Wednesday, June 14, 2017

What Is Your Best Sourcing Solution?

Before we start, let’s lay three ground rules:

1.     Every situation is different; there is no cookie cutter solution.
2.     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.
3.     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?

1.     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.

2.     An Agent- 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.

3.     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.

4.     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:

1.     You must 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.

2.     Make sure you thoroughly know both the surrogate and their factories. Don’t trust 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.

3.     Make sure your HQ merchandising staff is qualified and experienced enough to manage remote sites. 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.

4.     Build 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.

5.     Test first. 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.

6.     Don’t 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.

7.     People. 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.

8.     Process. 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. Keyword: Simplify.

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.

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