FactoryForAll - a case study on everything that can go wrong with offshore sourcing

TL;DR:  Our experience with Tully Gehan’s FactoryForAll.com bordered on fraud and extortion and significantly impacted our ability to do business.  We are sharing our experience here with others in the Maker community on the pitfalls of offshore sourcing.


First of all, let me get this out of the way.  We debated for a long time on whether to write this article.  Business, by its very nature, involves risk.  Bad things happen to good people..  We don't come onto the blog every time something goes south to throw a vendor / re-seller / supplier under the bus, because we recognize that there are two sides to each story and factors that are out of control for both parties involved in any transaction / relationship gone bad.

That being said, despite checking their references, the level of communication, transparency, and professionalism that we experienced with Factory For All bordered on outright fraud and extortion.  And, even more unfortunate, when I sat down with friends in the Maker community and lament about all the issues and struggles we've had, multiple people have told me that these guys were not reliable, yet not a single negative review (that would have saved us a lot of grief) can be found.  We note that Factory For All was mentioned in Make Magazine's "Shenzhen for noobs" article and we would like to leave our experience for the record for fellow Makers as another data point to consider, when selecting a vendor.

We approached Factory For All in June, placed purchase orders and wired 100% of the money the first week of July.  We were purchasing items that should have been roughly 2-4 week lead time, from vendors that we have already vetted and have pre-existing business relationships with.  We wired the money based on vetting Tully’s references; someone that I know personally and respect from the Maker community reported a good working relationship with Tully and we wrongly assumed that it would have been relatively straightforward to purchase these parts, arrange for them to be delivered to Tully’s location, and then shipped out via ocean freight, since they claim to do all of MPJA.com’s Chinese  sourcing.  

We chose to do things this way for two reasons:  

1)  by issuing a single PO to one company we were hoping to keep our accounting clean, and

2) we’ve ran into problems in China before where companies trying to act as a freight forwarder and found out that they cannot export our goods after all the goods have been purchased because they were unable to show a paper trail of the money and goods transaction; without which they cannot make the proper export tax declarations.  

I first met Tully Gehan at Bay Area Maker Faire in 2015.  They  had a sign offering Chinese sourcing, contract manufacturing and kitting services.  At the time I made contact, I already have vetted Chinese suppliers for packaging for both OpenBeam and ZT Automations as well as located and qualified suppliers for every line item on Kossel’s 200 line item BOM.  However, we were hoping to move some of the kitting and repackaging overseas to simplify the import paperwork, and we were hoping to find a single source agent to help consolidate our shipments.

What we didn't know at that time was that our funds were diverted from day one into another business's account because Tully and his girlfriend had broken up; the FactoryForAll business was registered in his girlfriend’s name, along with the bank account, so Tully had us wire the money into his “friend’s” account, who promptly became unavailable and who later was afraid of tax implications and decided to wire the money back. This wasn't made known to us until our vendors, a month in, started communicating with us directly that they weren't getting paid, and Tully let it slipped out that he was having issues accessing the bank account because it wasn't his.

There were other issues as well.  Because Tully’s Chinese skills was questionable at best, he had to rely on a string of different translators, none of whom have any basic technical background.  I found myself having to WeChat, QQ and Skype multiple people to explain to them in Chinese what we are trying to accomplish, only to watch a frustrating game of telephone unfold 6000 miles away.  This was brought to our attention when one of our suppliers contacted us thinking that someone was masquerading as OpenBeam's "purchase agent" to try to get them to produce OpenBeam parts under the radar; our supplier even went as far to ask if Tully was a "rented foreigner" because he couldn't field even the most basic answers regarding what was being ordered.  What’s also worse is the team in China is overly reliant on WeChat, QQ and Skype; there was hardly any documentation on what was actually being ordered, a highly problematic situation when ordering CNY$100,000+ worth of goods.  At my insistence, we had written contracts and BOMs drafted up in Chinese which I double checked against our English BOM.  (One of the things that came out from this fiasco, is OpenBeam now releases its engineering drawings bilingually).

It wasn’t until mid September when all goods would arrive at the warehouse - communications got dropped with our cardboard vendor, and even though PO was placed and the money was wired the first week of July, our “two week lead time” cardboard boxes didn’t show up until mid September.  There another nightmare started; despite us repeatedly asking for them to prepare for ocean shipment when the boxes arrive and despite repeated Skype messages telling us that they were “working on” our shipment, it wouldn’t be until around October 21st when we received an “invoice” for their services, and a proposed shipping plan that was by far the most expensive freight bill I would see in our company’s history.  

The invoice that we were presented with contained thousands of dollars more in fees that were previously agreed upon.  Upon reading the invoice and shipping manifest, it was found that an entire purchase order worth of goods was missing from the shipping manifest, and the invoice contained multiple, unreasonable line items.  For example:

1)  We were charged close to $1000 in Skype talk time, including accounting time for calculating Skype time.  At no point were we told that talking to them would incur a fee.  

Even lawyers don't charge for accounting time when billing their customers.

Now, some amount of payment to compensate for time to clarify engineering requirements is perfectly reasonable, but most of the Skype calls were follow-ups and problem solving in nature (as in us helping them figure out how to do their jobs). One call dealt with the fact that they couldn't figure out how to transfer money from the bank account in Hong Kong to a Chinese vendor in Shenzhen and ended with me vetoing Tully’s suggestion of “walking” a backpack containing CNY$120,000+ in CNY$100 notes.  (The largest note in circulation is a $100 note; we purchased over $120,000 from one vendor alone.  We’ll leave it up to the reader to figure out the volume and weight of 1200 bank notes and how long Obvious Foreigner Who Can’t Speak Chinese would last walking that across the border before getting mugged).  Other calls involved us following up on order status, being told that things are ordered, only to find out weeks later that the order never went through because they didn’t have money for the order in the first place (due to troubles with accessing the bank accounts).

2)  We were charged US$334.00 for a UPS shipment, AFTER we had sent a prepaid waybill for.  

How incompetent do you have to be to spend 20 hours shipping a package?

The cost was supposedly for their commute time to their facility, to place the call to UPS to arrange for pick up, and for the labor to package these for masterpieces for us:

For comparison, it’s typically $100.00 per carbon box in UPS shipping fees (including pick up) for a carton box of this size filled with engineering sample parts, on my negotiated UPS account.  When we raised the concern, the response came back that because the shipment had went out on a holiday, they should have charged us 3x more than what they already gouged.

3)  They wanted to charge us close to $600.00 for 8 pallets (the actual pallets themselves), and a total of $2300.00 to place pre-packaged material into a 20ft container.  Included in this is a $150.00 "research charge" for them to find a place to rent a forklift and pallet jack.  Note, this does not include the actual ocean freight charges or any export charges, this is just for loading a container.  

$67.00 per pallet - Bespoke pallets made by hipsters in Williamsberg, NY, from wood sustainably harvested from the Whole Foods shipping dock won't cost that much.  

Here's a link to brand new, heat treated wood (that meets ISPM15 fumigation requirements, required for any wood packaging products used in export - $24.50 each.  And that's assuming that you're buying brand new pallets - these things are the workhorse of the shipping industry, any decent material handling company would have a stack of them on hand as goods move in and out - all on pallets.  And on top of that, for a company that claims that they do lots of ocean shipping, it sure is funny that they have to charge 9 hours to figure out where to rent a pallet jack and forklift and pallets for ocean export.

Typically for small amounts of goods like what we are trying to ship, we ship using LCL (Less Than Container Load).  Included in an LCL shipment are CFS fees - this is where they handle the material, palletize and pack the goods onto a cargo container, etc.  To give an example, our last shipment, which involved over 4.5 metric tonnes and close to 200 carton boxes?  The overseas CFS charge portion is less than $230 - ten times less than what Factory For All wanted just to pack the container.

In fact, when we finally got the goods out of Tully’s warehouse, trucked it to Hong Kong; here was the total damage.

There were many, many other whiskey-tango-foxtrot moments, but I think I've made my point loud and clear.


We ended up paying the invoice from FactoryForAll in full; not because it was the right thing to do, but because they made it very clear that without paying for all their bullshit charges, they wouldn’t release our cargo to our supplier who stepped up to the plate and helped arrange for the export to Hong Kong so that our goods can be ocean freighted to us.  Even though Tully had agreed to a different compensation scheme, what can we really do?  They had been holding US$40k of inventory hostage for almost half a year.  The dollar amount they were extorting is not worth an international lawsuit over and both of us knew it.  

From what we can tell, Tully and his girlfriend got back together; his girlfriend was the one that sent the invoice and the packaging work.  It is a conscious decision on my part not to name Tully’s girlfriend here in this blog post; I am giving her the benefit of a doubt; after all, she wasn’t the one that diverted the funds into another bank account in the first place and was stuck in the position of cleaning up the mess that Tully created.  With some attitude adjustment, and lots of coaching in the areas of business management, customer service and logistics it is plausible that she could actually run a sourcing business some time in her life, and I didn't feel like condemning her online for the situation that she didn't help create.  For what it’s worth, despite being CCed on every email during the invoice dispute, we never heard from Tully again.

Most people, when I tell them this story, are shocked by the timeline: placing the order for 2-3 week lead time items in early July, not seeing anything until January of the next year.  It’s pretty apparent that the team at Factory For All is incompetent at 1) sourcing, 2) exporting and 3) running a business and providing customer service in general.  However, the damage done here is way more than just time lost.

$40,000 is not a small sum of money for us; for comparison, we only purchase about $100,000 of OpenBeam per year for resale.  This meant that a HUGE amount of our working capital was tied up with nothing to show for - we were hoping to land some of this inventory quickly and resell them to bring traffic to our web store.  This obviously couldn’t happen, as the container boat didn’t dock until the day after Christmas and we didn't take delivery until the first week of January.  (Of no fault to Factory For All; US Customs also decided to X-Ray and inspect our container.  You can see in the picture the original container seal as the container left Hong Kong and the CBP inspection seal - both had to be cut off with bolt cutters to open the container).

On top of that, virtually every product across both ZT Automations and OpenBeam was affected.  Back in May I redesigned the packaging and content of the OpenBeam Construction Kit - by far our most popular item. The redesign assumes a custom sized box and was driven by a plan to push OpenBeam into brick and mortar stores.  The box size selected isn’t covered by off-the-shelf box suppliers such as ULine or Tharco.  We knew in May we had enough stock to last until October and we’ve already had great working relationships with this box supplier, so there was no reason to expect such a delay on sourcing something as simple as a box.

Yet, due to these delays, I have 4 pallets - 500 sets of each color of our construction kit, sitting on a pallet since the the end of August.  Our extrusion vendor faithfully executed on our redesign and delivered, our plastics injection molder delivered the brackets and our new hardware vendor delivered the fastener packs.  But without a box, and without the ability to buy an off-the-shelf equivalent, we were forced to hang an “out of stock” sign for a few weeks on our Amazon webstore, miss the launch window for launching the kit at Seattle Mini Maker Faire (where we were ultimate sponsors) and completely missed the window to launch the kit in retail stores this year.  (We ended up spending some money to UPS boxes over; that’s what FactoryForAll charged us $334 for their work in “shipping” the boxes) that they dropped the ball on ordering.  The four pallets of construction kit extrusions are worth another $40,000, and blocked off access to a good chunk of our new warehouse for a long time.  And with the Kossel project still in high gear, we didn't have enough free cash flow to just go out and order a box cutting die (3 dies, domestically, for probably $1000 each), purchase the MOQ of a box stamping in the US, and write off our inventory that we've already purchased in China.

Tens of thousands of dollars worth of inventory, none can be moved because it was missing a fastener pack, a box, etc.

Cash flow is king in a business, and this little episode was highly detrimental to our cash flow.

There was a huge psychological impact as well.  Business continuity was at stake here; we *needed* the goods from this shipment to continue shipping products and stay in business.  Given how unprofessional these people have been, and their propensity to stop responding, there was a very real fear that we may just never see our cargo.  So, as much as I had wanted to hop on a plane and go knock on someone's door, we really had no choice but to go along and beg, plead and repeatedly, politely ask for status updates.  For months, it was impossible to do any long term planning; unjamming this logistics mess was the #1 priority.  There were nights that I’ve set aside for engineering and project admin that got blown completely because we ended up having to spend it verifying shipping manifest, talking to vendors and generally fighting fires.   All that stress had left me drained and burnt out.

We’ve finally received our cargo, after 7 long months.  On the stepper motors that Tully had packaged for us; 1/3 of the boxes were folded wrong (inside out).  He went ahead with packaging not having the Amazon FBA labels (this was our fault but at the time that decision was made, we just wanted our goods out of his warehouse) - so we'd have to rework 100% of the kits anyway.  We were charged (and paid) a total of $575 for the labor involved in packaging 250 stepper motor kits.  Suspiciously - we paid 7.5 hours @ $10.00/worker/hr of 4 workers packaging motors, but we paid for 11 hours @ $25.00 per hour for a "supervisor" - supervising these workers.  As a comparison, here in Seattle, I pay my packaging contractors $25.00 per hour (well above Seattle's proposed $15/hr minimum wage) and they can generally pack more than 12 kits per hour (1 kit every 5 minutes assuming $2.00 per kit labor cost).  In other words, the "cheap Chinese labor" turned out to be more expensive than Americans earning a living wage - and that's not counting the rework time we have to put into it.

We have taken steps to mitigate against this sort of fiasco, which we'll share when it's appropriate.  Supply chain is hard work for sure...

-=- Terence