1/ What is a Sourcing Agent?
A sourcing agent is a contractor or company that helps you find and vet suppliers, request quotations, request samples, oversee production, conduct or arrange factory inspections, ship your product, deal with problems, negotiate on your behalf, and more.
Essentially they are your eyes and ears on the ground in China.
The two types of sourcing agents and which one is the best fit for your amazon FBA business.
The first is a one-man/woman show.
They don’t have any employees and are running their business entirely themselves based on their experience and network of suppliers and partners.
The strength of this is that it can be a more bespoke experience.
They may be specialists in one particular sector such as textiles and they can go deep into their network to help you if that’s what you are looking for.
The weakness of one person sourcing agents is that they may have limited bandwidth and resources, so they cannot take on many clients.
They may be more selective with their clients, and if you are not a great fit (e.g., you’re a newbie or wrong industry), they may not be able to help.
The second type is a sourcing company or trading company.
This is a real company with an office and employees and is led usually by a founder who has a background in sourcing.
Some of them may have been around for many years and others may be new.
The advantages of sourcing companies include having more people with different areas of expertise so they can help source products from more industries and from more areas across China.
Also, they will have more staff to take on more clients, so they may be more willing to work with different types of sellers.
In other words, they are not limited by lack of manpower.
The downside to sourcing companies is that you may receive less individual attention than if you were working with the owner directly.
Usually, the staff may communicate in English well but be less experienced in the actual sourcing side of the business.
This means that they may be more of a go-between or basically an interpreter between you and the actual factory rather than someone that can draw upon their expertise to help guide you in your sourcing and product development.
Other times there may be team members with more expertise and they will be working closely with them to help you with your sourcing needs.
2/ Why work with a sourcing agent in China ? Why not do it yourself?
Pros of working with a sourcing agent in China
- PRICING – Sourcing agents can potentially get better pricing for you even with their fees. This can end up saving you money.
- FIND SUPPLIERS – They can find suppliers for you – sometimes find ones that are not on online sites like Alibaba.
- NEGOTIATE with suppliers on your behalf. If you hate negotiating then this is a big plus. This can also save you time from having to personally go overseas and spend weeks or months of your time on the road.
- QUALITY CONTROL – Handle quality issues, one of the most critical aspects of sourcing. The best agents/companies have a bulletproof system for QC – this means you won’t order 5000 units of an item and THEN realize it’s not up to your standards, so this can save you a ton of head times, time, and money.
- CULTURE – They know the culture. They know how to build “Guanxi” (building better relationships to build a better business). For example, in China, you can find local sourcing agents who already have a built-in network of suppliers so they can help you establish the initial relationship with new suppliers.
Or if you already have suppliers, they help communicate and build trust and confidence with your suppliers in their own language and culture.
This helps build a stronger relationship with the supplier so when problems arise the suppliers will be more willing to work with you, they will put more effort into your orders, and they may even be more likely to accommodate you when you negotiate for pricing, terms, packaging, and other factors to benefit your business.
- SAMPLES – They may be able to quickly and inexpensively collect samples from multiple suppliers in China and check them for you. Domestic China couriers are very fast (1-2 days usually). They can also ship multiple samples to you in a single shipment rather than individual shipments to save you money.
Cons of working with a chinese sourcing agent
- Trust – can you trust them if something goes wrong? For example, if there is a problem that comes up during a Pre-Shipment inspection how do you know that the sourcing agent will be on your side?
Would they be incentivized to “let it go” so that the order can ship and they will collect their service fee?
- Fees – There would be additional fees that come with having a Sourcing Agent and getting their service. These fees may be worthwhile because a good sourcing agent can free up your time and mental stress from having to handle the day-to-day back and forth withoverseas suppliers.
Moreover, if you find a good sourcing agent, the value they bring (finding a great supplier, consolidating and checking samples, order fulfillment, and management, quality control, relationship building, negotiating, etc) will have a positive ROI on your business for the reasons mentioned above.
- Initial time investment – You need to spend time vetting and researching your Sourcing Agent to ensure quality service and that they best fit your business. It may take several weeks for you to search for and screen candidates.
The good news is that with this checklist you are already ahead of 90% of the people out there!
3/ How do you find a sourcing agent in China ?
Similar to finding a trustworthy supplier or hiring an “A player” contractor, it takes some time and some work to find and vet a sourcing agent
Where do you find them? Here are the top places you can look for sourcing agents
Online sourcing sites – RECOMMENDED
You can also find sourcing agents by looking for a box that reads “Trading Companies” in the search results.
The exact language may vary depending on the sourcing platform For Alibaba, click on “general trade agents” as a category.
For Alibaba, click on “general trade agents” as a category.
For Global Sources, click on “Trading Company” as a business type.
Trade Shows – RECOMMENDED
Traditionally trade shows such as the Canton Fair are a great place to meet sourcing agents in person.
This way you can look them in the eye, see some of their products, as well as get a “feel” of potentially working with them.
Sourcing agents and trading companies may have booths at trade show that you can visit.
I recommend you attend either large Trade shows like Canton Fair or industry-specific trade shows.
NOTE: As of early 2022 – China is in the midst of the pandemic and travel there may not be possible.
Online Job sites – HIT OR MISS
Upwork.com and other online job sites are another way you can find potential sourcing agents to work with.
Like finding any job candidate it’s up to you to create the job ad, screen candidates, and spend time deciding who is the right fit for you.
This may be hit or miss depending on what you are looking for.
Facebook Groups – NOT RECOMMENDED
There are many many Facebook groups for Ecommerce and Amazon sellers and that’s beyond the scope of this guide.
Oftentimes there may be Sourcing Agents lurking/participating in these groups and they may or may not be good candidates.
The good sourcing agents are usually too busy helping their clients to have time to post in FB groups about their services.
Youtube – HIT OR MISS
Youtube is the second largest search engine in the world after Google.
There are a number of sourcing agents and companies that create videos on youtube.
Although it is not a direct listing of sourcing agents, you can find sourcing agents that “know their stuff” or perhaps have experience in a particular industry this way and you can then contact them.
This is an indirect strategy but I know a number of sourcing agents that are active on youtube so it may be worth spending a short amount of time after you check the recommended resources above.
Referrals – HIGHLY RECOMMENDED
This is my favorite way to find sourcing agents. Similar to finding a good dentist, mechanic, or accountant, word of mouth is very powerful, and it helps separate the wheat from the chaff.
If someone has had a positive experience with a sourcing agent and can share that resource with you then I would definitely set up a call or email to ask them questions to see if they can help.
4/ The 12 questions you should ask a sourcing agent in China
Once you have your potential sourcing agents, try to get as much information as possible.
Interview them through email or set up a call (Zoom, WeChat, Whatsapp) with specific questions, and analyze their responses.
- Can you manufacture this product (provide detailed specs and photos)?
- Please give a short company introduction. How long have you been in the sourcing business? Which industry do you specialize in?
- What part of China are you located in? Are you located in the area where our products will be sourced?
- What scope or range of service do you provide as a sourcing agent? More specifically – What stages of the whole sourcing/purchasing process do you get involved in, e.g. finding supplier only, up to the completion of production, etc?
- Will you share the names, addresses, and contact info of the factories with me? Can I visit them (after the pandemic)?
- Will you be able to visit the factories before/during production?
- Do you do quality inspections yourself or hire a third party? How would data be reported and updated to me?
- Will I get an update every week on the production status?
- Can you share your management system?
- What guarantee do you offer in case of defective products? And if a supplier’s shipments are behind schedule?
- What is your fee structure? How will you get paid? Will you collect any payment from the factory/supplier?
- Please provide 2 references (Name and contact email) from prior customers.
How to shortlist them?
I will refer to the questions above as Q1, Q2, Q3, for short.
To shortlist suppliers first, I would search for suppliers based on their product portfolio.
I would use the online sites mentioned above and search for the product I want to source.
Next, I would look at their product catalog to make sure that my product is heavily represented in their selection.
For example, if I’m sourcing a cotton stroller organizer (bag) then I want them to have a lot of similar type stroller organizers and bags. I would not want to work with a supplier that is focused on a totally unrelated industry like electronics or furniture.
Then I would contact them with the questions above.
I wouldn’t necessarily ask all questions at once (could be overload and they may not reply).
I would focus on the key 4-5 most important questions to your business first, gauge their responses, and follow up with additional questions.
Here’s a breakdown of how to interpret their responses.
Q1 and Q2 – look for a sourcing agent with at least 3-5 years of experience, preferably more.
You don’t want a rookie who’s learning the ropes at your expense. If they are just getting started, cross them off the list.
You want the sourcing agent to be located in a region of China that is close to where your product is manufactured.
For example, if you are looking to source electronics you most likely need to look for a sourcing agent based in or around Shenzhen where most electronics factories are found, and in an area like Yiwu which is more for commodity and gift-type products like Halloween costumes.
Q3 – The scope of work depends on you.
One tip is you may want to consider outsourcing the pre-shipment inspection to a 3rd party as sometimes it may be a conflict of interest to have the sourcing agent do it for you if they are sourcing the product unless you have a high level of trust.
The ultimate question is, if there is a product quality problem will they work with you to get it fixed, or will they lean towards “letting it go” so the order can go through so they can get paid.
If you get a 3rd party inspection, there is no conflict of interest.
Q4 – Ideally, you want to know the names/addresses of the factories so if anything goes wrong, you have some recourse.
And this way you can visit the factory yourself in the future.
Q5, Q6 – See Q3. If there is a large order or an important mold being developed you want the supplier to be able to visit the factory, take pictures, meet with management, etc.
Q7 – It’s always good to get frequent updates during production.
All sourcing agents should be able to do this. The good ones do it without you having to ask.
Q8 – This is more of a test to see if they have a management system in place. A commonly used management system is ISO 9000. This is not a deal-breaker if they don’t have it as some sourcing agents do things in an “ad hoc” way which is fine so long as they do have a management system.
Q9 – If they have zero guarantee then cross them out. You want them to have some sort of quality guarantee to prevent defects and have some kind of recourse when faults do occur.
Q10 – In terms of the fees, it really depends on the scope of service.
The more they do for you, the more you can expect to pay.
A ballpark figure can be anywhere between 3-10% based on the order value and the scope of work you need.
Expect to pay more for a customized product where you may need to develop tooling and be more hands-on in this process.
Beware of going too low – you get what you pay for. Anything lower than 3% is not sustainable unless they are collecting a kickback from the factory (see Red Flags) below.
Moreover, as a general rule “You get what you pay for”. If you go cheap, you can expect lower service levels, poorer communication, and even someone disappearing on you.
Q11 – Follow up with the references to ask how it was like working with the sourcing agent, strengths, weaknesses, and if they would recommend them.
If they cannot provide any references or the references did not speak highly of them then cross them off your list.
How do you interpret their answers?
First things first – no superman/superwoman sourcing agent can do it all.
I find that sourcing agents may have their areas of expertise and regions of expertise.
What you are looking for is a sourcing agent with experience in your product industry or related product industry.
This way they know the ins and outs of how the product works without you having to explain the ABCs. Also, they should already have contacts in their network to fast-track the sourcing process.
And when it comes to sampling and quality control, they should know what to look for in terms of quality, potential defects, and overall presentation and quality standard of the product.
One MUST HAVE is that the sourcing agent must have experience in the type of product you’re looking to source.
If not, they may not know the item as well as you, so you will have to do a lot of handholding which can take a lot of time.
On the other hand, if you are sourcing a very specialized product that is not yet available on the market, then it’s not possible to find someone with this exact product experience. In that case.
You should find an agent with experience in a related industry.
For example, if you are looking to develop a custom stroller organizer bag then your sourcing agent should have experience with cutting and sewing products, textiles, or even backpacks.
They will have knowledge of the manufacturing and supply chain for similar products so there will not be a big gap from what you are looking for.
The 3 Red Flags when working with Sourcing Agents
1) Beware of Kickbacks
Some Sourcing agents may secretly collect a commission from the factory in addition to your service fee.
Why do they do this? Because they can, this is fairly common practice in many countries such as China.
Their benefit is that they can collect more money.
Why should you care if you are not paying this?
If something goes wrong with your production, how do you know WHO’S the side your sourcing agent will be on?
Since they are collecting a commission from the factory, will they be incentivized to side with the factory rather than you if there is a problem with your order?
How do you check or know if your agent is collecting a kickback? There’s no sure-fire way to tell.
I would ask them upfront on their fee structure and ask if they will receive any fees from the factory.
They may not admit to it or they may say yes/no.
Evaluate their reply and ask yourself – does it make sense to you? Or do things smell fishy ?
2) Sourcing Agent not sharing factory information
Even if you have to pay more, I would recommend working with an agent that shares the factory information so you simply know who you’re working with.
You may need to sign a Non-disclosure agreement and Non-circumvention agreement which is fine.
There needs to be some level of transparency and trust when you are working with a long-term partner.
If you don’t know which factory you’re working with, then the sourcing agent could potentially switch suppliers on you without you knowing.
3) Going too cheap or sounding too good to be true
If it sounds too good to be true it usually is. If the sourcing agent fee is very low, then there has to be some catch.
Maybe they are taking a kickback from the factory (See above).
Maybe they are new and inexperienced so they need to compete on price to be competitive.
Beware the secondary consequences of time cost and quality cost – much more costly than a service fee!
As a general rule you get what you pay for. A rockstar sourcing agent is not going to be super cheap – I expect to pay for quality.
5/ Finding a sourcing agent is both an art and a science.
I cannot give you a clear recommendation when it is a Greenlight or Red light when looking for a sourcing agent.
Each business’ requirements, products, and budget are different.
However, on the whole, if you feel comfortable with their answers, the fee is reasonable, you don’t sense any red flags, they have experience in the type of products you’re sourcing, and can provide verified references, then I would give them a chance.
Start small with a single product to test them before scaling up to more products.
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