Product Sourcing Guide

Trading Companies

Trading Companies are companies that work with you to source the product from manufacturers. They may or may not own factories, but in most cases they might have a list of manufacturers that they constantly work together and have very good relationship with.

Trading companies in many sectors are simply companies that buy from one source and sell to another, and simply act like a middleman and profit from the differences in price. In commodity sectors, where products or materials are not specially designed or custom-made based on client/OEM designs, their job can be as simple as finding the right products and sell them at a right price to a right customer. However, for OEM designer products in the Gift or Home Decor sector, which I focus on here, they have more to do beyond simply buying and selling.

A good OEM trading company should act like your consultant for manufacturing, they should be able to work with you on developing the products. Therefore, their knowledge on the manufacturing process and what is and is not suitable for the product you are about to develop is important. Since that their are responsible in governing the manufacturer to produce quality products, if they do not know what is going on during the manufacturing process, eventually a lot can go wrong along the way and not detected immediately.

Trading companies make their profit by obtaining the quote from one or more manufacturers, consolidate them and provide you with their own quote after adding their margin. Different trading companies handling different type of products may require different percentage of margin or markup to account for the work they put into the business processes. Since that some products does require tremendous attention to details on all the bits and pieces while some are very simple and straight forward and require relatively less manpower or other resources. Whether the function provided and performed by the trading company and the extra margin they incurred between you and the manufacturers is something you would need to evaluate. The products might be more expensive when they landed in your warehouse; however, you cannot forget that if these works are done by yourself, what are the extra expenses and time you would need to sacrifice. Is it better off for you to focus on your core competency of designing product and marketing or you have the time and resources to take part in this process as well?

One important aspect is that they are directly responsible for providing you with satisfactory products and not the manufacturers. They are responsible for dealing with the manufacturers regardless whether you know the manufacturers yourself or not.

I have to admit that my work in a trading company may subject me to biased perception in terms of the pros and cons of different type of suppliers. However, I would still do my best to present the facts to you and not simply my personal judgment.

Buying Agents

Buying Agents are generally your representative in sourcing. They might either be exclusive or not depends on your terms and condition with them. In most cases their capability and functions are similar to a trading company; however, they are simply your representative in product sourcing. This means that you are still the one dealing with manufacturers, buying agents merely act as a provider of the “leads”. You might still not sure about what I am talking about exactly and how they are different from trading companies. Let me explain about how they generate their share of profit and how the quote is provided to you then you should understand it better.

Buying Agents would first learn about your product needs and point you to the manufacturer that they think that is suitable for you. And, they would ask the quote from the manufaturer. Rather than put a markup on the quote and come up with their version of the quote for you. By default, they would and should simply provide the quote from the manufacturer directly to you without doing any adjustment. “How do they make money then?” you may wonder. According to the contract between you and the agent, the agent would get a certain percentage of the transaction to honor their work in connecting you and the manufacturer. For example, if you agree to pay 5% for the agent, then they would get US$5,00 from a US$10,000 transaction.

Generally, they gets less than a trading company as they take on less risks because of one important factor, “the responsibility”. At the end of the day, they only act as an agent between you and the manufacturer; therefore, if anything goes wrong with the product, the manufacturer needs to be held responsible for you directly and not the agent.

Although I am not the type who like to talk about other people’s dark side or talk down anyone. However, I feel that I have the responsibility to give you a warning about the potential costs of working with a buying agent. You might feel that you might be able to lower your cost by working with a buy agent since that they only charged a small percentage of the overall cost and you are comfortable on the manufacturers as you know them and feel that they are very responsible ones. But you would need to ensure that you are working with a honorable and honest agent to ensure that you are getting what you think you are getting, by which I mean ensuring that you achieve reasonable saving by having a agent. The reason that I talk about this is that I learned about their practice from some manufacturers and actually had the chance to encountered some agents that did not operate entirely transparently with their clients. Even though the quote is provide by the manufacturer directly, but they have pre-requested the manufacturer to include additional margin for them in the quote for bring the business to them. I am not saying they are not entitled to make profit for their work, it’s more about trust and honesty. At least as a client you should know what you are paying for. So you should be aware of this kind of practice, and decide whether you can live with it.

Buying Offices

Even though some bigger companies do setup their buyer office, but I would assume that most startups might not have the resources or needs to do so yet.

… to be continued on Part 3.

… refer to Part 1.

For any new design companies, design studio or individual designers in the sector of gift or home decor, the first thing would probably be having a killer product idea or at least somewhat innovative or outstanding products to differentiate from the crowd. Now let’s assume that you have already done the design and the market research, you are feeling pretty confident about how your product might do on the market. So the next step is “simply” to make these product ideas and designs into production and turn them into salable products and get them into your home office or warehouse. I would also leave out the part where you need to promote your product and find distributors and retailers… etc, since it’s a totally different chapter from what this current post is about.

The process certainly sounds simple and straight forward; however, the actual tasks need to be performed in order to do everything right is usually not as simple as counting 1-2-3. I will talk about the overall process later on, but to get started on this subject, I would like to point you to the right direction first since that I won’t be able to cover everything in a short time. And you might already have the need to get something produced urgently. If you have the need to urgently find a good supplier, I might be able to help you and give you some suggestion. Please feel free to contact me. You can find my contact in the about page.

Even if you do not know much about other details yet, if you can find a good supplier that’s customer-driven, experienced and willing to help you develop your business, they might also be able to fill you in on many essential subjects about OEM product manufacturing and sourcing. So finding the right supplier is definitely an important first step to successful product sourcing. Simply because your supplier is also your partner in your business, and we can’t stress enough the need of finding a reliable, trustworthy, responsible business partner.

I am glad that I was lucky enough to be in a company that had the culture of building strong customer relationship and satisfaction. Many clients are also very good friends that have been with the company for more than 10 or 20 years and the relationship and cooperation is still going strong. I also had the chance to see some of the undesirable cases through the dealing with transfered clients (new customers which gave up on their previous suppliers and come to us), or factories. It almost amazed me how many suppliers actually do not care enough about their customers, from how they behave and deal with problems you can quickly tell that they don’t really care about how poor quality might effect their customers and the partnership. Perhaps it’s simply because “what you paid is what you get”, you pay cheaply for cheap quality. Price might be the reason in some instance, but I can only said that a good supplier never lower their standard as a mean to be competitive on price. Fortunately, knowing your supplier well beforehand would usually prevent most of the hassles of dealing with the wrong one. I would also give you some pointers as to how to evaluate a good supplier in the future.

Enough on how a supplier is important to the business, we shall begin on learning about what are the suppliers available and how to decide which is the better choice for new designers. This article is meant to be a reference for new designers that just started out and do not know much about product sourcing. For seasoned designers, buyers or importers and alike, you probably have experienced it all and known it all. However, if you have any input or opinions on anything, please feel free to join the discussion to help people new to this area. What I say certainly doesn’t represent the absolute facts or rules about all the things and I am welcome to suggestions, since that as much as I would like to share my experiences, I am also eager to learn from others.

There are several choices of suppliers to go to for new designers. They would generally be manufacturers, trading companies or buying agents. I will introduce about them first and show you how they might be good or bad choices in different circumstances.

Manufacturers

Manufacturers basically are factories who produce products, and many of them also have their own sales team and capability to handle oversea clients. They are usually specialized in a specific manufacturing area and product type, some of them do provide a wider range of products through their own group of factories or affiliated factories. Some of them may also outsource part of the manufacturing process to other specialized suppliers. It is important to know what’s the primary competency of a manufacturer when you are considering cooperate with one. Just like you won’t find a dentist to help you with optical, finding the right manufacturer with the right core competency to produce what you need is nevertheless the key to get satisfactory results. The sales department in manufacturers actually has similar role as a trading company. They are responsible for your satisfaction and need to ensure that their production team work together to fulfill your needs.

It is important to know the manufacturer well before you start working with them on your products. Word-of-Mouth might be what leads you to them in the first place, and you are probably less risky to deal with them if someone dealt with them previously actually recommends them to you. If it is a completely new manufacturer that you just meet, for example, on a trade show or picked up from a business directory… etc. Then I have to say that visit the factory is usually very important, but I understand that it might not usually be feasible for you to visit all of them let alone any of them when you just got started. Despite whether a visit is feasible for you, the main idea here I am trying to convey is that you should do your homework first, try to find out as much information about the manufacturer. For example, you can ask for several existing customer referral contacts, or product samples… etc. Existing Customer Referral is a good place to start since that if you are able to check with their existing customers, you are most likely to find out the truth about them and whether they are doing a satisfactory job with their existing customers.

Manufacturers come in various sizes and quality, find one that suits you can a headache. They might look all very similar and all present themselves very nicely especially with the help of the Internet, even a tiny and incapable factory can look stunning with the help of a well structured website. So know them by the facts is important! as you want to know whether they are capable of serving you sooner than later.

Given all the choices, you have to know that not only you choose manufacturers, manufacturers also choose their clients. A big problem faced by many new designers are the problem of MOQ (minimum order quantity). If you can buy enough volume from them, they simply won’t talk to you any further. So you need to remember that manufacturers also have the choice of whether they want to work with you or not. But knowing what you need is a good place to start. Then you can filter out most of what’s not suitable first.

… to be continued on Part 2.

This website is established to share my experience on product sourcing with everyone who is interested. Topics like the process from design to final products, essentail knowledge for working with different materials, how to ensure the quality of products, how to find a good manufacturer,… etc.

Most people if not all people sourcing in Asia for the cheaper labor, material… etc. However, if the process of finding a supplier, communicating with them, and working with them is not carefully managed, you might end up wasting a lot of valuable time, money and resources which you could better spend on improving marketing, designs and other core competencies. For seasoned buyers or traders, it is no big deal at all on how to find a supplier, negotiate with them and get the products delivered; however, these experiences are often not shared or discussed open enough for people who justed started out in this field. This website hopes to share with everyone the essential knowledge to make your life easier.

Please watch out for the upcoming posts, it might save you thousands and thousands of dollar along the way. People often say that knowledge is power, and I would like to empower you and equip you with the tool and knowhow to successfully leverage the sourcing resources to your benefit.

If there’s any particular topic you would like to learn more about, I will do my best to provide a satisfactory answer and solve your problem.