Finding the right supplier for your business is key to your import export success. You must thoroughly research and understand your supplier and their product offering so that you can choose the right partnership for your business. Never rush into a decision when sourcing new suppliers as your success depends on your supplier partnerships. Below are a few methods to consider when sourcing new suppliers:
- Research online trade marketplaces such as Alibaba, Global Sources, Made-In-China, Trade India or EC21 to name a few.
- Meet with your local Government’s trade departments. They can usually provide you with useful contacts, give you useful information and keep you informed on upcoming trade and networking events in your country.
- Travel to International trade fairs. This is a more expensive option, but the suppliers at these fairs will take your enquiry seriously and will respond to your questions quickly. This also gives you a chance to visit the factory or showroom at the same time. Keep in mind that most suppliers of a particular type of product will be based around the same city or province because of the origin of raw materials. For example, Foshan in the South of China is known as ‘Tile City’ as it has hundreds of tile factories side by side ready to produce to the world. This gives you good insight on exactly where potential suppliers are based and where to focus your search.
Sourcing suppliers online is a quicker and cheaper option for your business. You can source good suppliers and good quality products online, but you must know what to look for and what to avoid when contacting new suppliers. Below we will give you an overview on the sourcing and communicating process when searching for a supplier on Alibaba.
An Overview of Alibaba
Alibaba is the biggest database of Asian factories in the world. It provides a geat source of suppliers but is not the easiest website to use. The Alibaba website was originally designed in the early 2000’s and has not changed significantly since. Interestingly, the layout of the website looks remarkably similar to Ebay’s website layout, which was designed around the same time. It is badly formatted and takes some time to understand how to use the website properly. The product pricing and details that are listed on supplier’s pages is very broad and you will have to contact suppliers with your exact enquiry details so you can get confirmed pricing and information. Having said that, you can find good suppliers using Alibaba if you follow the right process.
How to correctly source suppliers on Alibaba
Do your research. There will be hundreds, if not thousands of different suppliers that can provide the product you are looking for. Always do your market research and always get confirmed quotes from 3-5 alternative suppliers based on key indicators. When searching for products on Alibaba, make sure you type detailed detailed description of the products you are looking for.
Analyzing Alibaba search results, are you dealing with a factory or trading company?
When you look through a supplier’s page on Alibaba, take a good look at the product categories. Are they trying to sell too many different types of products? If they are listing too many different types of products then it’s most likely that they are a trading company and not the factory that manufactures the product. Factories take a lot of investment to setup production runs for specific products. If you are looking for a supplier for dining tables and a supplier is listing furniture, electronics and handbags, then they will be a trading company. Sometimes dealing with a trading company is fine as they can generally provide you with products in a lower quantity (MOQ) than some factories. It can be hard to control the consistency of quality when dealing with some trading companies as they buy products from different factories for each order. This gives them little to no control over lead times, quality control, packaging etc. Dealing with a factory is always the best option.
Product Details Page
The details of the products that are listed on a supplier’s page will contain very general information. Your product specifications and quantity will vary, so you will have to contact the supplier get the detailed information and pricing that you need.
How to Contact a Supplier
There are a few ways you can contact new suppliers. Click on the ‘Contacts’ page and you will view the company name, address and sometime’s their website. If a supplier does not have a company website listed, then they are probably a very small business or trading company. Always take a look at their company website, does it look ok and reflect the same products that they are selling on Alibaba? You can contact the supplier through Alibaba’s ‘Email to this supplier’ feature at the bottom of the page but it does not get the best results. The best way to get a good response is to find the supplier’s email on their website and sent them an email directly. When contacting suppliers make sure you send them as much details as possible about the products you are wanting to buy. If your email does not contain enough information, the supplier will not take you seriously and will not respond to your enquiry. Find their email address on their website and email them directly. Ask the below questions:
- Always state the IncoTerm you want to buy goods (usually EXW, FOB or CFR/CIF)
- Tell them your exact product specifications – remember that one product can be made in several different ways, so make sure you be as specific as possible – include product dimensions, materials, colors, standards, finishes etc. Send photos or links to similar products that you need.
- What is the Minimum Order Quantity (MOQ)?
- What is the product pricing (state IncoTerm)? Most factories in Asia will quote you in USD.
- Have they sold into your market before?
- What are the packaging sizes and details?
- What is the approximate lead time?
- Do they have samples in stock? What is the cost of samples?
The supplier may have a few extra questions to clear up. When you have agreed on the details, they should send you an official PDF quotation which confirms all information including:
- Full Product Specifications, sizes, colours, materials etc
- Product Pricing
- Port of Loading
- Shipment Type
- Packaging sizes
- Lead Time
- Sample details and Costs
- Product Photos
- Any applicable Standards or certificates relating to that product
Some suppliers will send badly formatted quotes that they made in Microsoft Word or Excel. Good suppliers will use IncoDocs to create correctly formatted Quotations to new buyers. This will avoid confusion and make the enquiry process more efficient.
We all know the saying 'you get what you pay for'. This is often the case when sourcing and negotiating with factories. You can pay a reasonable cost for high quality products required for your market, or you could negotiate pricing well below the initial price which usually results in the supplier reducing the overall quality of the product. When comparing supplier's quotes, if one supplier's pricing looks too good to be true then it usually is. Carefully compare the supplier's Price VS. Quality VS. Specifications VS. Minimum Order Quantity VS. Track Record. Does the salesman understand their product and reply to you quickly? Always compare all of the supplier’s offers in detail as the cheapest option could become an expensive trap. You may narrow your search down to 2 or 3 potential suppliers before moving forward with getting samples made.
Is their MOQ too high?
Sometimes you can negotiate the MOQ down, but be prepared to pay a higher price. Another thing you can do is ask to place a “trial” order of a lower quantity. For example, explain to the supplier that you want to do a “trial order” of a few pallets of products so that you can receive and test them in your market before proceeding with bigger orders in future.
Negotiation is a key factor in the sourcing process. You must understand it's a fine line between negotiating a good deal and receiving products of inferior quality. There will be an element of negotiation involved but you must be careful, if you push a supplier too far on price then they will look at ways to reduce their costs of raw materials, reduce workmanship, quality control checks, packaging, etc. Remember that these factories are running a business so they must also make a profit. To do this you must agree on a fair price so they make products to suit your quality. We have all heard of the horror stories of suppliers ripping off buyers, but most of the time when you look into the finer details, the buyer has negotiated the pricing well below a reasonable cost, which has caused the supplier to cut corners. If their pricing is a little high, you may be able to get better pricing with increased volume. If you have received a quote for a small LCL shipment, ask the supplier for pricing on a full 20’ container of product, or a 40’GP (General Purpose) or 40’HC (High Cube) container of products. Increasing the volume reduces the supplier’s cost in most cases.
You should always negotiate payment terms and purchase order contracts. You may get suppliers to agree to a 50/50% payment or 30/70% payment on completion and photos of finished goods. When you build a good relationship with your supplier over time they may offer for you to make the balance payments after shipment (upon Bill of Lading).
How do you know if you Dealing with a Legitimate Supplier?
Alibaba has been known to be used by some fraudulent companies over time. If you are willing to deal with a supplier then take the time to get to know them well. Who is the person that you are dealing with, are they a Sales Manager? Who owns the company and how long have they been established? Have they exported these products into your market before and can they offer contact details of previous clients? Don’t be afraid to continually call the salesman you are dealing with to get answers to everything you need. When you are getting closer to ordering you should consider visiting the supplier’s factory and showroom so that you can understand their operations and actually meet the people that you are dealing with.
ChinaCheckup.com is a website that provides detailed reports on the background of companies in China. You can complete a form online and get a detailed report sent to you by email within 24 hours. It's well worth getting detailed company background check on a supplier before sending your money overseas.
Calculate the Landed Price of the products delivered to your door
If the Landed Price for your product works for your particular market, then call a deal and move forward with the next stages.
Make sure that you get exact samples made
Some suppliers may seem to have the exact product that you need. The information, specifications and photos that they have sent you may look like it’s exactly what you need in your market. Although the products may look right, you would be surprised in the differences you can get in actual functionality, strength, durability and the materials used - it may be a lot different to your actual requirements. Never proceed with a first order without receiving actual samples made to your exact specifications. If a supplier does not have a sample in stock, you can pay them to arrange a few exact samples to be made and sent to you (airfreight if possible) for testing and checking with your own eyes. Use these in your market, discuss the quality and functionality with your trusted clients, find out how long the products will last, try to break them. Make sure you thoroughly test the samples so that you are satisfied with the end result. Samples will cost a lot more than the agreed production price but it’s well worth it to spend time and money in the beginning to ensure you get the products right the first time!
Confirmation of orders - Purchase Order and Proforma Invoice documents
If you have received samples and want to place a new order, create a Purchase Order document and send to your supplier. The Purchase Order should include details of product specifications, quality, sizes, standards, quantity, lead time and payment term. The supplier will send you back a confirmed Proforma Invoice document which will include bank details requesting the deposit payment as negotiated. Make sure you thoroughly check all details of the Purchase Order and Proforma Invoices, both parties should counter sign each document.
How to Make International Payments
There are many ways to make International payments to overseas suppliers. Do not use Western Union to pay suppliers. Many fraudulent companies have used Western Union to rip off potential International buyers, refer article here: https://www.theregister.co.uk/2017/01/23/western_union_fined_586m/
For smaller orders the easiest way to make payment is to make a Telegraphic Transfer (T/T) into their bank account. You can make a T/T payment through your local bank, they will take quite high fees and give you a bad exchange rate. If you are sending high volumes of money overseas then find a good foreign exchange agent in your country. They will offer you better exchange rates and usually have easier systems to make payments.
For very large orders and shipments, companies use Letter of Credit Contracts (L/Cs). A letter of credit is a document that is issued between the buyer’s and seller’s bank that will guarantee the balance payment of goods will be made when set conditions are met (generally upon shipment Bill of Lading). Letter of Credit contracts are very time consuming and costly and are mainly used for very large volume shipments.
Production lead times will obviously vary with the different products to be manufactured. Remember that factories will not have products in stock ready to ship. Their products are manufactured from scratch and will take some time to properly organize the purchasing of raw materials, manufacturing, quality control tests/checks, packaging and loading for export. A typical lead time is around 25-30 days upon confirmation of a new order. Suppliers will not start manufacturing new orders until the money has actually been received into their bank account – note that International payment can take from 2-5 business days to clear. It’s important to leave enough time for the factory to finish making the goods without being rushed. If you rush the production then you run the risk of the factory making mistakes and shortcuts can be made which will cost you more in the long run. A good supplier will send you photos and updates of the progress of your order. When the goods are finished the supplier will request the balance payment. Make sure you receive detailed photos and videos of the finished products before the are packaged and loaded into containers. If you are happy with the product, make the balance payment without delay as the container will have to be loaded, trucked to the port and loaded on board the vessel. Always plan enough time in and allow for a delayed shipment if necessary.