4 Things New Businesses Need to Know About Global Sourcing

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The challenge of sourcing is something all businesses face. However, new businesses, in particular, need to develop a comprehensive understanding of global sourcing prior to jumping in headfirst. After all, if you don’t understand what’s happening each step along the way, your profit margins are bound to diminish.

1. Finding and Researching Suppliers

Finding and Researching Suppliers

While there’s something admirable about working with American manufacturers and suppliers, it’s typically not very cost effective. As a result, the majority of businesses turn their attention to the East. In fact, most turn their attention so far in that direction that they end up sourcing from Asian countries like China, Japan, and Taiwan. And while suppliers in these countries are quite cost effective, you need to focus on finding the right one. As you’ll soon discover, the cheapest option is rarely the best choice.

Finding the right supplier for your needs requires careful and thorough research. The good news is that it’s now easier than ever to find, contact, and communicate with suppliers all over the world. For starters, you’ll want to try these avenues:

  • Sourcing platforms. There are a number of popular online sourcing platforms that can get you in touch with potential suppliers. Alibaba is probably the most popular, but others options include Made-in-China.com and Global Sources. Each platform has thousands of suppliers and represents a good place to start.
  • Trade shows. If you’d rather meet suppliers in person before negotiating deals and researching options, then you may want to visit one of the many trade shows that happen each year. These shows allow you to develop personal relationships, as virtually all suppliers will have representatives on hand.
  • Online reviews. The third way to find suppliers and learn more about them is by reading online reviews. There are hundreds of different social media groups, message boards, and websites dedicated to ranking suppliers and discussing personal experiences. If nothing else, you can use these reviews to narrow your options.

There are a number of other methodologies for finding and researching international suppliers, but these three approaches are most commonly used by business owners who are strapped for time.

2. Negotiating Prices

Negotiating Prices

Contrary to popular belief, you shouldn’t negotiate prices and then find suppliers who meet your price demands. Instead, you should find suppliers and then negotiate price with the individual supplier.

The reasoning here is that it’s more important to have the right supplier than it is to have the right price – at least in the beginning. You can always go back and negotiate a better price later. However, if you launch with shoddy products, you may not have a second chance to reevaluate where you stand.

While there are dozens of tips and tactics for negotiating prices, there’s perhaps no better piece of advice than the suggestion Derek Johnson, founder of Tatango, gives. In his opinion, “There’s no better position to be in when negotiating a price than to know what it cost the guy on the other side of the table to make what he’s selling. By figuring out the cost to make the product, you then have a much better idea of how much wiggle room you have in regards to negotiating.”

3. Recognize Good Opportunities

Recognize Good Opportunities

According to import and export expert Laurel Delaney, there are a number of things you need to recognize if you want to make global sourcing a success. If you follow this “five-point strategy,” even new business owners can experience positive results the first time around.

Delaney’s first piece of advice is to only source from countries with low labor costs and good quality control laws. Some suppliers from small countries will boast low labor costs, but this cheap price needs to be coupled with stringent quality control regulations in order to be worth your investment.

Second, you should only source from countries where you’re able to jump on a commercial flight and show up with relative ease. This gives you a certain peace of mind and ensures you’re able to communicate in-person, should the need arise.

Third, it’s always wise to source products from a country where you understand the language – or at least where English speakers are common. Fourth, it’s smart to source from countries that have intellectual property and legal protections.

Fifth and finally, you should only source from companies that you trust. This is often a subjective measure, but it’s important that you feel a connection before reaching an agreement. Even when everything else lines up, you need to ensure positive rapport exists.

4. Accounting for Landed Costs

One thing that new business owners often forget when involving themselves in global sourcing for the first time is that the price your supplier gives you isn’t necessarily the total price you’ll end up paying. You must account for what’s referred to as “total landed cost.”

In many cases, landed costs – which include transportation, brokerage services, banking fees, customs and duties, insurance, taxes, financing, and other unexpected costs – can account for up to 40 percent of your product costs. If you aren’t prepared for these expenses, you’ll end up with little or no profit margin on the backend.

Contact QStock Inventory Today

At QStock Inventory, we understand that international business comes with risks and benefits. While sourcing from foreign suppliers is generally very cost effective, it also comes with hidden expenses and fees that many first-time business owners aren’t prepared for. These expenses can make or break your ability to grow.

As a result, we believe it’s important for business owners to understand what they’re getting into. This means top-to-bottom visibility is a must, and is why we’ve spent years developing an inventory management solution that helps businesses calculate expenses, track shipments, and manage inventory – all from a single, streamlined platform.

If this is something you believe your business could benefit from, then we would love to talk to you. For additional information regarding QStock Inventory and how we can help you improve your logistics, please don’t hesitate to contact us today. We would be happy to sit down and discuss your options in greater detail.

Justin Velthoen

Justin Velthoen

Justin Velthoen has 20 years of supply chain experience, from food distribution to manufacturing, to systems management and implementation. His primary focus is helping businesses realize the cost savings directly to their bottom line.

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