Here I want to discuss with you a question: How to find the best product supplier in China?
This is one of the most frequently asked questions we find on the Internet. Obviously, there is no standard answer to this question.
The needs of every buyer are different, and the definition of “best” is also different. So no one can give an accurate answer to this question.
We can only let buyers have a deeper and clearer understanding of Chinese suppliers so that they can choose the most suitable supplier.
Chinese suppliers are not a simple term. All companies and individuals that provide you with all the resources you need, including raw materials, equipment, energy, labor, etc., can be called suppliers.
Putting this concept into import and export trade, we can divide suppliers into two types: manufacturers and trading companies.
Suppliers are only companies or individuals who point to your supplier’s products, and do not limit that this product must be produced by it.
Therefore, suppliers on platforms such as Alibaba and made in China include manufacturers and trading companies.
Let’s take a closer look at how Chinese manufacturers and trading companies operate.
Table of Contents
A manufacturer or factory is a company that makes a product from scratch and sells it to wholesalers or retailers.
According to the production process involved in the factory, manufacturers can be divided into many types. In this blog, we define all suppliers involved in any of the following production steps (except product design and packaging) as manufacturers.
Usually the production steps of a product are roughly as follows:
How it works?
The operation and management of a factory is more complicated than that of a trading company, because the production of products involves many links, and each link needs to be completed by humans.
Know that dealing with people is the most difficult. A small factory usually consists of business department, engineering department (design department), production department, quality inspection department, merchandising department, and purchasing department.
It seems to be much more complicated than a trading company.
The business department can be divided into the domestic trade department and the foreign trade department. The domestic trade department is responsible for China’s domestic trade, and the foreign trade department is responsible for overseas trade.
All overseas buyers contacted in Alibaba are salespersons of the factory’s foreign trade department.
We mentioned in How can foreigners buy from 1688.com that the suppliers that overseas buyers find through 1688 are the salepersons of the factory’s domestic trade department. member. Not all Chinese factories have a foreign trade department.
Many small workshops don’t have engineers at all. They just purchase product parts from the outside and assemble them.
They don’t need to develop products by themselves. This is why there are so many plagiarisms in China.
Factories usually have their own quality inspectors, but these quality inspectors are usually not very professional.
In most cases, they just take samples to check whether the appearance and function of the product are damaged. They can’t meet the product life, product performance, product material, and some certification requirements.
After the factory receives an order, the merchandiser is responsible for coordinating the operation of the entire order.
The main purpose is to issue raw material purchase orders to the purchasing department, issue production notices to the workshop, follow up the production process, and ensure that the order is normal.
Therefore, the role of a merchandiser is very important.
A bad merchandiser may cause delays in order delivery, product inconsistency with customer requirements, and other issues.
But not every factory has a dedicated merchandiser, and some factory merchandisers and salesmen are the same person.
It is also that the orders received by the salesperson himself must be arranged and followed up by the order.
Buyers in factories are usually responsible for purchasing raw materials and packaging materials from suppliers, while buyers in trading companies purchase finished products directly from the factory.
In this way, the buyer of the trading company has undertaken the work of the factory merchandiser.
A trading company or wholesaler can also be called a middleman.
They buy from the manufacturer or even the manufacturer’s customers at a lower price and then sell it to foreign customers at a higher price, earning the difference.
The operating model of most trading companies in China is as follows:
Trading companies usually have a cooperative relationship with many manufacturers. They can easily obtain product picture and other details from the manufacturer or download directly from the Internet, and then display these on their own website for sale.
For directly sold products, they may purchase some from the manufacturer at low prices and put them in their own warehouses.
For customized products, they only need to display product pictures, specifications and price ranges on the B2B website.
This is a simple matter for them. They can find a lot of information and resources from Chinese local wholesale websites such as 1688 and Huicong.com. 1688 is the main source of purchase for many traders.
When a customer makes an inquiry to a wholesaler, they will immediately buy samples from the manufacturer for negotiation and display with the buyer.
After the buyer places an order, the buyer of the trading company will place another purchase order for the manufacturer.
After the manufacturer has finished producing the product, the trading company can arrange for a driver to pick up the goods at the manufacturer’s factory.
It is worth mentioning that most trading companies pay more attention to developing customers and ignore the follow-up of purchase orders.
Buyers are likely to receive poor quality products or be notified of delayed shipments because trading companies do not pay attention to production.
Trading companies are usually better at selling and not knowing about production.
In addition to manufacturers and trading companies, another role you can come into contact with when you purchase from China is a purchasing agent.
The purchasing agent usually acts as an intermediary between the buyer and the supplier (whether it is a trader or a manufacturer).
Purchasing agents are hired by buyers to find suppliers from China and then purchase from suppliers on their own behalf.
Therefore, the profit model of sourcing agents is not to make a price difference but to charge a commission.
According to SourcingArts understanding, a purchasing agent cannot be called a product supplier, because when a buyer purchases from China through a purchasing agent, the product is not supplied by the purchasing agent.
The purchasing agent is also mainly composed of the business department and the purchasing department.
In the end, the purchasing agent will charge a certain percentage of service fees based on the customer’s order amount.
Good products have a good market, and inferior products also have a market.
Trading companies generally believe that choosing a good product is not as good as choosing a good market. Maybe this is how it does business.
But some factories will not do that, because they are factories, not just doing business, but also manufacturers of products.
Factories and traders have different positioning starting points. Different positioning determines that the products delivered to consumers are different.
It may be accurate to say that factories are positioning products, and traders are positioning markets.
Both traders and factories can conduct foreign trade and business with foreign companies. They have similarities, but also have their own advantages and disadvantages.
And because of their respective characteristics and differences, they have different living spaces in market competition.
Trading companies make profits by earning the price difference between the factory and the buyer, so in most cases, the price for the same product is higher for the traders.
As far as we know, the profit of traders is usually about 30% of the final sale price of the product. This means that buyers have to pay 30% more purchase costs.
One thing you must know is that there is no lowest price in China, only lower prices. So don’t seek the lowest price ignorantly, but compare prices with the same product quality.
Trading companies can cooperate with many manufacturers, so they can provide various quality products. Trading companies can always find cheap products to attract customers, and what customers don’t know is how low-quality materials these cheap products use.
The factory produces products by itself, so the quality of the products provided is more fixed.
In general, on the basis of consistent product quality, the price of the factory is cheaper than that of the trading company.
Manufacturers are responsible for the production of products, so they are naturally more professional and understand products.
The business personnel of the factory can go to the workshop to observe the production process of the product and discuss the design of the product with the engineer at any time, which is not provided by the trading company.
Therefore, the salesperson in the factory understands the product better than the salesperson in the trading company. This means for buyers:
The factory can provide OEM and ODM services.
The factory usually has a research and development department, so they can improve and develop products according to customer needs.
Some sellers may not be very clear about the product requirements, just a picture or a design draft. The factory can then turn the buyer’s design draft into an actual product.
Although some trading companies can also do this, they usually cannot communicate directly with the factory’s engineers, so the information and ideas that can be provided to customers are very limited.
The factory’s anti-attack ability is relatively strong and the business is relatively stable.
The operating cost of a factory is much higher than that of a trading company. We can understand that the threshold for opening a factory is higher than that of a trading company.
So factories are usually more stable and will not close down. The trading company may be closed at any time.
In addition, the quality of products purchased from the factory is also more stable.
The factory has always produced its own products, so the quality of each batch of products is the same unless there is a requirement.
The trading company cooperates with many factories, and the usual operation of the trading company is to constantly look for lower-priced suppliers to reduce purchasing costs.
Lower purchasing costs mean higher profits for trading companies.
If you have purchased from a trading company, you may find that the quality of the products provided by the trading company is different every time.
Real factories tend to focus on the production of one type of product, so the types of products they can provide are also limited.
The market is changing very quickly, and new hot-selling products will appear on the market at any time.
Especially for cross-border e-commerce owners, the life cycle of a product is actually very short. This requires them to continuously discover and develop new products.
Purchasing from the factory means that they must continue to develop new suppliers. While trading companies can cooperate with different manufacturers to provide a variety of products, buyers can always cooperate with a trader.
But if you are focusing on the sales of one type of product, the manufacturer is a better choice. Manufacturers have always focused on the production of one product, of course they can provide better products.
Earlier we mentioned that the structure of the factory includes many departments, and the production of an order requires close cooperation between each department in order to proceed normally.
In fact, the management system in most Chinese factories is rather chaotic, and the class is particularly obvious.
For example, when a salesperson receives an order from a customer, it needs to be signed by the general manager, purchasing department, merchandising department, engineering department, production department, etc. before the order can be formally issued.
This complicated process will take a long time. In comparison, the structure of a trading company is simpler and the process is simpler.
There are four main reasons for the high MOQ of the factory: management costs, operating costs, the need to purchase raw materials, and machine start-up costs.
Management cost and operating cost
The complex internal structure of the factory determines the expensive management costs of the factory.
In addition to the internal structure of the factory and the trading company are different, another difference is the working space.
The factory needs to set assembly lines to produce products, it needs to store raw materials and finished products in its warehouse, and it needs an office for employees.
However, a trading company only needs an office. It is conceivable that the operating cost of the factory is much higher than that of the trading company.
In fact, this is the fundamental reason why most factories are in remote suburbs, while trading companies are in the bustling urban areas.
The factory will allocate expensive management and operation costs to each product.
When the buyer’s order quantity is too small, the management cost allocated for each product will be higher. Therefore, factories tend to have higher MOQs.
Raw material purchase cost
A product is usually completed by multiple suppliers.
Generally speaking, a product has at least 4 suppliers: raw material suppliers, packaging material suppliers, printing plants and assembly workshops.
Due to the relatively single production line of Chinese factories, factories are usually very focused on one area.
For example, suppliers who make color boxes will not supply raw materials.
This means that the MOQ of the product is jointly determined by the 4 suppliers. Buyers generally contact the assembly workshop (that is, our supplier), and what often limits MOQ is actually raw materials and packaging and customized LOGO.
There is also a MOQ for assembly workshops to purchase raw materials or to purchase packaging materials.
Machine start-up cost
In addition, the factor that affects MOQ is the cost of machinery in the factory.
Opening the machine once requires a lot of raw materials to wash and debug the machine, so the factory will not start the machine when the order is too small to cover the cost of the factory.
For orders, only when the order quantity exceeds MOQ, the supplier is willing to start production.
Because of the large production volume, the cost of each product will be reduced, so that the factory can guarantee its own interests while providing customers with reasonable prices.
However, in recent years, due to strong market competition and the development of cross-border e-commerce platforms, factories have had to adjust their order requirements more flexibly in order to survive.
The focus of traders is on the market, and the focus of manufacturers is on the product.
Therefore, traders generally have more market acumen than factories and understand customer needs better than factories.
Traders are often more aware of the changing trends of products on the market, so they can always provide the latest hot-selling products to buyers.
It is basically impossible for a factory to change its product direction according to market trends.
In addition, trading companies can match different suppliers based on buyers’ two-way indicators of price/quality.
However, few factories have such in-depth market research and grasp, and there is no professional department to complete the matching of customer positioning and factory positioning.
The products produced by factories are relatively single, while the products of traders are more extensive.
Often factories can only produce dozens of products, while trading companies can sell multiple products at the same time. Large trading companies even have millions of SKUs.
And now most buyers’ needs are diversified and personalized. If buyers want to purchase multiple products, buyers can choose to find multiple factories to cooperate, or they can choose to find a trading company to purchase all products.
Compared with cooperating with many factories, the communication cost of cooperating with a trading company is lower.
A trading company once said that we have no factories, but it can also be said that factories all over the world are our factories.
It is also a great advantage to provide customers with a variety of similar products at one time and send them together.
The flexibility of trading companies can be reflected in many aspects, such as providing various grades of products, providing products with various certifications, and so on.
The market is changing rapidly. The factory may be in an advantageous position in the market at this stage, but it does not mean that it will always be in an advantageous position.
Traders can always choose more advantageous factories to cooperate. For domestic trading companies in China, finding and comparing market information is very simple. They can easily change factories.
However, for foreign businessmen, even if the supplier’s quality is unstable. They cannot easily change suppliers so as not to encounter unreliable or even unreliable suppliers again.
They often need to observe for a long time to choose a supplier. As a result, labor costs, time costs, and money costs are very high.
Buyers need stable supply channels. After all, most buyers are not direct consumers, so they must be able to purchase normally at any time to ensure normal supply (to his customers).
If they purchase directly from the factory, once the factory has problems, they will face the problem of how to find substitutes. Finding an alternative factory is not a simple matter, and it also takes time, which leads to the disconnection of the entire supply chain.
Cooperating with trading companies, trading companies are not only cooperating with a factory, so they have more choices.
Some countries may require corresponding certifications when importing products, but not all factories can provide these certifications.
However, trading companies can easily obtain endorsements from powerful manufacturers and obtain their various certification reports and successful cases.
In general, trading companies can flexibly match different suppliers according to the needs of buyers.
There are four main reasons for the high MOQ of the factory, but these reasons do not exist with trading companies.
The composition of a trading company is relatively simple, usually consisting of a business department, a purchasing department, and a warehouse.
Chinese trading companies are generally small in scale, usually no more than 20 people. The trading company also does not need a production workshop, only an office.
Therefore, the management and operating costs of trading companies are lower than those of factories.
Trading companies do not need to produce products by themselves, so there is no raw material procurement and machine start-up costs.
Trading companies usually cooperate with many factories, and they can use methods such as merging orders from different customers and merging orders into other orders from suppliers to require suppliers to reduce their MOQ.
And the Chinese tend to have more advantages when negotiating with the Chinese. Therefore, the trading company’s minimum order quantity is more flexible.
Trading companies make a profit by earning the price difference between manufacturers and buyers, so trading companies usually offer higher prices than product manufacturers.
Trading companies do not have a fixed product range.
They usually sell whatever products are popular, so their knowledge of products is usually relatively shallow.
Moreover, the focus of trading companies is the market, and they will not spend a lot of time understanding the products.
They may know which products are popular in the market, but they do not know what products can lead the trend of the times. Because they don’t produce products.
And the salespersons of trading companies basically don’t visit the workshops of the factories, and they don’t even understand how the products are produced.
Trading companies are only responsible for sales and not production, so they naturally have no product development capabilities.
Especially for ODM projects or complex OEM projects, cooperating with trading companies may be very troublesome.
For example, you need to develop your own personal product mold. This is too complicated for trading companies, and they cannot give you some advice.
There are two ways for trading companies to increase profits. One is to increase the selling price, and the other is to reduce the cost of purchasing.
Raising prices will scare away buyers, so traders always lower their purchase prices to protect their profits.
They often cooperate with some non-compliant small workshops and factories, which is the root cause of quality problems and delivery delays.
And trading companies usually pay more attention to marketing, order production follow-up is not the focus of their business.
Therefore, trading companies often do not take responsibility for the customer’s order after the customer places the order, and fail to abide by the promise to the customer.
Purchasing agents do not make a profit by making a difference, so when a buyer purchases from China through a purchasing agent, the buyer gets the original quotation from the factory.
This is about the same as the price that buyers buy directly from the manufacturer.
The purchasing agent charges the buyer a service fee, so the purchasing agent is responsible for the buyer’s order.
Purchasing agents shall be responsible for the production of orders and ensure that the interests of buyers are not infringed.
For example, to ensure that orders are delivered on time, that the quality of products meets customer needs, and that the quality of bulk goods is the same as the quality of samples.
Cooperating with a purchasing agent can give buyers more confidence in their orders.
Like trading companies, sourcing agents can also find different suppliers according to customer needs.
This also means a wider product range, flexible MOQ, etc.
Even better is that when working with a purchasing agent, the buyer has the right to choose a product supplier.
When working with a trading company, the buyer does not know that the other party is a trading company, so it is even more impossible to choose a product manufacturer by himself.
Purchasing agents make a profit by charging buyers for service fees. This means that the higher the order amount, the more money they can get.
Therefore, purchasing agents do not try their best to talk about the lowest price when negotiating with suppliers.
Most of the time, the agent only has a rough communication with the supplier, and the specific needs to be negotiated by buyers.
The most common purchase commission is the purchase commission to earn the difference by increasing the unit price of the product.
After the order is completed, the difference will be credited to the agent’s personal account.
These purchasing agencies will cooperate with the manufacturer, privately request the manufacturer to lower the price, the exchange condition is that they will give the buyer’s order to the manufacturer.
The price they offer to their customers is another higher price, and the difference from it is their profit.
This is good for both the sourcing agent and the manufacturer. The manufacturer gets the order and the courcing company gets the money.
The above SourcingArts introduced in detail the operating procedures of manufacturers, trading companies and purchasing companies, as well as the advantages and disadvantages of working with them.
In most cases, this is the case, and there may be some situations that are not in line with what we have introduced. After all, there are some special existences in every industry.
For example, you may also encounter a trading company that is very knowledgeable about products.
But this is only a rare case. You can choose the most suitable sourcing model according to your actual needs.
In addition, in most cases, a trading company will not say that it is a trading company. Basically, 90% of suppliers on the B2B platform will call themselves manufacturers.
Because they know that buyers prefer to cooperate with manufacturers.
So after figuring out which supplier to choose, you also need to learn to distinguish between manufacturers and trading companies.
For a long time, many buyers believe that trading companies are middlemen without creating any value.
In fact, this concept is rather one-sided. There is no absolute “good” and “bad”, only “suitable” and “unsuitable”. The reason why a trading company still exists is because it has its existence value, because someone needs it.
Manufacturers, trading companies and purchasing agents exist to match the needs of different customers.
When purchase from China, don’t be too entangled in whether your supplier is the best. The first thing you need to know is whether your supplier matches your needs. The purpose of SourcingArts has always been to find the most suitable supplier for each buyer.
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