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The Importance of Product Inspection for Your Bottom Line

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McClain Warren on Jan 26, 2022 in Step by Step Guides

The Importance of Product Inspection for Your Bottom Line

 

How Cutting Corners Can Affect Your Brand’s Reputation

If you are a gamer, you know the importance and pride of reaching new levels in the video game. Not only are new levels a symbol of status, but they also denote the hard work and dedication you have achieved in building your reputation within the gaming community.

In principle, starting an online business is no different than perfecting your game of choice. E-commerce requires a ton of time, energy, and interaction to accomplish your goals and continue reaching for that next status level. 

The reality is that every decision you make regarding your Amazon business is vital to its ultimate success. And that doesn’t mean just having excellent packaging, great images, and an effective marketing strategy. 

Unfortunately, far too many sellers focus solely on their business’s aesthetics while failing to truly understand their company’s operations and supply chain.

Amazon Flywheel

 

Part of the operations (the “un-fun” part for many) is ensuring product quality control is optimized and consistent. But trust us when we say that it’s even more “un-fun” when you don’t pay attention to this aspect of the business. 

It’s your job as a business owner is to provide customers with the products they expect. So, when sellers have a nonchalant attitude when it comes to product inspections, it’s about as perilous as playing Fortnite with your eyes closed.

And, just as in gaming, there are levels of quality control that are important to understand and reach if you want to establish a good product and brand. Understanding these levels is important because it could mean minimizing the number of units that pass inspections, minimizing poor rates/reviews, and increasing the valuation of your company upon exit.

Seller's Activities to increase the Sales Performance

 

There are three levels of inspections you can choose for your quality control implementation, and there are lots of factors to consider when choosing which level is right for your business. For example, if you run a brick-and-mortar shop, you may only need a level II inspection. Likewise, if you sell socks, you also may make do with just a level II inspection. But more on that later. First…

 

What is a product Inspection?

A product inspection is a process of checking goods for compliance based on both your own set of specifications and federal/governmental requirements. While there are a variety of ways and types of inspectors who can implement quality control, inspections are generally conducted at the plant in which they are manufactured. 

As this video explains, there are a lot of factors to consider when deciding how your product inspections should be conducted. Questions like:

  • What kind of tests should my inspector perform?
  • Do I need a mid-product inspection or just a pre-shipment inspection?
  • Who should I have to conduct the inspection?
  • And – what we’ll be focusing on in this article – How many units do I need to have tested to minimize the chance of a customer receiving a faulty product?

 

How Do I Determine The Right Sample Size For My Inspections?

Now, let’s say you are playing Call of Duty and are trying to assemble the best team possible to win. Obviously, you can’t vet every player who has ever owned a PlayStation. However, you know that the more potential team members you audit, the more likely you can find experienced players that will get you the results you want. 

Yes, there are outliers like maybe a valuable team member breaks their wrist or is just having an off day, but by focusing on a larger pool of players, you statistically are more likely to assemble a good team – even with the outliers. 

When it comes to determining a statistically significant batch-test size that will signify the quality of the entire unit order, it’s no different. It really just comes down to a number game.

It’s also all about your risk tolerance. 

 

Sample Size Levels and Defect Discoverability Percentage

If you have a low risk-tolerance (you are taking every precaution necessary to ensure your products are properly produced), then you’ll want to choose a higher level of inspection to safeguard a higher probability rate of quality. If you like to play on the riskier side and don’t want to pay extra for time and money, your sample size (and your level of inspection) will probably be smaller.

Here are the levels and what they mean:

 

Level I

This level is a basic level of testing, and it’s not recommended that often. The sample size is much lower, meaning it leaves less opportunity to catch defaults before they go out. Nevertheless, there are some instances in which sellers will opt for this level. For example, if you’ve been working with the same manufacturer for years with no history of incidents. 

Then you may opt for Level 1. However, it’s important to note that things change – your manufacturer could lose employees, they may have sudden issues with machinery, etc. This is why even major retailers set their minimum threshold at Level II or higher for the products.

 

Level II

This level is the most widely used inspection level and is often used by default. We recommend this level for brick-and-mortar stores simply because the ramifications of a faulty product aren’t as knee-jerk of a reaction as with online stores. If a customer has an issue with a brick-and-mortar product, they usually just return to the store and get a new one or ask for a refund. 

The ability or need to leave a scathing review of the store is less likely. Plus, brick-and-mortars have the advantage of human communication, which usually leaves customers happy – regardless of the quality of the product. Ecommerce stores don’t have that ability. 

Defect Discoverability Levels

 

Level III

At level III, you have a larger sample size inspected for problematic issues. The threshold is much lower, too, meaning an entire batch of products will be rejected if it is below the quality defined by the buyer.

If you sell products online, a Level III inspection is almost always recommended for the same reason that it isn’t for brick-and-mortar establishments. A bad customer experience is highly likely to end with a bad review and low rating, which will influence your store ranking, reputation, and sales. 

Another thing you will have to figure out is your defect discoverability percentage (DDP).

Say you sell a kid’s night light and you have 50 units out of 1000 checked to see if they light up correctly when plugged in. You could have all 50 units pass the test and still have a 2% defect rate since the sample size is so small.

To calculate your defect discoverability percentage, 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 1000 units, and one of them is defective, you have a fairly low chance of finding that one defective unit if your sample size is only 50 units.

Again, it really just becomes a numbers game. The more units you have sampled, the higher the likelihood of finding a defect. 

 

How Do Improper Inspections Affect My Amazon Store?

As prefaced earlier in this article, poor inspections can lead to a domino effect of issues that will affect your bottom line and the outcome of your business. Some of the implications are obvious while others aren’t, so let’s break it down, shall we?

 

Thorough Inspections Can Save You Money and Protect from Bad Reviews

Statistics show 91% of 18–34-year-olds trust online reviews as much as personal recommendations. Moreover, 93% of consumers say that online reviews often influence their purchase decisions.

Local consumer review survey 2020

 

These numbers are statistically significant, particularly in the e-commerce realm, where reviews are easier to leave and make a lasting impression. So, if you are selling on Amazon, you really want to ensure that your customers have a great experience. Remember: It takes 40 good reviews to negate one bad one.

And if negative reviews aren’t enough for you to consider implementing a better inspection process, consider this:

  • Let’s say you order one batch of 1,000 units @ $10/unit with a 50% defect rate. This would mean 500 defective units are delivered to your customers.
  • 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) would be your loss per item returned. 
  • 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 a VA.
  • So, your total loss would be $8,700 loss + negative review damage, whereas a quality control inspection could be as low as ~$300. You certainly don’t need to be math-oriented to understand the significant losses that accompany shoddy quality control. 

 

Too Many Returns Can Suppress Your amazon Listing

Aside from the chance of cumulating scathing reviews, poor ratings, and product returns, there is another huge issue with having defective products:

Calculation of Amazon Order Defect Rate

 

Amazon will suppress your product listing if you have too many returns. 

Plain and simple, Amazon doesn’t care about you. Yeah, we know that sounds harsh, but it’s a truth you’ll have to accept. They care about their customers. They want their customers to have a great buying experience on their platform. So, if you are sending customers faulty products, Amazon is going to penalize you. 

Amazon and Walmart set quality targets to ensure sellers meet standards to protect customers from defective or simply bad-quality products. You will need to increase inspection frequency to be sure that your business meets all the set standards. 

Order defect rate is a widely common eCommerce quality target. As it could be expected, Amazon sets an order defect rate of less than 1 per cent, which is calculated from card chargebacks and 1- or 2-star ratings for the sellers. Don’t forget that their one-and-only goal is customer satisfaction, and they will do whatever they can to ensure it remains intact.

Amazon has a huge problem with brands that have return rates higher than the threshold they set forth, and they will investigate cases in which these standards are not met. The acceptable product return rate for Amazon can vary depending on the category. Usually, products with reasonable return rates have less than 10% returns.

Amazon Acceptable Average Product Return Rate

 

Amazon gives more leeway for items like clothes, perfume, and electronics due to the fact that size and fit are often an issue. However, even if you sell such items, any kind of return rate is simply bad news and can often be avoided with proper inspections. 

 

How Does Amazon Calculate Your Order Defect Rate? 

The Order Defect Rate (ODR) is a measure of your capability to provide a satisfactory customer experience with your business. It encloses all orders with one or more defects represented as a percentage of total orders during a 60-day period. Here are those measurements:

Negative Feedback Rate: orders with negative feedback divided by orders in the 60-day period. 

A-to-Z Guarantee Claim Rate: orders with a relevant claim divided by orders in a given 60-day time period.

Credit Card Chargeback Rate: orders that have received a credit card chargeback divided by orders in the relevant period.

You will receive an alert from Amazon to warn you if your product return rate is over the acceptable percentage. They will then suppress your listing, and you’ll have to file for an appeal to get your listing reinstated.

 

Defective Products Influence the Valuation of Your Company

Trashy products don’t just hurt your profits and brand reputation – they hurt the value of your company upon exit. When buyers or aggregators decide the value of your company, they look at three main points: the asset approach, market approach and the income approach.

the influence of defective products on company's valuation

 

The income facet of the evaluation is pretty straightforward: How much money is your company bringing in? In case your net profits per year are lower than they could be because of returns and all the costs associated with fixing problems, then the income approach is going to be lower than it could be had there been fewer returns.

When aggregators look at your assets, they want to know that they will be cumulating healthy assets of your business which include a solid Amazon store that is ranking well and has great reviews. Furthermore, many companies check to make sure your supply chain is running smoothly because the last thing they want is to acquire manufacturing issues that they have to fix.

For all of these reasons, it’s important that you’re providing quality products with minimal issues and premium customer service that ensures brand loyalty and future purchases. 

 

Bottom Line

Eventually, it’s up to you to safeguard your e-commerce business as much as it’s possible. Products in electronics, baby, health, and medical devices can pose safety issues that really warrant quality control – particularly when it comes to safety tests. The best measures to take are as follows:

1) Understand the inspection process inside-out and that you are applying all of the necessary tests to minimize the chance of defective products going out.

2) Choose an inspection level that makes sense to your product, budget, and customer expectations. The higher the level you take, the larger the sample size inspected, which curtails the chance of defective products getting through. 

3) Your customers are your real inspectors and your harshest critics, so you have to think like them. What kind of potential problems might they run into with your product? Check competitor reviews for complaints. Then, implement inspection tests that minimize the chances of your customers having similar complaints.  

4) Make sure your product is a high-quality product. That means paying attention even to the most insignificant details and being certain that you are working with a supplier that senses your expectations and your product, inside and out.

5) Insist that your inspector is keeping you in the loop with every step and test they perform. That means getting images, videos, and thorough reports of the outcomes. This aspect of the inspection process is crucial and something we at Movley insist on providing our clients so sellers like you can have more control over the process. 

 

About the Author

McClain Warren is a Colorado native who graduated from American University, DC, with a B.S. in Communications. McClain started in the Amazon space as a listing optimizer and eventually became director of the content writing and keyword research departments of the same marketing firm. 

She now owns a copywriting-focused business called The Write Buzz that creates content for multiple service providers, sellers, websites, blogs, and marketing strategies. She is also a self-proclaimed comedian and loves pineapple on her pizza.

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