Imagine you are buying a house. How will you approach? You will first find any available properties. Then you will contact the number given and proceed. Most of the time, we see a broker involved. He or she is responsible for making the deal.
A sourcing agent is like a broker, who helps you get products at your desired price. Like a broker, a sourcing agent also gets paid on a commission basis. That is decided according to a percentage of the value of the order. Now, let's delve deep.
A sourcing agent is someone who helps a company find the right source for its products, that too at a low price. This ensures that the company can save a lot during the production process. Now an agent of this type can be employed with a single enterprise. He or she can also own a business that would serve other enterprises or clients.
For becoming a sourcing agent, you do not need to be highly qualified. You do require however:
A good business sense
Knowledge of the local language
Great coordination skills
Multiple languages is a big bonus
Knowhow of the customs
To understand this in simple terms, let's break it down for you:
Think of a product idea, a product you want to sell
Contact a sourcing agent and describe your product to him or her
Give a list of your requirements to that agent
As per the brief given by you, the particular agent does a research to find the suitable supplier for you
The agent will give you options, from which you will choose the one that suits your requirements best
The sourcing agent then becomes a communicator between you and the supplier
Finally, you get your product made in your desired price
In the end, the sourcing agent gets paid as per the basis of commission percentage, either set by your company or the third-party enterprise where the agent works.
Well, yes! A sourcing agent may go beyond being simply the broker or a third-party agent, who found you a good deal. He or she also can:
Interact and negotiate the pricing with the suppliers
Update you with the recent happenings
Arrange the shipping for you
Perform quality check to inspect if your product meets the standards
However, a word of caution: If you are paying your agent on a commission basis, do not engage him or her in quality check. The reason being, if the product is not as per the proposed quality and you stop yourself from paying the supplier, the agent can lose the commission. So, you may not be posted about the same. Give these extra tasks to the agent only if your payment system is something else.
Agreed that you have to shell quite a lot for hiring a trustworthy sourcing agent, but the benefits any day outweigh the downside of this entire thing. Some advantages are:
You save a lot of time if you hire an agent. He or she does all the work, and you feel assured that against a sum, you are at least getting the best deal.
The sourcing agent will help you make that perfect briefing, which will eventually convince the supplier. Now this is especially crucial when you and the supplier speak different languages.
If you hire an efficient sourcing specialist, negotiations are often quicker and done effectively. This is because the agent would know the "pain threshold" of a particular supplier. In this case, he or she would set a price that would be suitable for the both of you.
Let's admit going through legally certified documents is a task because you don't know where exactly to look. Also, if that document is in some foreign language, the difficulty level increases manifolds. A sourcing agent is a massive help here.
A sourcing specialist she is aware of the entire document, knows the criteria set for the manufacturer, responsible organizations and the look of the certificates. The manufacturer cannot easily dupe you.
Now, China is known to be one of the most popular countries to source your raw materials from. The reason is simple: In China, the cost of workforce is pretty cheap. So the product manufacturing price is also on the lower side, which brings down the overall cost.
The Asian country is also the largest producer of factory goods globally and is also a world leader of many products. So, there is a high chance for you to find a suitable supplier out there who may give you the materials at your desired price.
This explains why there are so many sourcing agents in China especially in Shenzhen. Chinese sourcing agents play an important role in keeping the international supply chains healthy.
As mentioned earlier, China is a hub of sourcing agents, since its manufacturing history is promising. The main reason you should choose Chinese sourcing agents is because they work on their own.
That's right!
Most Chinese sourcing agents work independently. They don't have many clients and develop a personal connection with you.
However, you may get scammed because he or she can escape easily, as compared to big companies. Also, the network is likely to be small in comparison to a big sourcing agency.
Finding out the best Chinese sourcing agent is a daunting task because the options are aplenty. As said before, China is the world's largest and most favorite manufacturing hub. So, sourcing agents in China are also more in number.
In addition to this, you have to settle for one such sourcing agent in China who will not dupe you. To be absolutely secure, you might opt for big sourcing agencies. But well, not all independent sourcing agents in China are there to cheat on you.
Follow these pointers to go for the best Chinese sourcing agent:
Ask for his or her business license. Even when you opt for big companies, this is a must.
Experience matters, right? In this case too, someone or some company becomes the best Chinese sourcing agent with time.
Research about the specialization the sourcing agent in China deals in. If say you are into electronic items, you should search for the best Chinese sourcing agent in this field.
With experience, comes testimonials: The more people a certain sourcing agent in China has worked with, the more testimonials he/she or the company will have to show.
Choose the distance carefully. Your sourcing agent in China should not be located very far off from your location. Because, remember, more kilometers translate to more money incurred.
We all know in every sphere of life, it is a mix of good and bad ones. So here too, in case of sourcing agents in China, you will also get the ones that might dupe you. So, how will you identify them and filter out?
Never hire a sourcing agent who also gets paid by the factory. Why? Because there is a high chance that the person will refer you to a mediocre quality hub; if that person gets commission from them.
Best Chinese sourcing agent will never work on commission if he or she is also offering quality inspection. Always remember that. This is a cardinal rule in this business.
It will not take them years to search for a supplier. In fact, once you share your criteria with a good sourcing agent in China, there will be a few references ready for you already in some minutes. That's how a well-coordinated and experienced sourcing agent functions.
Language skills: This may sound light but is extremely crucial. Communication is key in any transaction. And it may result in a big failure if it is not clearly said and understood.
All said and done, it is now time for the final step: Choosing the sourcing agent and working with him or her.
Research, research, research: This cannot be emphasized enough. Before choosing the best Chinese sourcing agent, do your homework, and rigorously. Make use of every search engine like Google, Bing, and Yahoo to come to a solid conclusion. If you are wary of hiring a sourcing agent, go for Alibaba, Global Sources and Made in China. Because these online sourcing platforms rate their suppliers, so you know how trustworthy they are.
Word of mouth works wonders: Experienced sourcing specialists say that the market is pretty saturated. So to choose a particular agent, it is best to visit China. Now this may sound outlandish, but believe us, this is the best way to go. Once there, ask around about the best sourcing agent. The one that gets maximum reference should get your attention, and money.
Ask about how that particular agent works: Any agent will internalize all your specifications, jot down a few factories, and approach them. After a lengthy talk, the agent will make a list. The sourcing specialist will then get back to you with factors like quality, price and lead times, among others. All these will help you decide on the supplier.
Moving forward: In this step, the client, you, will provide a sample of your requirements to the agent. The sourcing specialist will then make a note of the original sample and filter out the unimportant features. After that, the factory gets the sample to create a pre-production sample (PP sample).
Payment: The terms of payment are dependent on the relationship you share with a particular agent. They tend to be flexible if your bond with the agent is longer. Also, if the payment amount is huge, ask for a letter of credit transaction. It will usually be between the respective banks. But when you ask your agent the same, the reply might help you make a better decision.
Commission: Usually experienced agents will charge you around 5-7% of the total cost of the order. This may sound big. But the best Chinese sourcing agent will guarantee you three things with this: Price, quality (like some work with only SEDEX certified factories) and delivery on time (extremely crucial for logistically complicated industry).
Some final tips: It's all about the money!
Money is everything, it's a brutal truth. Nothing pinches us hardest more than the money lost. So to ensure that doesn't happen you will have to learn about the commission system of the sourcing agents.
Always remember that the commission paid to the sourcing specialists will always depend on three things:
Quantity of order
Frequency of the order
Value of the order.
Now, agents usually charge somewhere around 2 to 10 percent, with most going for 6%. But do note that order value is not directly proportional to the agent's fee. This means, smaller the order value, higher will be the commission.
Also do note that the commission charged goes down for every order placed. This means, for the first order from your side, the agent will charge you more than say the fifth order.
Most of the time, we find agents who are only bothered about their payment. If that is their motivation, it is best not to take their services. They will always find a high priced supplier simply to get higher commission. Because, the more you pay, they more they get paid, right?
Some experts say that it is better to go for those sourcing agents who get paid at an hourly basis. Advantage? No matter the value of your deal with the supplier, the agent gets paid only in his working hours. The downside? The agent will take his or her own sweet time and give you the result much later than necessary.
Another model of payment is where you shell out a flat rate and there are no further costs involved. However, there is a negative side to this as well. The agent will have no strong reason to work for you and find you the best deal. Why? Because, he or she is getting paid anyway.
Many senior sourcing specialists also may suggest you to opt for the mixed payment system. In this system, you pay the agent a flat fee at first. When the value of the order crosses a certain limit or threshold, you start paying the commission. The main advantage here is you don't have to shell out a lump sum amount right on first day. You can simply pay a small sum and test the supplier's capability.
The sourcing agent also comes under the scanner here. The cooperation extended by him or her will help you decide if you want to go ahead with that particular agent.
Now this is a pro-tip: Always pay the factory directly! There have been countless horrible anecdotes where you hear agents duping their clients by not paying the factory. In this case, you will have to pay many times than estimated, as the factory will demand the payment you have agreed upon. In other words, the factory will not be bothered even if the agent has cheated on you, because why will it be?
Another pro-tip: Be very clear about what you want and need. Jot down somewhere and have a look at it every single day. Run the scenario in your head. This practice usually filters out unnecessary stuff. When you are going for a sourcing agent in China or any other place in the world, keep these factors in mind:
Scope of services
Language skills
Location
Level of experience
Payment model
In the second step, fix your budget. For this, make a list of:
The number of units you would want to produce
The amount of money you can spend on your pre-cuts
The money you can afford for your sourcing agent.
Always set a range of the cost and not the full and final amount. That's because your 100% fixed budget may not be the 100% cost on the ground.
Also, before finalizing. you will have a fixed number of sourcing agents. But negotiating with them about payments will narrow down the list further. Notably, larger companies have fixed payment structure, so that's straightforward. But for independent agents, your skills of negotiation is going to play a major role. Remember to ask the sourcing specialist if the pricing would go down if you order with him or her again.
Last step: Write everything about the meeting with a potential agent. Verbal agreement is always based on trust, but trusting someone right on day-1 doesn't sound intelligent. So jot down. You can always throw that when trust builds, right?