Sourcing goods from Asia is the go to strategy for many retailers in the west. Despite the ubiquity of this practice, many SMEs still struggle to understand the options available to them. Where do you start? Who do you approach?
We spoke to a sourcing agent to give you a better understanding of what happens on the ground for traders, buyers, and sourcing agents in Asia.
Walk me through a typical order
Sure, it’s actually rather simple! So often times, retailers don’t know who to approach when they're looking to source goods. The market is relatively saturated, and it can be difficult to know who to trust. As a result, most of my current customer base comes to me through word of mouth recommendations.
The process is kick started by any retailer/buyer who has decided that they need to source a particular product from Asia. After I receive the specifications, I’ll go through the details and decide which factories possess the capabilities that warrant further investigation. I’ll then approach the factories that I know and trust. I'll speak to factory representatives about their capabilities and discuss whether or not they can take on the project.
I’ll then return to the retailer/buyer with a few different options with varying differences in quality, price, lead times , as well as other factors that might be relevant to helping the client make a decision.
This is when the client will send me a sample of the product they want. I’ll make notes on the original sample and determine the important features and then send the sample to the factory for them to make a pre-production sample (PP sample). If the client is happy with the result, we’ll move forward.
In China, the client will pay a 30% deposit - with lead times starting as soon as payment is received. In India, 30 days credit is typically offered, meaning that payment will go to the manufacturer 30 days after goods are received. In Bangladesh, it’s usually 60 days credit.
Payment terms are often dependent on the nature of the relationship. For longer, more established relationships, the terms of payment may be more flexible.
When orders are on the larger side, usually above USD$100,000, the parties might look for a letter of credit transaction that happens between their respective banks, hence no cash transactions occur between them in order to maintain their cash-flow.
On my side, I’ll usually charge a fee of around 5-7% of the total value of the order.. By taking this commission, I’m offering a value-added that guarantees 3 things to my customers:
I have a strong supply base in China, India, and Bangladesh, so I’m able to “shop around” on the ground, unlike someone sitting in an office in the UK or the US. I’m able to go and speak with different factories to gain a better understanding of their production processes. Having more quotes on the table will enable the retailers I work for access to the cheapest quotes.
Quality assurance is one of the most important part of a sourcing agent’s service. The agent is responsible for ensuring that the quality of the product fulfills the client’s specifications.
Ensuring that factories have the proper certification to undertake projects is also very important. For instance, I will only work with SEDEX certified factories.
Timeliness is an issue for any supply chain that deals with a logistically complicated industry. The more complex the transaction, the higher the likelihood of something going wrong. Sourcing agents can mitigate this risk by regularly visiting the factories during production and ensuring that things are moving according to schedule.
Because the full payment amount isn’t released until the products are finished and ready to be shipped, sourcing agents have an active interest in making sure that products go out on time.
What are the factories like?
The vast majority of the factories I’ve encountered in China are opened 24 hours and operate on two rotational shifts - a day shift from 8 am to 8 pm, and a night shift from 8 pm to 8 am.
Working conditions are for the most part, quite good. Retailers these days are very concerned with ensuring that they maintain an ethical supply chain, free of child labour and other human rights abuses. This is in part due to consumer pressure, which has encouraged the supply side to up their game to ensure that their entire supply chain is free of abuse. Nevertheless, it’s important for buyers to remain vigilant and invest resources into making sure that factories maintain these standards.
Do you see any cultural differences between different regions?
Absolutely - I deal with factories across China, India, and Bangladesh. I don’t want to generalize too much as each business is different, but there are definitely some underlying cultural differences that should be taken into account.
Chinese factories are different because they tend to care about about volume. It’s not uncommon for factories to give discounts of up to 30% due to a significant increase in order volume. Factory owners outside of China may be more concerned with profit margins, but the primary concern of most (if not all) of the Chinese factories I've encountered is growing revenue. Business expansion has to be a goal for all Chinese factories. In such a saturated and competitive marketplace, growing the business is the only way to ensure long-term survival.
Factories in India are much more concerned with building and maintaining relationships. Because competition is not as fierce, Indian manufacturers generally want to spend more time with sourcing agents and clients before accepting an order. Since clients are given 30 days credit, and factories are only paid 30 days after goods have been received, there needs to be an established relationship and trust between those involved in the transaction.
Bangladesh is an interesting one as well. From a price competitiveness perspective, it comes out on top by an impressive margin. Labour costs are significantly lower than in China and India. Nevertheless, the low cost comes with corresponding risks. Instances of abuses within the system, particularly in child labour, makes Bangladesh a relatively risky production destination . Unless the retailer or their sourcing agent has the capabilities to ensure necessary oversight, the risk of sourcing from there is likely to be outside many business’ risk appetites.
As long as your risks are effectively managed, sourcing from Asia has many benefits. Evaluate your business needs and ensure that you make sourcing decisions that makes the most sense for your business.