Sourcing Goods from Overseas: Guide for Beginners
Sourcing goods from overseas can be difficult and stressful. However, manufacturing overseas makes a lot of sense for businesses looking to grow revenue, increase gross margin, and improve quality. Taking this step requires careful planning and execution. The objective of this guide is to give a brief overview of how to source, evaluate, and select overseas manufacturers.
Tools for Finding Suppliers
Trade Shows
Attend trade shows to meet suppliers in person and discuss prospective relationship. Different industries will have their main trade shows. Use Google to find when and where they take place. Many overseas suppliers attend these trade shows as a way to showcase the products they can produce. Starting a relationship in-person is a great way to get off on the right foot with a supplier.
Online Platforms
Alibaba, ThomasNet, Global Sources, and ImportYeti are all platforms that can help you connect with overseas vendors. As simple as it is, even Google can uncover valuable information by itself or when used to augment other tools.
Existing Network
As long as there aren’t conflicts of interest, ask current suppliers. Even a packaging supplier may know apparel, bag, shoe, and materials suppliers. Nothing is lost by asking. Any lead is a good lead at the beginning of a sourcing project.
Government Resources
Use resources such as the US government’s Gold Key Service and financial support programs.
By using these tools, businesses will usually be able to start a potential supplier list.
Initial Vetting and Comparing
Once a list has been made it’s time to start vetting and comparing options.
Request Quotes & Product Samples
Request quotes to ensure suppliers are able to produce goods according to the gross margin goals the business has. Suppliers will give quotes in EXW or FOB terms. This means the business will need to calculate duty, tariff, and shipping costs to determine landed costs: the cost it takes to produce and deliver the cost to a specific destination like a warehouse.
Request samples to assess quality. Samples will give a good idea of what a supplier is capable of. Depending on the complexity of the product there may be many sample rounds that take place. We’ve found that it is best to keep suppliers engaged during sampling by giving them assurances that once sampling is complete they will receive a purchase order of a certain size. Suppliers don’t want to waste their efforts on people they believe are just “kicking the tires”.
Tip: Ask suppliers about the possibility of refunding sample costs once an order is placed. This not only provides an incentive to the supplier, but also fosters a positive relationship between the two parties.
Compare Options
Compare cost, quality, and ease of communication from various providers to find the best option that meets business goals. Is this a high-end product? What level of quality will customers expect? What are gross margin goals?
Oftentimes how suppliers communicate during this process is an indication of how they will communicate later in the relationship. If a supplier is slow to respond or they evade questions or give vague answers, understand this will most likely continue. Poor communication can later lead to poor quality and delays.
Think Ahead
Business needs will change. The supplier’s customer base will change. Order quantities will change as sales increase or decrease. The future is uncertain and not all factors can be accounted for in advance. However, some planning and communication now can prevent a lot of pain in the future. Set clear expectations with suppliers and listen to their expectations. Commit to a partnership where each party is willing to adapt as circumstances change.
Visit
When possible, if the business that will be done with a supplier is significant, we recommend visiting the supplier. Depending on where the supplier is located this can be a significant investment of time and money, however, it is usually worth it. A picture is worth a thousand words and a supplier visit is worth a thousand emails. One can quickly figure out the quality of a supplier with a visit. Visits can also drastically cut down on the time needed for sampling by being able to go through multiple sample rounds within a day or two instead of one sample round every few weeks. Actually meeting and spending time with supplier representatives helps build trust that can’t be built in any other way.
Price is Not the Only Factor
When choosing overseas manufacturers it is easy for businesses to focus on product cost as the most important criteria. It’s natural to gravitate towards that quantitative measurement because other criteria can be more difficult to evaluate. However, businesses can find themselves in hot water if cost is the primary evaluation criteria when product quality is not met or a supplier is found to use unethical business practices.
We advise businesses to consider the following three criteria jointly with cost:
Quality Standards
Ensure that the suppliers meet quality control requirements and have a proven track record of manufacturing high-quality goods.
Compliance
Ensure that suppliers follow labor laws, environmental standards, and ethical principles. While not always a perfect gauge for compliance, identifying other companies that suppliers work with can help give valuable insight. Use a tool like ImportYeti for this.
Capacity and Capability
Evaluate the supplier’s production capacity, technological capabilities, and ability to satisfy volume and quality specifications. If sales drastically increase, will this supplier be able to handle increased order volumes or will revenue growth be limited?
Conclusion
Businesses can handle the complexities of sourcing goods overseas with confidence if they follow the right steps and use good tools. This guide has to outlined some of those steps and tools. Businesses can do these things alone, however, if help is wanted, at SCG we guide businesses through the process of sourcing, evaluating, and selecting suppliers and then create management systems to ensure efficiency in product development and production. If this fits your business’ needs, reach out to us to explore how SCG can help.
