Sourcing and Procurement Process Part II: Supplier Identification

A trading consulting firm must have a vast network of suppliers to be able to procure products / services at the right quality vs. price.

In this part we explore the 2 different ways to create a relevant supplier list for your client.

Overview of our Process

 

Searching for the right Supplier – Supplier Identification

Yearly we procure around 600 items from different industries. Over the years we have built strong relations with factories that cover our core client’sindustries products. At the same time we are usually asked to procure products that we have never worked on before. We have the technical capacity to understand the products but searching for the right supplier becomes paramount.

Most procurement firms and middle men use websites to find their suppliers such as the following:

www.alibaba.com
www.made-in-china.com
www.globalsources.com
www.hktdc.com
www.b2bchinasources.com/

Based on our experiencewe are of the opinion that Alibaba is probably the most complete supplier search engine for the Chinese market, covering every single type of industry and product. We believe that made-in-china has better industrial product factories (such as Pipes, H-Beams, Machinery, etc).

The biggest drawback of using these websites is the lack of reliable information, making an initial due diligence an important part of our process. Some pages at this website sell themselves as a factory or a trading company, sometimes they are neither. We have also had the experience of finding fake companies who sole purpose is to frame clients. There are various ways to check on the validity of the information posted but we will talk about this in detail later on.

One of the best way to find reliable factories is visiting trading fairs around China. Though the canton fair is the biggest and most famous, it’s not the only one. There are sourcing fairs that specialize in industries such as:

Power Transmission and Control (PTC) Exhibition (Shanghai)
China International Medical Equipment Fair(Shenzhen)
China International Clothing &Accessories Fairs (Beijing)
China International Auto Parts & Accessories Trading Fair (Ningbo)
China International Auto Products Expo (Shanghai)
China International Petrochemical Technology and Equipment Exhibition (Shanghai / Beijing)
International Trade Fair for Infrastructure, ITS Traffic Management, Safety and Parking (Beijing)

This requires time and money to assist to this types of fairs. But one thing is for sure we can cover more ground on a fair and accomplish a lot more in less time than working on line.

From the fairs and the websites we make a list of suppliers to quote which looks like this:

This is the guide that will help you keep track of your progress. The more suppliers you contact the better chances you have to meet the right company to work with.

Over the years we have built a data base of over 10,000 suppliers making our job easier and our dependence on websites and fairs less and less.

Tips on Communicating with the Factories

1. Have all your product information and specification in a document (as we discussed on Part I)

2. After contacting the suppliers and giving them the document take the time to contact them again and asking them about their past customers, the countries they have sold to before, when did they started doing business, if it’s a private owned company or state owned, etc.

3. Ask for a copy of their business license. A Chinese business license looks something like this:

4. Ask for a copy of their company profile.

5. Ask for an electronic catalog of their product.

6. It's important to talk as much as you can with the supplier via phone. IM is very popular, but at the same time you lose a lot of information if you don't call.

On the next part we will be discussing about Due Diligence and what information is important to get from the supplier before making a decision to work with them. 

JLC

Sourcing and Procurement Process Part I: Requirement Analysis

In 2009 when we started International Partners Consulting Asia (INPASIA), an international trade consulting firm, I knew exactly who our competition would be. On one hand, we had the one man company – local person - that can speak English and Chinese with no other professional skill or experience than just communicating needs between parties (middle man), and on the other hand, the - I’m too big of a company to deal with small and mid-size companies (Procurement Firms). We knew that small and mid-size companies were in need of professional procurement firm’s services that were tailored to their specific needs and that had the flexibility and quickness of execution of a middle man. We also knew that eventually we also wanted to work with companies that were purchasing more than 20 million USD a year from China.

For us to be able to make this happen we needed a straight forward process that could be tailored to each of our client’s needs.

In the next few series, I will be describing our process in detail. By this I hope I can get enough feedback and suggestions to improve it and hopefully help others that are in the same business.

Overview of our Process

 

Understanding the client and the product – Requirement Analysis

During our first interaction with our clients we talk a lot about the product itself: its function, its specification, problems in quality, prices. It is important that during this stage we are able to clearly describe the product. How else could we ask and get what we want from the supplier? The complexity of this phase not only depends on the complexity of the product but also the knowledge the client has on the product and is able to transmit to us.

Some of the most important questions we need answers during this first interaction are the following:

1. English name of the product: to avoid confusion during translations.

2. Specification: a technical description of the material being purchased.

3. Statement of Work: basically this describes what the product needs too, methods it need to use and how often it would be used.

4. Price and Payment Terms: most clients are very reluctant to give target prices and sometimes if they do, they give impossible to reach target prices. This hurts the quotation phase as we try to find factories that reach that sweet spot between quality and price and discard factories that don’t comply with it.

5. Purchasing amount and Frequency: this is very important for negotiating price as the amount of orders the client is able to put in a year or the frequency of it means the factory can buy materials in bulk for production, making things cheaper.

Optional information we request:

1. Pictures or video of the product.
2. Manuals.
3. Lab test or Certifications.

After we get all this information we create an RFQ (Request for Quotation) document that usually looks something like this:

After we have done our list of factories to contact we would send them this document in order to avoid confusion and get the information we need in an efficient way.

Some products are more complicated than others. Some require technical drawings others must follow certain standards. But I believe following this steps our consultants can gather all the information they need to understand the product.

Finally, some of the clients don't understand their products as well, so it's part of our job to investigate making things slower.

On our next installment we will be talking about Supplier Identification and where you can find suppliers for a wide range of products.