How to Source Products from Overseas Manufacturers?
Now I assume you have decided to source products from overseas by yourself. One of the key points I want to convey from a client perspective is that you need to follow a process.
You can’t just browse a website, send a few emails, reply and see where it takes you to go.
If you are looking for a written checklist that you can adjust and follow, you can find an example here. It involves procurement, development, production, and transportation.
But let’s first look at the sourcing process in more detail. It consists of 3 steps:
- Identify potential suppliers;
- Screen these suppliers and verify the final candidates.
- Do quality control
How to Source Products from Overseas?
Here, let’s focus on the 6 steps for how to find overseas suppliers:
1. Draw the ideal supplier profile
Before find a overseas supplier, ask yourself a few questions:
- Do you source new suppliers with powerful engineering capabilities (developing new products)?
- Do you need them to have multiple designs to choose from?
- Do you wish them to focus on low cost? Or high quality?
- How the capacity should they be? This is a very important criterion, and the reasons are described below.
You’ll come across factories that fall into these three classes, which vary widely in performance and price:
3 Levels of Manufacturers
Here’s my general advice on the topic of vendor sizing:
- If your order is very small, you may need to work with a trading company that will place your order in a tier 1 factory and (hopefully) keep a close eye on production.
- If your order is large enough to work directly with the manufacturer but not large enough to interest a large factory, choose level 2 (approximately 250-800 workers).
- Tier 3 is good for you if your order is considered large and you find that big companies are aggressively vying for your business.
2. Go to an Online B2B Directory and/or Trade Show
If you have the opportunity to attend a trade show related to your product category (Hong Kong Sourcing Fair, Canton Fair, etc.), go for it! Ask a few open questions, the goal here is to eliminate any suppliers that don’t fit your ideal profile.
If you can’t attend a trade show in person, you’ll need to use a B2B directory. They function like the Yellow Pages (vendors who pay more to make their products more prominent). For the most part, little effort is made to avoid listing bad apples.
Online Overseas Directories
3. Incentivize Potential Identifying New suppliers to Respond to You
Most suppliers receive too many inquiries and only choose which inquiries they are interested in. Here are some tips to get their attention.
- The first message should be simple and short, less than 8 lines if possible (including the product description), with a very clear call to action (“If you want more information about our needs, please get back to me”) .
- If you have a product spec sheet, share it with them and get their feedback. You should expect them to ask you more questions about manufacturing, such as material specifications, or if they don’t accept your tolerances, etc. If they say “it’s okay,” that’s not always a good sign!
- Then…follow up on their questions quickly and complete your screening process within 8 days. After that, your inquiry will become cold in their eyes.
If possible, make a call to them (most of them have Skype accounts). Show that you are serious and that you invest the time to get to know them.
A Big Mistake to Watch Out for
Some potential new suppliers will offer much lower prices than average. How can that be?
- Some suppliers want to start developing products with you, and they’ll know strategies for raising prices along the way (usually after the deposit wire for the first order).
- Some other cheap suppliers simply don’t know what the cost is. They never make this product even if you find it in their showroom. After you send them a purchase order, they’ll want to know where and how to make it. It’s also a bad sign.
So, How to do it? You may see several very similar offers from different suppliers: this is the “market price.”
Eliminate any “outliers” that make the price 20% above or below the average. (If you are interested in buying above market price for above average quality, please keep the highest offer).
End of Sourcing New Suppliers
Ideally, you have compiled all the information in an Excel spreadsheet with data and comments. (If you don’t have time, please contact me, and I will put you in touch with someone who can help.)
The next step is to screen out the most potential suppliers and dig deeper to verify the last one or two.
4. Request Product Samples
Before you buy anything from an overseas supplier, insist on receiving a product sample(2-10 will be best). The main reason for requesting product samples is to ensure that you review the quality of your products. You don’t want to work with a supplier that is of low quality.
Another reason to request product samples is to be able to show the actual product to potential customers. Taking the time to properly prepare for success will ensure a better outcome. Be sure to request product samples before you finalize any agreement.
5. Finalize the Agreement
You are now ready to finalize an agreement with your overseas supplier. Make sure you have everything in writing, as problems often arise when there is a language barrier. Some of the key points of an agreement between an overseas supplier and a importer include:
Below are the common overseas inspection services:
|Type||Ideal Production Quantity||Typical Timing||Production Risk Mitigation||Typical Duration|
Inspection During Production(DPI)
|Generally for orders>$5,000||After he 1th products comes of the production line||Catches problems as early as possible||1 whole day, to be repeated as necessary|
Final Random Inspection(FRI)
|Any quantity||After entire production order is complete 80% packed||Catches problems before shipment & final payment||At least 1 wholesale day|
Packing & Loading Supervision(PLS)
|At least 1 Container load||As products are being loaded into shipping container||Catches quantity, packing, load issues(not product issues)||2 or 3 containers per day|
|Any quantity||After all goods finished||Catches all defective products||charge by per piece|
|First time cooperation|
6. Hire a Freight Forwarder
Different logistics methods can make a vast difference both in transit time and freight charges. Therefore we always need to determine which shipping method will be the most cost-effective one. The forwarder can keep close touch with your supplier, and keep you informed of everything. When trouble happens, your local partner will solve that asap:
- Pick up
- Collect goods
- Arrange shipping
- Customs clear
The Pros and Cons of Working With Overseas Manufacturers
Source products from overseas is an obvious choice when deciding where to manufacture your product. You are considering overseas manufacturers because you want to produce a quality product quickly and at a reasonable price.
But can source products from overseas work? Sometimes – but it’s more challenging than you might think. The advantages of overseas sourcing are well documented, but there are some drawbacks.
You need to understand the options available to U.S. companies and what to look for. What experts will you call on to find the best manufacturer, and once selected, can they even act as your representative? Finding a partner in China is the most common option, but what about other options from Vietnam and India to more recent alternatives such as Mexico and South America?
Top 5 Advantages of Using an Overseas Production
Many business owners or product development teams will immediately choose to do business with an overseas manufacturer. When you look at the top five reasons entrepreneurs, small businesses, e-commerce sellers and product-focused companies choose overseas partners, it’s easy to see why.
1. Lower Labor Costs
The United States has some of the highest labor costs in the world, which makes foreign countries attractive. In China, labor wages can be a third to a quarter of the cost. In Mexico, it can be one-eighth, and in Vietnam and Thailand, it is less than one-tenth. Depending on how much labor is required to produce your product, these lower costs can significantly impact production expenses, lowering your selling price or increasing your profit margin.
2. Large number of manufacturers
Many countries overseas have large clusters of manufacturers, giving product developers various options. This is especially true of China, which accounted for 28.7% of global manufacturing output in 2019 before the pandemic. When researching options in China, you’ll get a sense of the breadth and depth of companies, from suppliers to factories to wholesalers, that can help you build your product. Other Asian countries and Mexico are increasing the number and variety of manufacturing facilities, giving you more options.
3. Large capacity
One of the most significant advantages of overseas manufacturing is capacity. Overseas manufacturers can scale up quickly and produce large volumes of products in a relatively short period. Depending on the volume of your orders, you can save money through volume discounts and reduced raw material costs. Just make sure you know and can support their minimum order quantities.
4. Proximity to raw material and component suppliers
U.S. factories are often far from the source of raw materials or components for their products, which can significantly increase time-to-market and costs. Overseas contract manufacturers usually have established supply chains and relatively sophisticated access to various raw materials.
If you choose a “Made in USA” product, you may face delays if your product requires raw materials or imported components. The pandemic shows how supply chain disruptions can cripple product manufacturing, especially if raw materials or parts must be exported from the country of origin and imported into the United States.
5. Large pools of skilled talent
The availability of skilled foreign manufacturing workers often exceeds that of the U.S. At the beginning of 2022, there were 859,000 job openings in U.S. manufacturing. While COVID-19 has created labor shortages in other countries, they are not as severe as in the United States. Countries like Vietnam, Indonesia, and Thailand are taking cues from their neighbors like Taiwan, China, and South Korea. They are actively training people in rural areas to become skilled manufacturing workers.
Top 5 Disadvantages of Overseas Production
Even with all the benefits, there are challenges to source product from overseas manufacturers. Here are five issues every product development team should be aware of before sourcing products from overseas.
1. Higher shipping costs and longer lead times
Once products have passed through your offshore facility, you must get them to your market. A large number of manufacturers pushes up demand and freight costs in the region. In addition to paying the shipper, you must pay duties and other fees. These costs often offset the financial advantages of overseas manufacturing.
Unless you want to do business in Mexico, being away from your manufacturing source presents some challenges. It takes time to ship goods from overseas back to the U.S. to meet domestic demand. Pandemics highlight how easily extended supply chains can break down. When considering delays and transit times, you must also consider national holidays. For example, the Lunar New Year affects several Asian countries, and complete factory shutdowns can last a month or more.
2. Lack of oversight
You can only attend a few face-to-face meetings with overseas production to negotiate terms, resolve issues, and oversee quality control. Without being present, building relationships is more challenging, especially in countries where face-to-face interaction is highly valued. Regular travel is often cost-prohibitive and can deplete savings from working overseas.
One way to overcome this challenge is to work with a product development partner or specialist who can assign local representatives to your account. Whichever facility you choose, they are your eyes and ears, providing local supply chain management and performing the quality control tasks you would perform if you were on-site.
3. Language and cultural barriers
You may find language and cultural barriers when working with overseas manufacturers. This can present challenges when negotiating contracts and pricing, understanding workflows and ethics, and respecting cultural differences.
4. Customer service issues
Think about what happens when there is a problem or a failure to meet your quality standards. What if your customers or retailers wait and are ultimately disappointed? If a customer complains about delays or quality issues, you are responsible. When working with an overseas manufacturer, you manage your customer service. Consumers don’t care if the problem is a manufacturing issue or not. They see your brand, and you need to fix it.
5. Safety Hazards
Worker and environmental safety should always be an issue. Only some countries/region values employee safety or environmental standards at the same level. Finding manufacturing partners known for following good labor practices, implementing safety programs and protecting the environment should all be part of your review process.
You can save time by working with a partner who has established relationships with pre-screened facilities. They will be able to guide you to the most reputable companies to save you time and the potential hassle of working with manufacturers that pose more risk than they should.
10 Tips for Sourcing Products from Overseas
When working with overseas suppliers, you can’t expect them to think the same way you do. Western thinking and Eastern thinking are very different, and you can’t force Western thinking onto your suppliers.
It’s easy to get frustrated by mis-communication. To help you be prepared, here’s a list of the top 10 mistakes sellers make when source products from overseas
#1: Don’t thinking that a factory, trading company, sourcing agent, manufacturer, and supplier are all the same thing.
There are a lot of terms to keep track of in this industry, and a lot of them have some overlap, but knowing what’s what will save you a lot of frustration.
A factory is the location where your product is built, whether by people or machines.
A trading company is a middleman. They find the supplier for you and they ship you the product, but before they ship it, they raise the price a bit to make their own profit.
A sourcing agent is similar to a trading company, but not the same. They’re more like a liaison. Sourcing agents might put you in direct contact with different factories, or vet multiple suppliers to find you the best price. They also usually provide factory and product inspections, and shipping and logistics opportunities.
The terms manufacturer and supplier are used very loosely. They could overlap with any of the previous three terms.
Then we have what they call manufacturers and suppliers. These are used very loosely. As a general rule of thumb, they could be any of the previous three. Often a manufacturer is synonymous with the factory, while the supplier is even more broad.
#2: – Don’t evaluating the price only
With all quotations in hand, it’s time to select the suppliers. Although prices impact business profitability, it’s important to consider that the cheapest supplier isn’t always the right one. On the other hand, the most expensive supplier isn’t a guarantee of the best possible services.
Instead, it’s better to address issues related to quality, flexibility and delivery experience in that particular area. This will provide a fuller idea of how the provided service will be, and will prevent you from receiving something cheap, but very unsatisfactory.
Beware also of those not-to-be-missed offers. If the product proves to be of quality and the provider company is a large-sized one, a price far below the market’s may be a sign that there is something wrong.
#3: Don’t trying to negotiate on shipping.
There’s a big difference between comparing shipping prices and trying to negotiate on shipping. There’s only so much suppliers will be willing to negotiate with you on shipping, because they have to charge a minimum price. Sometimes, they’ll charge you exactly what shipping costs them, and sometimes they’ll charge you a little extra, because they have to make money, too.
Trying to negotiate on shipping might make a supplier think you don’t know what you’re talking about, and then they’ll be less likely to want to continue working with you. So, don’t negotiate on shipping; just compare shipping prices between a few different suppliers to find the best deal.
#4: Don’t thinking that most suppliers on Alibaba are factories.
A lot of suppliers on Alibaba will tell you they’re factories, even if they’re not, and that’s normal. For them, it’s just good business. But the majority of them are probably just trading companies who have bought their products directly from factories and raised the price a bit to make a profit when reselling them.
#5: Don’t assuming a supplier must be a factory because they call themselves a factory.
Just because a supplier shows you pictures of a factory doesn’t mean they’re really a factory. Nowadays, you can build a website and put whatever you want on it – and so can suppliers. But that doesn’t mean they’re trying to cheat you or scam you. They just know that Western brains think going directly to the factory will get them the best price. However, that isn’t always the case.
#6: Don’t thinking that working directly with a factory means you’ll be paying less.
Often, trading companies can offer you better prices than factories. Why? Because they have great relationships with factories, so factories give them better deals. If you’re new to working with a particular factory, it’s going to take time for you to earn their trust and build a good relationship with them. Factories won’t start giving you better deals on products until they trust you. However, factories already have good relationships with trading companies, so trading companies get better deals. Then, those trading companies pass those deals on to you.
#7: Don’t thinking it will only take a month to get your product sourced and shipped to Amazon’s warehouse.
If you’re building a highly customized product, it’s obviously going to take time to build. Expect custom products to take up to six months, easily, from the start of product research all the way to the day you ship your product to Amazon FBA. In this case, I highly recommended using a sourcing agent to help walk you through the process.
Even if you’re not building a brand new product, research, differentiation, production, and shipping still take time. Budget at least two to three months for sourcing and shipping your product.
#8: Do working with a sourcing agent
Particularly when you are starting out with your Amazon selling business, it is important to get the guidance and support from the right experts. Failing to do so can expose your business to serious risks, including fraud, product quality issues, and legal risks.
A China sourcing agent is well-versed in all aspects of sourcing products from China for Amazon sellers and offers assistance throughout the process. Starting with selecting the right supplier, negotiating the best price, and shipping the order; even experienced sellers benefit by working with a reputed sourcing agent.
As the sourcing agent has an office in China, not only can they carry out a visual inspection of the manufacturer’s facility but they can ensure a fair deal while building a strong relationship with the local supplier.
The sourcing agent also conducts a factory audit and performs an objective assessment of the staff, equipment, processes, automation and management structure, as well as other factors such as social responsibility or sustainable sourcing.
#9: Don’t assuming that just because you signed a contract with a supplier that they won’t share your idea.
What if, a month after you launch your newest product, you see it being advertised by your supplier, and by twenty other suppliers on Alibaba? Don’t ever assume suppliers are going to honor your contract. Instead, find ways to de-risk yourself.
One way to stop your product from getting hijacked is to have one supplier build all the pieces of the product separately. Then, have those pieces shipped to you and assemble the product yourself. That way, your supplier doesn’t know what the product actually looks like. The final product is yours alone.
Another easy way to de-risk yourself is, of course, by differentiating. Add accessories and extras to your products, and they’ll be harder to duplicate.
#10: Don’t assuming there is something wrong with a supplier who won’t drop the price until you meet a certain MOQ.
Imagine you’re shopping for coffee. You go to Wal-Mart and you buy a bag of coffee beans. Then, you go to Sam’s Club and buy a massive bucket of coffee beans. When you break the price down, the cost per bean at Sam’s Club will be much lower than the cost per bean at Wal-Mart. Why? Because you’re buying a greater quantity of beans. Buying things in bulk is cheaper. The supplier wants to know the time and labor spent building your product is going to yield a big enough sale to be worthwhile. Suppliers won’t lower their MOQ if it isn’t worth their time.
Overseas Production Conclusion:
These are a few of the most common mistakes sellers make when source products from overseas. It’s important to learn how to work effectively and efficiently with suppliers, so you can get your products up and selling as quickly and easily as possible.
Thanks to globalization and the internet, there are seemingly limitless opportunities for sourcing products from overseas. By following these simple steps, your importing experience will grow and you will eventually be on the road to find overseas suppliers.