Marketing Strategies Revealed in this Episode:
- Finding China suppliers
- Negotiating with suppliers
- How to minimize commercial disputes, specially about quality
- Managing supply chain costs (and profitability)
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Welcome to the e-commerce market reporters today’s guests is Peter Zapf for globalsources.com, welcome to the Podcast Peter how are you doing? I am doing well Robert, Hey thanks so much for having me on today. Yah I’m sorry huh I was stumbling there your last name, but it is Zapf Z A P F. I know that everybody, everybody has trouble pronouncing so you are in the majority that is pronouncing it as Z A F F even though it is pronounce Z A P F. So you good, you good. So its fine listeners so just go Peter Zarf you can just google Peter Zarf and again it is from Global Sources, and Peter why don’t you just tell us a little about yourself. O yah sure I work for Global Sources and we are based in Hong Kong, spend the last fifteen years over in Hong Kong Singapore Asia, with Global Sources the whole time where we help manufacture’s and suppliers connect with overseas importers, wholesalers and retailers. And what we see is a lot more the entrepreneurial e-commerce guys getting involve in the importing game that is kind of a big change that we see in the past fifteen years.
Okay, so you just work as the middle person? Well so what we’re do we’re, the we’re a platform that kind of helps the two connect. We don’t actually not a trading company, transactions don’t go through us. We’re help the suppliers market themselves or suppliers by suppliers and we’re that both through our website and through trade shows.
Okay, okay, okay, so yah a lot of our listeners sell their own products on line, and a lot of them do have interest in finding suppliers from China, so, what, what kind of like some tips on how you can give us on how to find suppliers in China.
Yah well thee, well I mean you kind have two choices right, one is to do it online and which is great because you can do this any time year around and there you can use our site like, Global Sources .com, to go to do a search send an inquiry to the supplier and or preferably to multi suppliers, you know get feedback from them, order samples from them, request samples, and review the product. So that is one approach and that works fine. Plenty of the more experience folks are folks that – say sourcing full time or working for the larger retailers, they will take the next step and actually visit the suppliers, during, usually during trade show season, then they can see a lot of suppliers at one time. And the trade shows are with the China suppliers tend to be Hong Kong or Guansho. Hong Kong has our shows the global sources shows. The HKTDC shows from the Hong Kong Trade Development Council, and Guansho is the Canton fair and the shows run twice a year and others usually three shows with three sets of show dates. For our shows we do a four day show on electronics and another four day show on mobile electronics and Gibtons’ home products and another four days show on fashion accessories.
And this shows will have about three thousand booths of suppliers and at our show in Hong Kong, and really in terms of visiting shows I’d say, if somebody the first thing to look at which product category where to this shows cover. What I’ve seen that a lot of buyers comes over and they’ll visit one two or three shows, depending on which categories that they are mostly interested in. And that is why all the organizers kind of arrange their there shows all at the same time. So you kind have two options, one is online the other is visiting the shows, meeting the suppliers face to face and touching their products.
Okay, and for somebody who is just getting started, and they really want to find a supplier in China, because they want to bring down there cost you know eventually to increase their profits. Without coming to the show and just doing in online, can they successfully get a supplier online and still have everything go well and be able to trust the supplier or would you recommend that they get a representative to go to some of this trade shows, or is online really sufficient enough.
Definitely there is plenty of people that are successful doing it online themselves, so absolutely you can be successful that way. That is not to say that everybody is doing it that way and there are advantages to go into the shows also, but there are disadvantages the show only runs twice a year. But that doesn’t mean that you are guaranteed to be successful if you go online or if you go to the shows. You know, it is just like in any other business, you need to understand the steps, you need to run them properly, you need to understand were the risks going to be, and you need to manage those risks appropriately. And huh properly two of the areas that we see people ask, ask questions around, are our pricing and quality. And you know both of these are discussions and negotiations communications that you need to have with the suppliers.
Okay, so can you give us the steps that somebody needs to take when they narrowing it down to the search online.
Yah, no definitely so that, so a, a lot of that is about communication and it is interesting because a lot of that is global sources being like of, like you said in the middle of the buyers and suppliers. Sometime the buyers contact us and say; Hey we have a problem with the supplier, and what we see is, we call that commercial disputes, and it is funny because the buyers is talking to each other about, Hey these are the problems that we have with the China suppliers and but on the flip side the China suppliers always talk to each other, Hey this crazy buyers and here is the problems that we having with them. So when we see this commercial disputes you know, I would say that half of the time it is the buyers fault and half the time the suppliers fault, at the end of the day this is a communication problem and in order to avoid communication problems is if they use the steps that we would like them to go through.
First is to get samples, you know. The second is when you get the samples, write down what you do not like about them. You know basically which will became your quality control criteria and it became a quality control cheque list. When you issue your purchase order issue it with you quality control criteria. And some supplier will say – O we cannot meet this QC criteria, and actually that is a good thing because you want to learn that they can meet you QC criteria as early as possible. After the suppliers accepted both the PO and the QC criteria, that’s when you make your initial payment, usually a 30%. Also when you send the supplier the PO tell them – Hey I am going to have a third party inspection done before our product ships. So now you given the supplier the QC criteria and you told them and you going to get an inspection done, so now you have clear communication of your expectations and you indicated you going you’re going to check it against the expectations before the product ships.
So after the suppliers have done manufacturing, hire a QC company cost about 300 dollars, 250 – 300 dollars for one per day, for one day effort. They’ll come and check the product against your QC criteria, they’ll send you a report with photos and then you decide whether or not that product meets your QC criteria. And if it does then you pay the remaining 70%. And what we, and what we see is when there is commercial disputes, typically the buyer did not go through this kind of process, and typically if he would have gone through this kind of process commercial disputes would be avoided. So that is kind of you know a good process that we like to see folks go through.
Okay and for your website Global Sources is that something that you walk people through just to go through those steps?
What we, we use educational opportunities like this, just to let people know what we think best practices are. You know the larger companies have these practices in place, and the larger companies, the Walmart’s, the Best Buy’s, the Alsharn’s, the King Fisher’s, they been using our services for many years, and they have basically departments to handle each part of this. They have a Merchandiser, they have an inspection guy, they have a logistics guy. Really with, with the onset of the e-commerce and the excess that the smaller entrepreneurial guys have to source it from China, we see that there is more education require. So we don’t force anyone to follow this process but we do try educational efforts like this to let folks know that will be a good process to follow.
Okay, and if you do go through this process, and successfully find a supplier you want work with -how do you negotiate with that supplier to get the best price?
Yeah, so pricing and quality are probably the two key things. We talk about quality first which is great… Pricing is interesting- I was talking to another friend of mine, Mike Bellamy who works for Passage Makers which provides sourcing services and he said uh, I asked him this question saying “Look this is no poker game (chuckles) where suppliers say a dollar or fifty and I say dollar”. And I totally agree with him on that but I feel like some people treat it like a poker game. Hey, the spares are 5 dollars that’s got to be high so I am going to offer (crosstalk) I don’t know-350? And the thing is that are you more interested in price or are you more interested in quality?
A story from a few years ago, guys from the China Lobby log wrote this one up- they were working with a buyer who had ordered bags to carry computers like computer cases and the buyer had received them but basically when he put a computer in them the handle broke, right? It couldn’t hold the weight of a computer. So these guys went to speak to the suppliers and the supplier said “Look, these guys told me they wanted the bag but the $4 dollar version of the bag. If they wanted a bag that could carry the computer, they need the $6-dollar version of the bag. But they wanted the $4 dollar version of the bag. “So when you negotiate the pricing of something you need to be careful about what’s going to happen on the quality side. With that being said, you still want to make sure that you get a fair price and we have seen two broad ways to do this: I think one way entrepreneurial e-commerce sellers do and that other way is harder. The easier way is to just go get multiple quotes. You know products that folks source are not that unique, so it’s not that hard to go find multiple suppliers and get quotes from each of them and compare the quotes to see what the market sum is telling you. And, so far we have seen large retailers do exactly the same thing.
So, get at least three quotes or more and start comparing them evaluate the samples of quality to see what you can get. And then it’s the conversation with the suppliers ‘Hey Mr. Supplier A, I really want to work with you. Mr. Supplier B gave me a more competitive quote; will you be able to match the offer?” I think that works pretty well. The second approach, which is more difficult, is to do a bottom-up pricing. And that’s where you trying to figure out “Okay, what are the costs of the raw materials and components of the product? What is the cost associated with getting it cut or whatever? And what’s the factory margin-a fair factory margin?” And put those numbers together to say “ok, this what the price of the product should be’’. And those are your two broad approaches-one is to get multiple quotes and the other is bottom-up pricing. And I think the multiple quotes is much easier.
Okay, just out of curiosity how long does this whole process take, from your estimation? From the first time-from the time you start finding the supplier ah, going online, getting samples, communicating back and forth, finding multiple quotes- would you say it takes two weeks if I would start this right now? Would it take a month? How soon can you get things going from the time you find a supplier to the time you have your product ready to sell?
I’d say it’s not a bad estimate but let’s talk about what would slow it down or what would accelerate it. The first thing as you know is that China has a different time zone (chuckle at the back). Well, if you willing to work overnight or willing to go WeChat instead of an email, you going to have a fast back and forth conversations with the suppliers. And you can get to uhm, a “I found you” to “I can send you a sample of this price to this address” within a couple of hours in WeChat going back-and-forth for example . now your next question is does the supplier have product in stock ready to ship it or do they have to manufacture a bit? that could take about one day to-(crosstalk) say seven to ten days. And then there is the shipping time, given three to five days. And then there is a review of the product, uhm, of multiple products since you are going to try to get multiple samples from multiple manufacturers. And then there is the writing up-the QC criteria that people do and then sending the PR to the QC criteria to the supplier. So that part, you know, two to three weeks faster is the supplier has the product already in stock. And then what probably makes it take longer-and this varies according to product- is how big is your order and how long it will take for the supplier to manufacture the product. And if they don’t have in stock, then you’re talking probably say at least thirty days is very common, fifteen days is somewhat common when they receive the down payment of your purchase until the product is ready. If you’re buying during peak season like now is peak season where everyone is buying their stock for Christmas, it could take longer. And if you order during slower season -slower season could be like April/May-it would be faster.
Okay, and what are some horror stories that you’ve seen and what are some things that frustrate you about this whole process?
(Chuckles) I think that everyone is – I hate to use the word ‘’horror stories’’ but there are definitely commercial disputes. Usually they’re commercial …(crosstalk) there are going to be communication issues. I mean you’re dealing with people in a foreign language I mean English is not China’s first language with different customs in different time zones. Really , you need to overcommunicate. You know, you think its like going to Walmart and buying something out of a shelf with the expectation that its going to be perfect. and the suppliers are shipping to many types of buyers with different types of company , countries. So you need to be super clear about your requirements. Now, probably a second thing that our buyers need to be aware of is the story around regulatory requirements. So historically, suppliers do what the buyer asks them to do which means that suppliers don’t know much about regulatory requirements let alone the regulatory regimes in the two hundred whatever countries that they can ship to. Legally, the buyer who is the amazon is the importer of goods in the US and has legal responsibility to ensure the goods meet regulatory and safety requirements. So, I think a lot of the entrepreneurial folks need to make sure they are doing the research what the regulatory requirements are around the products they are importing and to make sure that those are being met. So those are not necessarily the whole story area but its near to get folks into trouble and on the safety side – we saw that with the ah, Havaboards this past Christmas where a lot of imports basically disposed by amazon(chuckles).
Yeah, it’s good that you mention that it’s important for the entrepreneur to know, eh, what are some of the legal that you have to pass in your country. What are some of the other tips that you can give to people who are interested in this process? That could help them just find the right supplier and just help them go through the whole process and find what they are looking for.
(Crosstalk) You mean sourcing or regulatory requirements?
Just the sourcing…What are some of the tips you could give. Even something …(crosstalk )
Sure, sure. I think that a lot of folks will say that with the supplier start with a small order first and there are lots of good reasons for that. One is that the payment process works fine and smoothly. And the second one is that you can ensure that the small production run -maybe a hundred pieces or few hundred pieces- matches the quality of the sample that you received and it’s really a risk mitigation style. And a lot of the things you want to do are around risk mitigation. When I talked about communication earlier, that’s really around risk mitigation. When I say right now do a smaller initial order and rank up to larger orders -that again is about risk mitigation. The premonition inspection of doing that to have a supply side, again that’s about risk mitigation so that you can be confident that when your product gets to the warehouse, its ready to ship, so that you don’t have to inspect it when you receive it. Because if you inspect it when it’s in the US, how are going to get it fixed? It’s not like you can be able to the arms supplier in China.
So, just kind of getting to think about the process and putting lot of mitigation stunts in place to ensure that you get the product at the level of quality that you’re looking for, is good. Another one we have seen -doesn’t happen quite often but you need to be aware of is the current wire transfer fraud or the bank transfer fraud. There’s two types of things that you will see. One is, the supplier’s email got hacked and bad guy got in and bad guy sends emails to supplier’s customers saying “hey we have changed bank accounts, can you now wire money to this new bank account’’? The second similar example is an ex-employee -someone who gets fired and leaves the company and says “Oh we have changed bank account, please wire money into this new account”. So, the point is anytime you doing wire transfers, and you see a change in bank account-double or triple check that change. And don’t just double check it, double check it with the person you just been talking to , find a different number to call the company to speak to the folks of the company to find out if the bank wire transactions have changed. And you still have questions about that, then you can contact the Global Sources supplier and you can call us up and we can check up on that.
Okay, okay Peter thanks a lot for sharing all these tips for finding China suppliers. If listeners wanted to reach you, how can they reach you ?
You can contact us on email@example.com. Also, I am at atrichia’s(?) if you at Atrichia’s please come up. And the third thing, very quickly our Global Sources Summit and I will be there as well. It’s a three-day summit core located at Atrichia and targeted at amazon sellers. We have great speakers in October including Anchor, zero-five million who are going to be doing an illuminous presentation with about eighteen speakers. You can learn more about that at www.globalsources.com/summit and I will be there as well. So, lots of ways to reach me.
Okay , so any final thoughts you have about finding suppliers?
No I think it’s a perfect balance of don’t be scared that you don’t anything but don’t go so fast that you do a lot of things wrong. Try to find a balance and do a lot of reading and put those risk mitigation steps in place and communicate well with the supplier. That will increase the odds of success.
Okay, I know like this is like the last question (chuckles)that just came to mind right now. I know you deal with China but are there other countries that people can sell from?
Oh yeah, there are ton of countries and each country has different kinds of products and categories. Bangladesh is getting better for gloves and garments , India is good for scarves and shawls-we have Indian suppliers that are for fashion accessories. Pakistan has lots of home products so different countries specialise in different products but lots of stuff is still coming out of China.
Okay, okay and with Global sources do you deal with all those countries that you’ve just mentioned or just China?
You know, we do deal with all those countries but to be fair and I don’t know what the percentage is but the significant majority of the suppliers listed on our site and a significant majority of suppliers in Atrichias are China, Hong Kong or Taiwan suppliers.
Okay, that’s good to know. And now this is the final question, what is the one thing an e-commerce business can do right now to help the business grow, to get traffic and to get sales?
Just one thing, you know , I think (crosstalk) I have been looking at this a little bit amazon specific but I think it’s important to get quality right .if you don’t get your product quality right , you’re not going to get word of mouth , you’re not going to get returns which messes up your margins and you are not going to get good reviews on Amazon. So, getting the right focus on product quality , I think it pays greater dividends than many people will realise. So notwithstanding the right profit fit and the right price, if you can get the quality right then you will be in a very good shape.
Ok, Peter I really appreciate you coming to the show and I have enjoyed your talk and everything that yiu have shared with us so thank you!
Ah Robert, thanks for having me. That was great
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