Sample Size
Meaning ~ The count of individual units extracted from a production lot for inspection is the sample size, which determines the statistical threshold of the batch.
Defective Rate
Meaning
Operational metrics track the proportion of substandard units generated during a production run to measure factory performance. This measurement, known as the defective rate, is calculated by dividing the number of non-conforming items by the total number of inspected units. Sourcing managers monitor this percentage to evaluate supplier reliability over time.
Statistical Calculation
To calculate the defective rate accurately, inspectors must examine a statistically representative sample of the batch. Random selection ensures that the calculated percentage matches the true state of the entire shipment. If the sample reveals a high frequency of flaws, the batch is deemed to have a high defective rate and must be sorted.
Contractual Limit
Purchase contracts usually establish a maximum allowed defective rate for every shipment. If the inspector finds that the proportion of bad units exceeds this limit, the buyer has the right to refuse payment. This clause forces the factory to absorb the cost of remaking the goods.
Financial Remedy
When a shipment arrives with an unacceptable defective rate, the financial impact can disrupt the entire retail supply chain. In such situations, the importer must choose between returning the goods or conducting a costly local screening process. Having a clear quality agreement allows the buyer to deduct these sorting costs directly from the final balance payment owed to the manufacturer.