Before we start, let’s lay three ground rules:
Every situation is different; there is no cookie
Any solution needs time to show it is working,
even if it looks good at first; that being said, clearly, not working can show
up quickly. Know the signs and don’t throw good money after bad.
You are not excused from managing. Your
attention will help to make sure the solution works the way you want it to,
lack of attention will almost certainly make sure it doesn’t.
The Golden Rule:
Throughout the process, you need boots on
the ground. Just sending a QC to check production at the end is too late.
Everything that went before leads to that moment.
There is no doubt that having a staff in country who will
handle everything from product development to shipment is the ideal way to
manage. However, many companies cannot afford to have permanent staff in one or
many countries where they source product. So what are the alternatives and
their pros and cons?
A Trading Company
- This company will sell and
ship the product to you, including their profit in the price. They typically
have staff enough to manage your orders (along with others). Pro: professional
(we assume and hope) staff is included in your price. Con: Trading companies
can take 25% or more for their efforts. Con 2: Trading companies are notorious
for cheating customers to make more money for themselves.
- Agent will manage your production for
a commission. In this case, the factory price should be transparent to you. If
the price including commission is acceptable, then it may be a good
alternative. Pro: Agents are typically specialists in one or more sectors
within a country. They will have staff that knows the product and the
factories. The best agent should be seeing with your eyes (after you thoroughly
train them, of course). Pro: Professional staff for a known cost. Con: Many
agents “double dip,” meaning they will also take commission from the factory,
which not only raises your cost but, most important, divides their loyalty so
they cannot serve you as their only master.
A Sourcing Company
- There are many of these
which offer a “complete solution.” Just sit back and relax (?) while your order
is processed and delivered. Pro: None, unless you are lazy. Con: You lose
transparency and control of your product. Con 2: As with trading companies, you
never know how much profit they are taking. Considering the size of some of
their offices, it may be a lot.
A Surrogate Sourcing Office/Consultant
- This type
of company will help you with the entire process for a retainer/fee. Pro: Costs
are known and product cost is net. Pro: There is no question of commitment-
most similar to having your own staff. Con: If you source in more than one
country, you cannot afford to pay this type of consultant in multiple countries
or fly them around the globe. This solution is also difficult to manage in
disparate time zones. Con 2: Some consulting companies are not category
experts, just consultants-not good enough.
Whichever solution is right for you, there are some more
rules that are necessary for success:
train whomever you choose.
They need to learn your systems and procedures,
rather than you learn theirs. This means everything from hand feel to quality. If
they are good, they will embrace this and work hard at getting it: if they
resist, get rid of them.
you thoroughly know both the surrogate and their factories.
anyone-only what you see is real. Maybe this means that, in the beginning, one
of your HQ merchants needs to go to the location and live with them for a time,
at least a month.
your HQ merchandising staff is qualified and experienced enough to manage
In the best case, they have done the job of the surrogate
before, in the country. If not, experience in working these situations is
critical. Most important: pay what you need to pay to get someone who will
follow up and manage all details with no gaps and no mistakes.
relationships with the factories, not just the surrogate.
When you source
directly, the factory has a clear picture of you as the customer and of your
requirements. Using a surrogate, this should be no different. Most important,
in the worst case where the surrogate is not working out, you can avoid
difficult or catastrophic situations with your goods.
No matter how excited you are or how severe the sales pressure, you must first
give them a test order and wait the entire cycle before increasing. Besides
mitigating your risk, it is not fair to the factory or the surrogate to put big
pressure on them before you learn, train, and get things running smoothly. If
you give big orders up front due to sales pressure or get seduced by the price,
you are setting yourself and them up to fail.
overassort your efforts.
Many growing companies give in to pressure from
management, buyers, investors, etc. to matriculate their success in one
category into more before they have fully conquered the first one. This will
require more staff or distract your existing staff focus, which is most badly needed
if you are still in building mode. Land one plane at a time.
People design things, people make things, people sell things, people buy
things. Most important, people follow up and manage the entire process. Have an
animate view of all people involved and how they are managing.
It is not just the quality and productivity of your staff work that is needed
for success, but the systems and the process that they use to get it done. If
your process is flawed, your staff work will be, no matter how good they are.
Whatever you do will take time and attention on management’s
part to choose and then set up for success. All above solutions need a lot of
hand holding until they are running smoothly (quality product delivered on time
with no fires to put out).
BTW, maybe restating the obvious, but the above is just the
beginning of the story. The rest of the story depends on right choices, right
execution, and right people.