The Key to Having a Sourcing Strategy: Build a Checklist
In order to truly allow for the safest possible solution when importing from China, having a solid sourcing strategy is indispensable. A unique, tailored sourcing checklist is a quick way of turning an amateur importer into an experienced one.
Every importer has their own unique approach as to how they navigate the chaos of international trade. Below, we’ve highlighted the basic sourcing strategy all importers should use as a guideline. This will help ensure safety and security when manufacturing and importing from China.
1. Identify a Product
This is the step in a sourcing strategy that often gives sellers the most trouble. Paralysis by analysis is common when choosing a product. Don’t get caught in this trap; just pick a good product that you can improve slightly and go with it. If it’s your first one, use it as a learning experience. In conjunction with deciding which product you’d like to have manufactured, an additional step must be taken to identify all necessary components and specifications. This leads us to:
2. Produce a Product Specification Sheet
Factories could most similarly be related to a construction worker. While it is easy to find a construction team who has the know-how to build a house, they still need direction from an architect to tell them exactly what needs to be built.
The same can be said about a factory. Be sure to have a very detailed list of product requirements put together prior to identifying suppliers. Most product development companies have a standard product specification sheet they fill out with all of the details for the product. This ensures there is no ambiguity when submitting a request for quote to a factory. A product specification sheet, or more accurately a lack thereof, is the #1 reason that sellers encounter delays when manufacturing. If in your sourcing strategy, you don’t know every last detail of your prospective product, how can you expect the factory to know? The more detailed and complete you can make your product spec. sheet, the higher chance of a problem-free production.
Another factor that contributes to manufacturing delays is changing your product details AFTER you’ve started the manufacturing process. Even a small change in a product requires that the process start from the beginning. So be absolutely sure of your product specs before you submit them, because any change will result in delays. Guaranteed.
3. Product Validation
Why waste weeks sourcing suppliers when you’re still unsure of the potential manufacturing costs? Putting together a manufacturing cost analysis and validating your product can save you time and money very early on. Guided Imports recently launched our Product Validation service and it has been one of the most popular services we offer. To date, over 1,800 sellers have used this service to help them better understand the costs and viability of a potential product. Also, during the validation phase, be sure to research any compliance and/or certification requirements for your product. Factories are not responsible for knowing these requirements, since every country they export to will likely differ.
4. Identify 50 – 100 Potential Suppliers
By using our Funnel Sourcing guide, you should make a long list of potential suppliers. Include anyone you think has the slightest potential of producing your products. The greater your sample size, the greater your chances of finding the perfect supplier. We’ve put together a 50+ page guide with downloadable spreadsheets and resources that will aid you in this process. Funnel Sourcing is how professional sourcing companies go about finding the most qualified suppliers, and if you plan to go through the sourcing strategy yourself, you should learn this technique.
5. Narrow Your Suppliers Down to 5
Look for any reason to rule a supplier out (except price, focus on that last!). As it begins getting more and more difficult to rule suppliers out, start getting increasingly strict with what requirements a supplier must have in order for you to work with them. This is covered in our Funnel Sourcing guide as well.
Remember not to settle for whatever is left, if you’re unhappy with your selection, add an addition 20 – 50 potential suppliers to your list and start the sourcing process over again. There are more than enough qualified suppliers in China; you just need to find them.
6. Place Sample Orders
With five qualified suppliers, it is now time to compare their quality output. Order samples from all five, have them shipped to you and begin comparing the key differences. This is the point in your sourcing strategy where you can begin to consider price as well.
It’s important, if at all possible, to order more than just one sample from each factory. This helps ensure they don’t send you the best sample they have sitting around. Tell them you need 5-10 samples for your sales reps or other locations. You can recover the sample costs 2 ways. First, make sure in your purchase agreement you specify that the sample costs are deducted from your final order cost. Second, you can sell your samples on Ebay or Amazon. This is also a good way to test the market as well as get early customer feedback.
If you chose to utilize a Supply Chain Management (SCM) company, like Guided Imports, have the factories send the samples to your SCM. They can then evaluate, review, and photograph the samples as well as consolidate them all into one shipment, thus saving you potentially hundreds of dollars in shipping.
Begin negotiating with your suppliers. First, determine what factors are important to you, and then communicate with your supplier to work towards those goals. Remember, if low price is the most important factor, your product quality will almost always suffer.
Instead of price on your first order, focus on payment terms, additional units to cover defects, special labeling, packaging and prep. If you pressure suppliers to lower price too much, they will find a way to recoup that lost profit by using lower quality raw materials and your product will end up being lower quality than the sample you approved.
8. Identify Your Key Supplier
Now is the time in your sourcing strategy to take all of your suppliers and determine which one demonstrates the most qualifying capabilities. Once you’ve done so, go back to your product specification sheet you made earlier and make sure they can meet your product requirements. If they can’t, it’s usually best to move on. But if you find that there is one or 2 items on your spec sheet that are causing all your potential suppliers to reject it, you may want to re-evaluate that specific detail.
Now is a good time to take a step back and determine if this is legitimately the right supplier. We see a lot of people get so tired of sourcing by the time they get to this phase, they get sloppy and end up going with a supplier out of laziness. When in doubt, take a rest, restart and identify new suppliers.
9. Produce Production Requirements & Purchase Agreements
Whether you prefer a Proforma Invoice or a Production Manual, this is the time to get your documentation together and go over it together with your supplier to ensure everyone is in agreement and full understanding.
Production and purchasing documents should always be written in both Chinese and English and signed by both parties after everything is clearly explained and agreed upon. This is also a great time to consult an International business attorney with experience in Chinese manufacturing. There are a couple of good choices out there. If you’re spending a significant amount of capital, the additional security of an experienced law firm is can be a great way to mitigate risk.
10. Utilize Multi-level Security Check on Supplier Bank Account Details
After your supplier sends you their bank account details, make sure they match the exact name on your contract and on their website. If your supplier sent this information via email, ask them to confirm it via Skype and then again over the phone. We’ve posted an article on how to further verify your supplier.
Scammers are known to hack supplier emails and change the bank account information they send to you moments before an order. Make sure this does not happen to you! If you want to be as sure as you can be, hire a verification service to do an audit.
11. Make Initial Payment
Once you’ve verified everything, go ahead and pay.
I hope you’re not using PayPal – I know you’re smarter than that ;) While Paypal is the default method for many US businesses, Chinese supplier despise Paypal because of the fees. It also alerts them to the fact that you are not a serious buyer. Read the article linked above to learn more about payment methods.
12. Maintain Weekly Production Updates
Be sure to not only check in, but request detail production progress reports on a weekly basis. Make it a constant reminder to inform the supplier if there are any issue, to please inform you as soon as possible so you can calculate delays and resolve issues.
13. Organize Freight Forwarder Collection
Send your shipment details to your freight forwarder, as well as your supplier information so they can arrange collection once the production is complete.
14. FBA Prep and Organization
Make sure your sourcing strategy has a solid plan to have your goods labeled and prepped to Amazon’s requirements. If you decide to use a third party to do this, as opposed to your supplier to prevent them from knowing your sales channel, make sure this is setup before the products have finished production.
15. Quality Control
Be sure your goods make it into the hands of your forwarder and all documentation prepared for them to be delivered to their final destination. This includes all customs information, duties, and fees. A competent SCM will handle all of this for you.
The items explained above are absolutely necessary when formulating a sourcing strategy to find suppliers from China on your own. It can never hurt to add additional steps to the above checklist, as these are what we at Guided Imports consider to be the bare minimum.
To give you an example of our internal sourcing plan, our purchasing agents add an additional 15 – 25 steps to the above list in order to ensure our clients have the safest possible outcome when importing from China.
Sourcing is time consuming and requires the maintenance of a lot of moving pieces. At an incredibly affordable rate, the Guided Imports team can handle all aspects of your operations in China, saving you time, money and giving you the freedom to truly grow your e-commerce empire!
Check out our services to get started today!