust online reviews as much as personal recommendations. Furthermore, 93% of consumers say that online reviews influenced their purchase decisions.
These numbers are statistically significant in ecommerce where reviews are easier to find than brick-and-mortar businesses. So, if you are selling on Amazon or Walmart or any other marketplace or platform, you REALLY want to ensure people have nothing but good things to say about your product. Remember: It takes 40 good reviews to negate one bad one.
I don’t have to tell you how bad reviews put a stain on your business, but let’s break it down into numbers, shall we?
Let’s say you order one batch of a 1,000 units @ $10/unit with a 50% defect rate. This would mean 500 defective units (some on arrival, some after-use)
Now, let’s say of the 500 with defects, 200 customers return them, so you have a profit loss of $3,750.
$5/unit lost profit + FBA fee loss ($3/unit) + $10/unit cost + Return Administration Fee ($0.75) + FBA fee (excluded, but additional returns FBA fee for some categories like apparel)
And then, what about warranties? 300 warranty replacements = $4,950. This is $3.50/customer with, say, VA help support from the Philippines = $10/unit cost + $3/shipping + $7/hr for VA
This does not include negative review damage, ranking, and lost-sales, which you can’t put a price tag on.
So, your total loss would be $8,700 loss + negative review damage, whereas a quality control inspection could be as low as ~$300.
Kind of seems like proper inspection implementation is the way to go, huh?
The Valuation of Your Company Can Go Down
Shoddy products don’t just hurt your profits and brand reputation – they hurt the value of your company should you go to sell. When buyers or aggregators look to see the value of your company, they look at three things: the asset approach, the income approach, and the market approach. If your net profits per year are lower than they could be due to returns and all the costs associated with putting out a fire, then the valuation of your company as a whole, drops. It is also important to keep in mind that bad orders and quality control issues (even when resolved) can lower your valuation for years to come. These are quantifications buyers look into when assessing how much your company is worth and if they even WANT to buy.
And during a time when mergers and acquisitions with online companies seem to be the new “it” thing to do, you certainly don’t want to have something as silly as overlooking quality control be the determent of what could have been a great deal.
Determining Your Risk Threshold
How effective your inspection process is will be determined by a lot of variables like batch test size, certifications, what kind of product you have, who is doing the inspections, what kind of tests you want to be performed, what level of product testing you want to be done, and your defect discoverability percentage.
Sample Size Levels and DDP
If you have a low risk-tolerance (meaning you want to cover your basis and ensure inspections are done properly), then you’ll want to choose a sample size that’s on the larger side for a higher probability rate of quality. If you don’t want to pay as much for the product inspection process and are more of a risk-taker, your sample size will be smaller.
Here are the different levels and what they mean:
Level I
This is the most basic level of testing and isn’t often recommended. The sample size is much lower, meaning less opportunity to catch defaults before they go out. However, if you’ve been working with the same manufacturing company for years and have not had any history with faulty products, then you could opt for Level 1. Even then, it’s highly not recommended, and most major retailers set their minimum threshold at Level 2 or more for their products.
Level II
This is the most widely used inspection level and often used by default. At Movley, we tend to recommend this Level for brick-and-mortar stores because, should someone return a malfunctioning product, that’s usually the end of the transaction. Brick-and-mortars don’t have to worry about reviews and permanent reputational damage the way ecommerce retailers do. Usually, if someone purchases a product in a store and there is something wrong, the shopper will simply replace it. With ecommerce, shoppers are readily available to leave scathing reviews should they not receive exactly what they wanted. This can influence future online sales and entire business valuations.
Level III
Which brings us to level 3. More units per sample are inspected here and an entire batch of products will be rejected if it is below the quality criteria defined by the buyer.
Some buyers opt for level-III inspections for high-value products. Movley recommends (almost) any online sellers to use this level for the same reasons that brick-and-mortars probably DON’T need it – there is simply no room for error with online retail.
Another thing you will want to figure out if your defect discoverability percentage (DDP).
Say for example you inspect 50 units out of 1000 for a particular product test (in this example, we’ll say plugging in a lamp to make sure it’s working). You could have all units pass the test and still have a 2% defect rate since the sample size is so small.
An easy way to calculate your defect discoverability percentage is to divide 1 by the number of units in the sample size (i.e. 1/50 is 2%). This comes down to basic probability. If you have 100 units, and one of them is defected, you have a fairly low chance of finding the one defective unit if you sample only 50 units.
Keep in mind, you can always set your own sample size regardless of what the ISO or any other industry standard recommends.
Bottom Line
Ultimately, it’s up to you to safeguard your Amazon business as much as possible. If not just for returns, but for liability purposes. The best measures to do this are as follows:
1) Make sure you understand the product inspection process inside-out so that you can fix any problems before your products get shipped out. Finding out customers have bad products in their hands months afterward is not something you want to deal with.
2) Make sure you have a quality product – plain and simple. That means paying attention to the tiniest of details and making sure you are working with a supplier that understands your expectations and your product, inside and out.
3) Make sure that the images and description on your Amazon listing are true to the real product. This is often the reason businesses experience a lot of returns.
Also, make sure you aren’t making these mistakes during the process of picking your inspection company.