Know your business needs
Be picky when it comes to choosing a supplier. This is someone you want to develop a long-term relationship with to allow your business to grow. There are several ways to source your products, but it all depends on your business needs. Choosing a manufacturer or supplier directly impacts the money in your pocket. For this reason, you should consider all your manufacturing options before deciding what’s right for your business model.
The three main options are dropshipping, wholesale or domestic sourcing, and overseas sourcing and manufacturing. With the last two, you have the option of creating your own brand and logo to put on your product. This is often the difference between your business staying small, and the ability to scale quickly and efficiently. They all have pros and cons which we’ll discuss below.
Dropshipping
Many first-time sellers choose this option to start their business. It requires the least amount of money to launch, and your operating costs go down considerably since you are not managing inventory or paying for storage fees. You can also offer many different products since you don’t have to store any inventory or worry about order quantities. You just pass the order on from your customer to your dropshipper, and they take care of the rest.
However, dropshipping doesn’t allow you to inspect your products or the packaging. You will never physically hold the product in your hands, and therefore there is no quality control. This is especially risky if you don’t have a good relationship with your dropshippers yet. Or if you haven’t done enough research on the quality of their products and their operations workflow. You have to trust that the dropshipper will ship products on time and in good condition. This puts you in an awkward position when you need to provide customer service and you’re not sure what went wrong.
Overseas sourcing
The biggest online sourcing platform for overseas markets is Alibaba. It is a business to business marketplace where you can buy products from suppliers, and also customize them to showcase your brand. Alibaba serves as the middleman to help connect you to manufacturers. Most manufacturers can also make changes to and improvements on the product for you. DH Gate is a similar platform where you can find suppliers with slightly better prices. They also offer a lower MOQ (Minimum Order Quantity) than Alibaba. It is more buyer-centric than Alibaba and has some protection for your payments. But do your research well and don’t settle for an inferior product to save money short term.
Unfortunately, your IP is not as safe in, for example China, as it would be if you were sourcing locally. But if you create a strong brand, your product will stand out above any counterfeit products based on your designs.
Domestic sourcing
Often referred to as “wholesale” sourcing, is sourcing from manufacturers in the US. It has its advantages. You don’t have to worry about the certifications for safety and quality control expenses since this is taken on by the wholesaler. If you buy products in bulk, you can get a considerable discount. It is still more expensive than sourcing products from abroad, but you don’t have to find a prep center or freight forwarder and pay custom and shipping fees. There’s a lot of hoops you don’t have to jump through. And a lot of risks that you are avoiding.
These days there are also suppliers who manufacture products overseas and sell them wholesale to domestic buyers. This has driven the price of wholesale goods down, since it is still cheaper than making the products in the US, and some products just aren’t made locally. To find these suppliers you can visit trade shows, search online, or go to a competitive brand’s website to find out who their manufacturer is. WholesaleCentral.com has lists of all the tradeshows by industry. You can also google suppliers online and start an online arbitrage business.
Do your research
Before you even start looking for suppliers, you need to know exactly what you want. If you don’t, you’ll get distracted by the number of products out there. If you’ve done your product research correctly, you will know the exact product you want. You already have a design, and you know the dimensions, features, or ingredients if you are selling a skin care product. You’ll need to provide all these details to the suppliers you are considering, to establish whether they can produce the product to your specifications.
You will also need to find out if they provide custom packaging options. You’ll need to differentiate your product in its packaging as well, to give the customer the best experience. Some suppliers will claim to provide packaging services when in fact they get a third party to do it. Since they will have their markup as well, this might turn out to be more expensive. Consider going with a separate company that specializes in packaging designs.
Look at the payment options given by the supplier. Domestic suppliers will have far more secure payment options since you don’t have to do any international transactions. As for overseas sourcing, most established suppliers who have had a lot of contact with Western clients will have options such as PayPal or Trade Assurance in place. Proceed with caution if your only options are wire transfers and Western Union. You won’t be able to get your money back if something goes wrong.
Look at prices and their minimum order quantity (MOQ). Don’t step into the trap of going with the cheapest supplier. Overseas suppliers might be cheaper, but consider carefully the industry you’re in. There are certain standards and certifications that products need to pass before they are considered safe for the American market. Sometimes overseas suppliers don’t adhere to these standards, and you could lose your whole shipment at customs.
Order samples from the top suppliers if you feel you need to test their products first before you go ahead with your MOQ purchase. Compare the samples and decide what you are getting for the price. You can also ask for a customer referral so that you can follow up with one of their former customers on how reliable they are. Make sure that the supplier can provide you with a tracking number for the orders.
Understand lead times
Lead times are extremely important when it comes to managing your inventory. You don’t want to run out of stock and lose sales, but you also don’t want so much inventory that your storage costs go up. Especially if your stock doesn’t move for 6 months or more.
This is usually more of a concern with overseas suppliers. Since sea shipping can take six weeks and air freight is very expensive, you must juggle your options and look at how the shipping costs are going to affect your profit margin. Then look at the potential revenue you could lose by running out of stock and make your decision.
Domestically it is much cheaper, and less of a headache to deal with. There are several reliable shipping companies in the US that can take care of your whole supply chain.
Understand negotiations
When you’ve decided on your supplier, approach them in a professional manner. This will differ greatly with domestic vs overseas sourcing. The cultural differences and language barriers make communication and negotiation challenging when sourcing from China for example.
Whether domestic or overseas, you are going to want to see samples. And the negotiation process starts there. Be professional, you want to establish a long-standing relationship with a supplier you can trust, and you should tell them that. Then you’ll ask their price for your MOQ and ask what the shipping rates will be to your address.
If you want to make customizations to their product, you will ask if your specific requests are possible, and how much extra it will be to make those changes. This would include putting your branding on the product. Make sure your emails are short and clear. When dealing with overseas suppliers, they might be using translation programs. Locally, people also just don’t want to read an essay in an email format.
Ask for the deal. In some countries, it is considered rude not to negotiate. Don’t be unreasonable. Give a number that benefits your profit margin, but doesn’t have the potential to hurt the relationship, or get shut down completely. If they say no, then no harm done. At least you asked.
Philip Murphy is the Digital Marketing Manager at Private Label Sk.in.
Phil is passionate about helping eCommerce sellers succeed by providing information on manufacturing and fulfillment services. In his free time, he spends his time seeing live music, traveling, and finding new restaurants.