Most sourcing content we’ve found online tells you to avoid trading companies and go factory direct. The main argument being that you will get the best price. At face value that makes sense, however going factory direct might not always be the best option.
In this article we argue that buying the right product, at the right price, in the right timeframe is all that matters. Whether you are dealing with a trading company or a factory matters less than achieving the desired result. Either way use the same sourcing best practices to ensure things go smoothly.
Factory vs Trading Company
Buying directly from a factory sometimes provides cost savings, better supply chain transparency, and greater financing options, to name a few potential advantages. Before getting excited about that, there’s something you need to know: The exact same things can be said about buying from a trading company.
Some factories have great ownership. They care about long term relationships and continuously improve their business to offer better service and value. Some factories owners are reprehensible. They over leverage themselves, don’t reinvest in the company, and run away from the business – owing products to customers and salaries to employees. Both good and bad scenarios have happened many times before.
Trading companies also range from great partners to horrible nightmares. Again, plenty of both exist. A good trading company offers value by providing unique products, supply chain control and mobility, and industry insight. Bad trading companies simply look to make profit while adding no value, and often times acting more like a road block than a bridge.
One way a factory and trading company differ is in the physical infrastructure. This is particularly applicable towards larger factories, as smaller factories usually rent the space and don’t have expensive capital assets.
The right supplier for you
The one clear benefit of going factory direct is not so valuable when considering small E-commerce orders. E-commerce product orders are often smaller volume, have fewer reorders than products selling through traditional retail, and fewer requirements for supply chain transparency.
If you are building an E-commerce business in a particular niche, working with a trading company that focuses on your niche gives you more purchasing power and sourcing simplicity. They might be doing significant volume with factories of a particular product with several different customers, so their original cost from the factory of that product will likely be significantly lower than you would ever achieve yourself. In the end, even with their margin, the price they offer you could be quite competitive to a factory price.
If the trading company places high volume orders with a factory for a particular product you benefit in two ways:
- Possibility to enjoy a lower Minimum Order Quantity (MOQ) since the trading company has existing orders ongoing with the factory.
- The trading company is a more important customer to the factory than you, based on volume and relationship. For this reason the factory will pay more attention to their order and not delay it.
Why it doesn’t really matter which kind of supplier you use, and what you need to do
As we mentioned at the introduction of this article, what is most important for you is to find the right product, at the right price, in the right timeframe.
You need to exercise proper due diligence through each step of the sourcing process to find the right supplier.
- Get offers from several potential suppliers
- Objectively evaluate the supplier options
- Check samples
- Make your product requirements as clear and objective as possible
- Set milestones for production and follow up on them accordingly
- Check your products before shipment
While most of these steps are possible to do yourself, they are time consuming, and can be difficult to do well due to time zone, culture, and language differences. Let Checkpoint optimize your China sourcing by handling these steps, giving you more bandwidth to focus on what’s actually making you money.
