Sourcing agents may not be right for you when you’re developing a new product

Some companies who develop their new products from scratch choose not to use sourcing agents, and they genuinely don’t feel that it’s necessary. But is this a wise move? Let’s unpack it…

What can sourcing agents do?

Sourcing agents can be very helpful for businesses that manufacture products overseas because they take care of finding the sources (in other words, the suppliers) for the products you need to buy. Commonly businesses will work with a ‘commissioned agent’ who is paid a portion of the amount of orders they facilitate.

Let’s say you’re an American business and buy and manufacture in China. You don’t speak Chinese, know the business culture there that well, and are new to sourcing in China so have no existing contacts. You can learn to source from China yourself (and this may be beneficial for your business development and autonomy in the long term), but it can be a steep learning curve and you want to get the best deal now, right? Therefore, turning to a local agent who understands the market, language, and culture, and maybe already has existing relationships with reliable suppliers, too, makes sense from a convenience and security perspective.

If you find a good agent, they can help to get you a better deal than you’d achieve alone. They can quickly assess whether local suppliers are capable. And so on.

In short, you pay them for their local expertise, reducing your stress, and letting you focus on other important activities (and there will be a lot on your plate during the new product introduction process).

However, drawbacks may include potential conflicts of interest, as many (most?) agents also receive commissions from suppliers, raising concerns about impartiality.

If sourcing agents can be helpful, why do some businesses seem to operate better without them?

Many importers have concluded it’s better to be self-sufficient when purchasing the materials and components for your product. In a popular post we discussed the need for sourcing agents: Do You Really Need A Sourcing Agent in China Or Can You Do It Yourself? and regarding commissioned agents, I warned:

Unfortunately, over 90% of them get a hidden commission from the factory. This is “normal business” in China. As a result, when things go wrong, they often tend to defend the factory!

Worse, some “agents” end up being the supplier themselves and act as a middleman, reducing visibility into their upstream supply chain.

The companies developing their own new products from scratch who don’t want to use a sourcing agent also expressed these concerns:

The problem of competencies

Many sourcing agents tend to be good at finding suppliers that make a particular product or component. More often than not, they look for already-developed ODM products. From a ‘connecting this supplier with that client’ perspective, they are helpful. But is simple supplier sourcing what you need, if you are developing a unique product?

When it comes to understanding where you are in your product development and understanding the phases of the NPI process and its go/no-go gates for electro-mechanical products, for example, they lack that competency so you cannot rely on them for technical advice about developing your product.

You can find a new product development consultant who is probably an experienced engineer to work with, but they are likely to cost at least $60/hr and are probably not on the ground in China.

Sourcing agents can’t always find the right components

Again, the sourcing agent’s lack of engineering design experience could set you back, because if you are designing a new product you need to make critical choices about key components such as display, battery, chipset, etc. And who will do this best, a sourcing agent or an assembly manufacturer? A capable manufacturer will usually do a much better job. They should have good quality and purchasing teams that you can lean on and who really understand the components on a technical level and how they would suit your requirements or not.

In our experience, typical sourcing agents tend to focus more on the product side and much less on the component side, so they may not be that helpful for finding the right components that fit your needs.

The communication gap between the customer and the factory has become a lot narrower

In the past, English-speaking sourcing agents were useful for bridging the language barrier, but if you develop your own technical product you probably need to work quite closely with your manufacturer and their engineers, project managers, etc, who usually speak some English these days. If needed, you can use a translator for technical topics, but you really want to keep that to a minimum.

So these days businesses who develop new products will tend to select a contract manufacturer instead. A capable one will provide a project manager who takes the place of the sourcing agent and will devote a certain number of hours per week to your project and help ease dialogue between you and the product engineers, quality, and supply chain teams.

Conclusion

Today, there isn’t really a lot of room for the sourcing agents in a project where you work with a manufacturer overseas to design & develop a custom product from scratch, as they usually don’t have the technical expertise to make a meaningful contribution. However, if you’re buying complete products off-the-shelf to brand, they are certainly much more helpful.

The risk of conflicts of interest makes using a third-party company that you pay upfront for the work to source for you, like ourselves, less risky if you prefer paying for that support. Learn how we can support you here.

Ultimately, you will benefit from learning to source from China or whichever country yourself, and also spending the budget allocated to an agent on performing due diligence on finding a capable contract manufacturer who already provides the services an agent would and also has the technical expertise to help you to make smart decisions during the development process of your new product.

Further reading and listening

Explore this topic further by diving into these resources:

• Do you need a sourcing agent to buy from China? [Podcast]
• Check out the supply chain management solutions we provide you with
• Ultimate Guide To Sourcing From China And Developing Your Suppliers [eBook]

This FREE eBook starts from the beginning, discussing whether you need to hire a sourcing agent, and follows the sourcing process right through to developing a trusted supplier’s quality and productivity.

There are 15 chapters over 80+ pages to explore, providing exhaustive guidance on the entire sourcing and supplier development process from start to finish, including:

• Identifying suppliers,
• Negotiations,
• Quality inspections,
• Developing Chinese suppliers,
• Improving factory quality and productivity,
• and much more…