If you’re new to sourcing products from China, you may be wondering if you really need the assistance of a sourcing agent or whether to go it alone and do it yourself. How hard can it be, right?
What does sourcing from China realistically involve?
An internet search from your office abroad for suppliers on Global Sources or Alibaba just isn’t going to cut it.
You need to be able to commit between 1 and 3 hours per day on supplier sourcing and management, and that’s for each supplier.
This time will be made up of:
- Identifying new suppliers that can make your products at the right price and quality levels
- Helping develop new products/styles with these suppliers
- On-going management of the supplier relationships (communication, quality control, shipments follow-up, crises if any)
If this isn’t going to be possible for your team, then you need to consider bringing in a third party sourcing agent to help you in China.
>> Explore the topic: How To Find Suppliers In China [Importer Tips] <<
Importers have 4 options when it comes to sourcing from China
Here’s a diagram that outlines your options:
Let’s look at each in more detail to see which best suits your situation.
1. Purchase Direct
This is what 80% of importers try to do. They want to control the whole process and avoid paying commissions to any middleman or agent.
If you are organized enough to manage suppliers (see above), and if you can satisfy the minimum order quantities (MOQs) of suppliers, this is probably the best option for you.
2. Use a commissioned sourcing agent
Thousands of individuals in China are trying to make a living by providing this service. If they are from the right industry, you can use their network and save a lot of time. They can also act as your in-country representative.
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!
Dan Harris from China Law Blog also has a similar view of most sourcing agents:
I often describe China sourcing agents with the following: “Ninety percent are crooks or incompetents and most are both of these things. But ten percent are worth more than their weight in gold.”
Caution is, therefore, advised.
How to qualify a sourcing agent?
I suggest that you can ask any prospective sourcing agent the following questions before hiring them:
- How will they get paid, and by whom?
- Will you be able to visit the factories before/during production?
- Can they provide referrals or testimonials from satisfied customers who are using his services and who buy the same type of product as you? Make sure to contact two of them and get confirmations.
- Do they do quality inspections by themselves? Or do they resort to a specialized third-party? Will you get a report every time?
- Will you get an update every week on the production status?
- Can they share their management system with you? You need to make sure they have processes in place. The vast majority of agents don’t follow any established procedures.
- What guarantee do they offer in case a supplier scams you? If shipments are behind schedule? And if you receive junk product in your warehouse?
- Are they located in the area where your products will be sourced? (Do a quick search on globalsources.com and you will have an idea about the main area for your product category.)
- If you keep re-ordering the same products from the same sources, will you pay less for his services after the first order?
3. Purchase from a trading company
This is a good option if you cannot satisfy the MOQs, perhaps if you’re a startup or entrepreneur placing an early order.
A trading company can place production in a smaller workshop that accepts small orders. Aside from this particular situation, I don’t advise to work with a middleman.
I wrote about some downsides of working with a trading company before on QualityInspection.org.
4. Use a service company
Some China sourcing agents provide a service and charge a fee. Everything is transparent (supplier names, the process followed, etc…). It will be an investment for your company before production starts, but it is a good option if you forecast large orders down the road.
Such agents used to be very rare but I am sure they will become more and more common. The best ones tend to work as a procurement office and to be well organized.
“I’m still determined to do my own sourcing and want to purchase direct. Any tips?”
OK, then you’re in scenario 1 above. By going ‘direct to factory’ you should be able to save money and reduce FOB prices.
Here are my tips (from this post) for importers who choose to start buying direct:
1. Come with the right expectations
There will be lots of hidden costs. Don’t focus only on the supplier’s FOB price. You should know how to calculate your landed cost (i.e. the fully-burdened cost of your goods after shipment, duties…).
Also, never trust what untested suppliers tell you. Don’t be afraid to check the reality from time to time (“it’s not personal, it’s what my boss asks me to do”). Don’t tell them openly that you don’t trust them.
2. Spend the time to find the right suppliers
This is the single most critical success factor. The right supplier already produces for an export market that is similar to yours in terms of quality requirements. The right supplier is also not too small and not too big. They are properly organized for their size. And the top managers are excited to start working for you.
If you want to see many suppliers at once and ask them a bunch of questions, you can come to trade shows.
>> Read more: How To Get More Out Of A China Trade Fair Visit For Importers <<
3. Start small with a new supplier
Do not give a large deposit to an untested supplier, and don’t expect their products to be shipped on time. A good practice is to open a letter of credit for the first order and to add 3 weeks of safety padding to the promised schedule.
If an order is not managed well, change the supplier now. If you are satisfied, increase order size slowly and regularly.
4. Good quality management is essential
You will need a quality department for defining specifications, approving development and production samples, and taking decisions after product inspections.
You need at least one person who knows the products you are buying (technically speaking) and your market’s expectations (what you can deliver and what won’t be accepted).
This video will help give more detail about the 3 critical quality steps that importers need to follow when getting goods produced in China:
5. Don’t jump right away in China
Start placing one order, then another one, and so on until you feel confident you have nailed it.
You just can’t think of everything before you take the first step. I remember one of my clients was forced to re-build the delivery area in their warehouse because the 40 feet containers just couldn’t be unloaded conveniently!
Working with a ‘middleman’ isn’t without its benefits, though
However, if you do decide to cut out the middleman, you should be cautious.
I wrote in this post that trading companies and some other third parties like sourcing agents will often provide some or all of the following benefits, so are you prepared to fill in the gaps?
- Matchmaking: either via a trusted network (for insiders only) or through a more scientific approval process comprising of supplier pre-qualification, background checks and factory audits.
- Management of new product developments: many foreign buyers don’t know how to communicate clearly with Chinese manufacturers. Exchanging messages through a young translator, sending and resending samples, is frustrating and time-consuming. Some trading companies and sourcing agents are very good at making this process more efficient.
- Completing product specs: most importers don’t bother to define all their expectations. Someone has to decide what packaging materials to source in 90% of cases. Relying on the factory is very risky, and a better solution is to pay a QC firm to define it clearly once and for all.
- Quality control: by third-party inspection agencies or in-house staff. The use of statistical tools that are also used by retailers in the importing country reduces the risks of rejection of a batch that was accepted back in China.
- Reducing payment risks: buyers need to use tools such as letters of credit or OEM agreements, especially when a relationship is starting and there is no trust.
- Getting out of trouble: this is probably the most under-rated function of a good intermediary. When problems arise—and they will—an importer who isn’t in China cannot just solve them by emails and phone calls.
Importers can handle sourcing from China themselves, but just be aware of the size of the task. Anyone telling you that it’s ‘easy’ or requires little effort is just plain wrong.
If you’re ready to go it alone you’ll most likely be wanting to purchase directly from the factory. In that case, don’t forget to spend time sourcing the right supplier, start small and ramp up, and focus on getting quality right from the beginning (we’ve covered all of these earlier).
Unsure if you can handle all of this in China from abroad? You should consider going with a sourcing agent – if that’s the case, refer to the earlier section about qualifying a good agent.
Get sourcing help from the experts on the ground in China now
Did you know that Sofeast can act as your own procurement office in China?
Not only does our team act on behalf of you (taking away your stress by becoming your proxy in China), but we also add extra value to the role by speeding up your buying process and helping reduce the proportion of defective items that you receive from suppliers.
Here’s what a sourcing project with us looks like:
Interested in learning more about how we can help you improve your sourcing and get a quotation if you like?