Finding the best products to sell in your online store is one of the most challenging aspects of building an ecommerce business. What if you can't find the products you're looking for, or they're priced too high for you to make a sustainable profit?
Those are usually the situations that drive online retailers to source products directly from China. There's only one problem - many retailers don't have the necessary knowledge to source products from China in a profitable manner.
Take the time to do product research
Before you even begin researching potential suppliers, you first need to identify if sourcing from China is worth the additional risk to your business.
According to an article from Supply Management,
"The biggest savings to be made from China are where there is a high labour content in the product. Is there any assembly or sub-assembly that can be included or are you buying a finished product? The higher the labour content, the more savings you will be able to make. Unless you are making savings of at least 10 percent on the total acquisition cost (TAC), including holding stock, lead times increases, additional administration and freight, is the risk going to be worth the reward?"
If you're buying simple products, then it may not be worth the hassle to try and source them from China. However, if you're dealing with products that require a lot of manufacturing processes, then China may be the right place for you to start looking for alternative sourcing opportunities.
You'll also want to make sure that, in the event you do decide to source from China, the manufacturer can ship products according to your specifications (customized packaging, personalized notes, etc.). If the Chinese supplier can't do that, you'll have to find a way to make a States-side operation affordable.
Research suppliers thoroughly
This applies to any kind of ecommerce venture, but especially in China you have to be aware of flakey, or even fraudulent, suppliers.
The top 3 places you can research suppliers at are madeinchina.com, alibaba.com, and globalsources.com. According to a 2014 article from Forbes, these sites contain directories of thousands of China-based suppliers, and allow you to filter them based on credibility.
However, it's important to note that being a verified supplier on the lists from the above mentioned websites only means that the supplier is verified to exist, not that they're verified to be a great, decent supplier with which to work. An example given in the Forbes article says that suppliers who have "gold member" status with Alibaba can actually pay for that status.
Also, you'll have to keep in mind that not all of these suppliers are manufacturers. Some are wholesalers, or retailers posing as wholesalers. If you're looking to manufacture unique products, you'll need to do more in-depth research on the listed suppliers.
The above mentioned Forbes article also has a great list of LinkedIn groups that focus solely on sourcing in China. Those groups can provide you with additional insight for any given supplier you may be interested in.
You'll also want to be prepared by asking potential suppliers or manufacturers the right questions. We recently did a blog post that details 9 questions you should ask any potential supplier.
Thoroughly understand inventory management
This is where things can get pretty complicated. Managing an inventory that's all on one continent is relatively easier than managing one that's on the other side of the globe. You, as a retailer, have far less influence and pull on when products ship, and you'll have a much harder time getting an explanation for breakdowns in shipping processes from China-based suppliers than you will from U.S.-based suppliers, simply because it's generally easier to ahold of U.S.-based suppliers.
Inc has a fabulous article that goes into detail on how retailers can manage a global supply chain. While not all of it is pertinent to SMBs, or even larger retailers, one point is worth taking into consideration:
When sourcing from China you should look into hiring a "business consultant" in order to help you wade through the complexities of taxes, customs, expedited shipping, and finding reliable suppliers and manufacturers. This might cost you a bit more up front, but the results will be worth it if you can find better deals on products and get those products into the U.S. quicker than you would have been able to on your own.
The Inc article also goes into detail about how much of a role sales forecasting will play into your success when sourcing from China.
"Sales forecasting becomes a huge part of successfully managing your supply chain and keeping costs down.It boils down to this: Because moving the goods will take longer in an international scale, a company has to have a pretty spot on idea of how much of that bulk inventory is going to sell—otherwise, you're stuck with products you can't move.
'For example, take a sporting goods company in San Diego that sources from China," says logistics expert Thomas Phelps of Alloquor Supply Chain Consulting. "They have to carry a very large inventory in the U.S. to meet the delivery times the customers' demand. But for the owner, there's suddenly a bunch of costs: inventory carrying costs, or maybe you need a bigger warehouse.'"
These are all valid concerns that need to be taken into consideration if you're going to get serious about sourcing products from China.
Sourcing products from China will present problems that retailers will need to deal with, but for retailers in a position to expand their products line that much, sourcing from China can be worth the extra hassle and money it costs. It's important to have a thorough understanding of how you'll manage your overseas inventory, pricing, and whether or not you'll be saving money by moving some, or all, of your product operations over to China. Once those questions are answered, you can proceed with confidence into the Chinese market.
Photo courtesy Cory Doctorow