Sourcing

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What Is A Sourcing Company and Why Do You Need It? 

by Stanley Nieh

WHAT IS A SOURCING COMPANY AND WHY DO YOU NEED IT

Product sourcing is the backbone of every business, especially where physical products are involved. Even if a business owns or manufactures the products, it may still need to source the raw materials required to manufacture them. 

That is where a sourcing company plays its part. It helps you procure the items of your choice from a place that makes it cost-effective for a business. 

This article throws light upon what a sourcing company is all about. You will learn how it works, and how it can benefit your business. 

Let’s start. 

What Is Sourcing? 

Sourcing refers to buying a product or material from a supplier. It is generally considered as a part of the supply chain process where a company or a business requires a finished product or raw material to manufacture the product. 

Sourcing Company

It can either be a single product or multiple products to be able to run a business. Similarly, it can either be from a single supplier or from a pool of suppliers to choose from. 

In other words, sourcing is the main reason that connects buyers with suppliers. 

What Are the Types of Product Sourcing?

Before we indulge deep into the process of sourcing, let’s discuss how many types of sourcing are there in the market. 

Following are the common types of product sourcing that are generally in practice. 

In-house Sourcing 

In-house sourcing is the type of product sourcing when a company or a business sources the products or raw materials within their business domain. It is also called in-sourcing.

It also means that the sourcing tasks are being assigned to a person within the organization. 

If a business has multiple sectors, one section can procure or source items from another part of the business. 

For example, if a shoe manufacturing factory needs shoe soles, it can source them from its section where they are being manufactured or sold. 

In another example, a garment factory can procure fabric or yarn from another unit manufacturing them. 

Outsourcing 

Outsourcing refers to the practices where a business procures items from outside the organization. This is where the company involves suppliers. 

A business or a company can assign this task to a single supplier to procure all the items for them, or it can take quotations from multiple suppliers every time. 

Most companies have to rely on outsourcing because they need raw materials or finished goods to run their business. 

Local Sourcing 

Local sourcing refers to buying products from a local supplier. The companies are interested in buying the items from local sources because of the following reasons: 

  • Ease of reach
  • Low transportation costs
  • Lower lead times 

International Sourcing 

International sourcing refers to buying items from across the border. As China has largely become the center of global procurement, most businesses turn to China to source products for their businesses. 

Made in China

They go for international sourcing for being cost-competitive. As China has managed to offer the cheapest prices as compared to other parts of the world, most businesses prefer to source products from China.  

So, for international sourcing, the businesses approach international suppliers that may be in the form of manufacturers, wholesalers, distributors, etc. 

This is where shipping Incoterms are very important. Although they are relevant in any kind of product sourcing, they especially apply to international sourcing. 

That is because you need to define the buyer and seller obligations clearly before signing the sourcing contract. 

Online Sourcing 

Sometimes, you don’t even need to get involved with the series of suppliers. Today’s world has made it possible for businesses to source items online. 

All you have to do is visit product selling websites and order the products of your choice within a few clicks. 

Popular online sourcing platforms include the following. 

  • Alibaba
  • 1688
  • Made-in-China
  • Chinavasion

Dropshipping 

Dropshipping is a unique and innovative type of product sourcing. In this method, you don’t need to buy and store items before selling them. 

In this method, you get the order of the products first. After that, you tell the supplier about the order and product details along with the shipping details of the customer. 

The supplier will dispatch the product directly to the customer who placed the order with you. The customer will never be in contact with the original supplier and will assume that the product delivery is from your side. 

Contactless Delivery

You pay the original cost of the product to the supplier and take profits. 

There is no need to buy the products first and store them in your warehouse so you can sell them later. 

You can consider dropshipping as “real-time sourcing” where you procure the products only after you have their order and you get them dispatched directly to the customers without even getting hold of those products. 

Third-Party Sourcing

Third-party sourcing refers to the type of sourcing where a business or an organization hires a third-party person or a company responsible for procuring items on behalf of that business. 

This relieves the organization of searching for suppliers and finding the best available products compatible with their needs. 

This business need gave birth to the idea of sourcing companies which we will discuss later in this article. 

How Does Sourcing Work?

Sourcing works on the basic principle of demand and supply. A business that requires a product shares its demands and specifications of the required products. The supplier fulfills those demands in the shape of single or multiple products. 

That is why sourcing is considered to be an important part of every supply chain process. 

The process of sourcing involves simple steps. They are listed below. 

  • The need for the product is established in a business. 
  • The business or the buyer defines the requirements and specifications of the products in detail. 
  • The buyer contacts the suppliers and shares the demands. 
  • The suppliers come up with the solutions in the form of products. 
  • The buyer analyzes the products proposed by the suppliers and shortlists the items that meet the required demands. 
  • The buyer negotiates with the supplier if required. 
  • The buyer places the order with the supplier after finalizing the terms and conditions. 
  • The supplier delivers the products to the buyer and gets paid for his products and services. 

Common Sourcing Strategies 

The sourcing strategies that buyers adopt refer to the type of sourcing that buyers most commonly go for. 

Following are the most common sourcing strategies adopted by businesses or organizations. 

Self Procurement 

If a business decides to source products directly by visiting the market, it is referred to as self procurement. 

Direct Buying

In this case, the buyer either visits the manufacturers of required products or buys those products from the authorized distributors, wholesalers, middlemen, etc. 

Request for Quotations

If a buyer does not opt to procure the products directly, he may ask for the quotations for the required product. This sourcing strategy is also termed “RFQs”. 

The business may advertise the product requirements or accept the quotations via tenders. 

The suppliers contact the business or organization with their quotations from which the organization can select the best offer. 

Registered Suppliers

Some companies have a network of suppliers in their portfolio. These suppliers have registered themselves with those companies for the supply of products. 

The demand for the products is shared with these suppliers. The organization places the order with the supplier who provides the best offer. 

Sourcing Company 

A sourcing company is a third-party firm responsible for arranging the products for other businesses. Some organizations contact the sourcing companies to get the best possible products at the cheapest prices. 

That is because the sourcing companies are experts in finding the best products. That’s why it is considered one of the smartest ways of getting the products of your choice. 

Let’s discuss the sourcing company in detail. 

What Is a Sourcing Company or a Sourcing Agent?

A sourcing company, as we learned earlier, is a firm specialized in arranging products as per the buyer’s needs and requirements. 

It usually comprises a team reaching out to the manufacturers or the origin of the products to provide the most viable solutions for the buyers. 

A sourcing agent works in the same way. The term “agent”, in its literal terms, refers to an individual responsible for arranging the products for buyers. Sometimes, a sourcing company may also be called a sourcing agent. 

What Does a Sourcing Company Do?

A sourcing company is responsible for several tasks. The most important tasks a sourcing company does are briefly discussed below.

Find All the Possible Product Sources 

When a buyer shares the product requirements, a sourcing company starts looking for the products available in the target market or the country. 

Reach Out to the Real Manufacturer of the Products 

One of the primary tasks of a sourcing company is to reach the real manufacturer of the product. It is most probably the factory manufacturing that product. 

The main objective of finding the factory is to get the lowest price cutting out the middlemen. 

Communicate on Buyer’s Behalf 

Another important obligation of the sourcing company or agent is to communicate with the manufacturer on behalf of buyers. This is to make the manufacturer understand all the specifications and requirements of the buyers. 

This is sometimes considered an essential task of the sourcing company, especially if the manufacturer is in another country where the local language is different from the one in the buyer’s country. 

As most buyers source products from China, they face difficulties in making the manufacturers understand their requirements. This is where sourcing agents help buyers so that their products are made exactly how they want. 

Chinese Communication

Negotiate Prices and MOQs

A sourcing company negotiates prices and minimum order quantities on behalf of buyers. They do it according to the guidelines that buyers share with them. 

Represent Buyers in the Source Country 

Sourcing companies are the eyes and ears of buyers in the source country. They assist buyers in making them understand the local business norms and trends. 

If buyers need assistance in reaching the right markets, sourcing companies are there to inform them about which markets they should consider visiting. They also help buyers arrange physical visits in the source country if requested. 

Buy and Ship Products to the Buyers 

After finalizing the prices, MOQs, and other terms and conditions, a sourcing company buys the products after taking payment from the buyer and also ships them to the decided destination. 

Store the Products as per the Buyer’s Request 

Sometimes, the buyer may want the sourcing company to store the products in its warehouse. He may ask to do this if he wants the items to be shipped after a few days. 

That is why good sourcing companies have warehouses, especially in the source countries. More professional sourcing companies have warehouses in the destination countries as well. 

Warehouse

For example, a good sourcing company like NicheDropshipping also has warehouses in the most demanding country like the USA. This is to make the overall supply chain more effective and cost-friendly for the buyers. 

Customs Clearance 

Sourcing companies are also responsible for clearing the goods at the source and destination ports depending upon the relevant Incoterms signed between buyer and sourcing company. 

For example, if the shipping contract between the buyer and sourcing company is DDP, the sourcing company would be responsible for clearing and paying for the customs duties at source and destination ports. 

How Much Do Sourcing Companies Charge?

Sourcing companies can charge you in multiple ways depending upon your order. The most common methods that sourcing companies charge are listed below. 

Flat Fee

A sourcing company can charge a flat fee for the whole sourcing process. It may be anywhere from $50 to $100 or more depending upon the task. 

Hourly Charges 

A sourcing company can also charge the buyers in hourly rates. Hourly charges will be different for different sourcing companies or agents. 

It can be around $10 to $25 per hour for a Chinese sourcing agent

Commission in Percentage 

This is the most prevalent charging method. Most sourcing companies charge a percentage of the total order value for their services. 

It can range from 1% to 10% depending upon the order value. The higher the order value, the lower the percentage of commission. 

Who Needs a Sourcing Company?

Any organization or a business, be it a single person or a well-established company, needs a sourcing company. 

Following is the list of the most common businesses that rely on sourcing companies to source the products for their businesses.  

Retail Stores 

Retail stores and shops are the physical places where people buy different things. These stores do not manufacture those products. Rather, they source them from different places. 

Such retail stores require sourcing agents to fulfill their product requirements. 

You may have come across the China stores or dollar shops in your area. These stores source those products from China. Most of them rely on hiring sourcing companies to arrange those products from China. 

Online Retailers 

Online stores have seen a steep surge in the recent past. As more and more people are shopping things online, more product sourcing requirements have been in demand. 

Online Store

These online stores mostly arrange products with the help of sourcing agents. Sourcing companies even help them suggest high-demand and trending products. 

Online store owners procure items from sourcing companies and sell them via their websites. 

These websites can be independent online stores or online shops at online marketplaces including Amazon, eBay, Walmart, etc. 

Amazon FBA Sellers 

Amazon FBA has recently taken online selling by storm. Every other seller on Amazon has started selling products via Amazon FBA. 

As FBA (Fulfillment By Amazon) has some strict product requirements, these sellers prefer to hire the services of professional sourcing agents to avoid any non-compliance. 

Good sourcing agents are well-versed with Amazon guidelines. So, it is always to their benefit to get the products from sourcing companies to avoid rejections from Amazon. 

Amazon

Dropshippers 

Dropshipping is a model where you don’t have to buy products before selling them. You get an order on your online store and place the order of the same products with the supplier. 

The supplier is then responsible for shipping that product directly to your customers without having you deal with shipping and other formalities. 

Dropshippers also rely heavily on sourcing agents as they find it the most effective way to streamline their orders. 

A dropshipper may focus more on getting sales and leave everything else to the sourcing agents. 

It is a win-win situation for both. 

How to Find a Sourcing Company or Sourcing Agent?

There are many ways to find a sourcing company or an agent. Following are the most common ways to find a sourcing company. 

Internet Search 

Most sourcing agents are present online. You can just search for them using the terms like “sourcing company” or “product sourcing agent”. 

If you want to look for a sourcing company in a specific country, just write the country name in your search terms. 

The most common places to search for sourcing agents are as follows. 

  • Google 
  • Yahoo
  • Bing

Social Media 

Social media has become a powerful tool that not only connects people but also presents business solutions. Most sourcing companies have their presence on social media. 

The common social media platforms to search sourcing companies are as follows.

  • Facebook 
  • Instagram 
  • YouTube 
  • LinkedIn 
  • Pinterest 

Referrals 

If you know businesses that source products, you can contact them and ask which sourcing companies they are in touch with. 

You can take referrals from them and add them up to your list of sourcing agents. This will help you compare the rates and services while you shortlist sourcing companies for your business. 

Tips to Identify Good Sourcing Companies

The internet is bombarded with sourcing companies. There are thousands of sourcing companies or agents claiming to be the best in line. 

But how do you find out which sourcing agent is best to work with? 

We have shared a few tips in the following section to help you identify the right sourcing agent for your business. 

You should consider vetting the sourcing companies by looking into the following characteristics. 

  • A good and long history of sourcing products. 
  • Must have strong feedback and testimonials from their clients. 
  • Should be located near the locations from where you intend to buy the products. 
  • It is good if they have professional sourcing certifications. 
  • Should have good customer service to keep you updated about your orders. 
  • Should be able to provide extended services like white label dropshipping and private label dropshipping
  • Must offer a competitive pricing structure.
  • Should offer diversity in the product range. 

List of Best Sourcing Companies

Following is the list of best sourcing companies that can be useful while you are searching for a sourcing partner. 

NicheDropshipping 

NicheDropshipping is the leading sourcing company in China. As the pioneers in sourcing for dropshipping business, we know where to find the products lowest in cost with the best quality. 

Following exclusive attributes have made us the top sourcing partners for many years. 

Other reputed sourcing companies include the following. 

  • Leelinesourcing 
  • Jingsourcing
  • Famisourcing
  • The Sourcing Co.

FAQs about Sourcing and Sourcing Company

We have answered the top 3 frequently asked questions about hiring a sourcing company. Read the answers for further clarity on the topic. 

How Does a Sourcing Agent Ensure Product Quality?

A good sourcing company has its quality assurance procedures to ensure that they deliver the promised products. 

Quality Control

Some good sourcing agents deliver the product samples to their clients before delivering the full shipment. 

This is to make sure that the buyers get exactly what they require. They double-check for the quality and quantity of the products before shipping them to the buyer’s address. 

Does a Sourcing Company Provide Factory Inspection Services? 

Yes. A good sourcing company carries out factory audits and inspection services as requested by the buyer. It also helps maintain transparency in product development.

Following are the inspection services that a sourcing company can provide. 

  • Pre-production inspection 
  • During production inspection 
  • Pre-shipment inspection 
  • Container loading inspection 

Should I Hire a Sourcing Company from China or the USA? 

Most products are sourced from China for a reason. China has cheap labor and the government supports manufacturing heavily in China. 

That makes it possible for Chinese manufacturers to offer products at the cheapest prices. 

Sourcing companies in the USA also source most products from China. So, it is best to hire the services of a China sourcing company because it will be easy for them to find manufacturers of the required products. 

Conclusion 

No business can survive without having to source products. That is why sourcing companies came into being. 

A good business hires a sourcing agent or a company so that it can save time and money to look for the best possible product solutions every time. 

A China sourcing company like NicheDropshipping can be termed a global sourcing company because it supplies products to every part of the world. So, if you want to have a long-term sourcing partner, go for a Chinese sourcing agent. 

Do you want to source products for your new or established business? Ask for a free quote and our sourcing specialist will be right there to assist you with everything. 

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