How eCommerce Companies can Manufacture Securely
A guest article by Sourcify team. They enable any company, small or large, to easily go from an idea to physical product.
When starting an eCommerce store, one of the trickiest parts to figure out is your supply chain. With similar products on the market, you’d think your process of finding the right manufacturer would be straightforward. When dealing with manufacturers across the globe, you’re going to be facing everything from language barriers to fraud.
Since you can’t just ask a competitor who their manufacturer is, you’re going to have to know how to take the right steps to manufacture in a secure manner. This means not only ensuring quality but actually knowing who your manufacturer is.
Your supply chain is the backbone of your eCommerce store and without a solid one, you’re destined to fail. That is why when starting your store, you’re going to need to know the ins and outs of how your product is produced.
Luckily for you, this article is going to dive deep into what you can do to ensure you’re manufacturing securely. You’ll learn how to effectively validate a legitimate manufacturer and the types of manufacturers to watch out for.
I’ll start with my own experience manufacturing products:
I started to become fascinated by supply chains in 2010 when I was living with a host family in Beijing and attending a local Chinese high school. During that year, I had my first manufacturing experience of helping produce shirts for one of the programs at my school.
Though this was just a small production run of a few hundred shirts, my teacher knew how to deal directly with factories so we went straight to the source. Interacting with a factory excited me and by the end of that experience, I wanted to learn more about manufacturing.
During the weekends that year, I spent a lot of my time at the local markets across Beijing where I befriended several shopkeepers. The markets I explored often openly sold knock-off goods.
While most the goods people bought were fakes, the shopkeepers explained to me that some of them were actually runoff goods from the factories producing the real products. When a company goes to produce 100,000 units of the same product, a factory can’t produce exactly 100,000 units. There is always runoff and this left over product is then sold on the black markets. That is how some of these fakes seem so real.
After living in China in 2010, I became eager to manufacture more products and in late 2013 I started going through the manufacturing process for my first eCommerce company. We invented the first leather watch strap without holes that worked like a zip-tie and ended up growing that store to over six figures in revenue.
It literally took us over five months to get to our first prototype though and after bringing dozens of new products to market over the last four years, I now understand how to ensure you have supply chain security, even if you’ve never visited your factory in person. Those tricks to ensuring a secure supply chain will be explained in this article so you can feel comfortable with the factory you work with.
Along the way, I realized that the problem with eCommerce manufacturing stems from not only finding the right manufacturer but also having a suite of project management tools to understand where you’re at in the product development cycle.
This problem faced by almost every eCommerce entrepreneur is what motivated me to start Sourcify, a platform that is on a mission to make bringing a product to life easy.
Factory, Trading Company, or Wholesaler
Not all people know this, but the term manufacturer usually represents three different categories: factories, trading companies, and wholesalers. Working with each one has positives and negatives, yet at Sourcify we only work with factories in order to go directly to the source.
An easy to spot trading company on Alibaba
At first glance on open database manufacturing sites like Alibaba, there appear to be millions of factories. Though I wish this was the case, open database sites are filled with middlemen. This is one of the main problems when navigating these sites, their wholesalers and trading companies shouldn’t be your go-to source. They’re the ones taking a cut on top of the actual cost from the manufacturer.
Instead, you should focus your manufacturing efforts on actual factories so you can go directly to the source.
Before we dive into how to find an actual factory, let’s first understand how to identify wholesalers, trading companies, and sourcing agents.
Trading companies are not only all over sites like Alibaba but also at some of the world’s biggest trade shows like the Canton Fair. They make money by taking their own margin, on top of the factory’s cost.
They tend to deal with a wider array of product categories and don’t focus on a specific raw material.
Most professional purchasers want to go direct to the factory. If you need a low minimum order quantity though, it won’t make sense to work with a larger factory.
The larger factory will have higher order quantity requirements and you’ll be a small fish in a big sea, instead of potentially being one of the trading company’s biggest clients.
Some trading companies will blatantly pretend to be a factory though and be figuring out whether you’re dealing with a factory or trading company can be tricky.
Trading companies have distinct implications when you’re sourcing from them:
- It will be harder to assess the factory that will actually be manufacturing your product.
- It will be difficult to hold the trading company liable in the case of defective products.
- It may be easier for the trading company to ‘disappear’ or otherwise evade communication.
Though these scenarios are rare, it is worth to be made aware of.
This type of business makes money in a similar way to a trader: they buy a product in bulk and then add their margin to the cost. Wholesalers are common worldwide and at my company Sourcify when we help businesses cut costs, it usually stems from them dealing with a wholesaler and not the factory.
Most people who deal with wholesalers do so because they often have foreign representation. They may also have a warehouse in America, meaning your lead time and shipping costs could be reduced.
With that said, when we work with clients who have been buying through a wholesaler, we’ve saved them an average of 62%.
As an example, JJ George a company producing premium grills and grilling equipment was buying a key component from a wholesaler here in America. They came to Sourcify knowing they were overpaying for this part and wanted to save costs by going directly to the manufacturer. Within a week, we found and introduced them to the manufacturer in China who was producing for their wholesaler, saving them 65% of their cost of this part.
If you’re starting a new eCommerce business, I would recommend avoiding wholesalers because you need that additional product margin to grow.
I will also note that most wholesalers deal with standardized products and don’t have the ability to do much customization.
When searching for a source, this should be your target. Going direct to a manufacturer is almost always the best approach, as you’ll have the most profit.
The problem lies in finding the right factory to work with and many don’t employ reliable English speaking sales reps.
Most the companies you find on Alibaba will be trading companies, as they’re in the business of selling the products they acquire from manufacturers and often employ English speaking sales reps.
The simplest way to determine a factory is based on the product categories they produce. If the products they have stemmed from a wide array of raw materials, they probably aren’t a factory.
Factory names will also be more directed at specific products and will often include the name of a product category like eyewear in their name. Trading companies and wholesalers often have the words trading or technology in their name, as they’ll shift the products they sell based on current trends.
You can confirm if a company is a factory by checking their Chinese business license. This is basically their corporate license to do business in China.
Once you’ve got a copy of the business license, you’ll need to look at the ‘Business Scope’ label (经营范围 – Jīngyíng Fànwéi). The business scope will be a list of categories that the business is legally permitted to operate in.
Though this is a great step to take, it’s going to be near impossible to implement if you don’t speak Chinese. That is why we usually recommend people take the following steps to validate a manufacturer:
Once you’ve started the process of finding a manufacturer, you’re going to need to validate their legitimacy before you start working with them. The best way to make sure a manufacturer is legit without actually visiting them is by cross referencing all their information.
This process involves finding their complete online presence, seeing what tradeshows they’ve attended, and confirming any business licenses or certificates that they have.
You should never rely on one source so cross-referencing enables you to have multiple sources.
Start by seeing if your potential manufacturer has their own website and if their email is @theirwebsite. From there, move onto searching for them on open databases such as Alibaba and Global Sources. Next, see if they attend trade shows or are a part of any trade organizations. Conduct a Google search with their name and the word fraud. Checking and double checking their credibility is the most important part of connecting with a potential manufacturer.
When screening potential manufacturers, be sure to check their reliability, reputation, and trustworthiness. You don’t have to meet your potential supplier face to face to have a good relationship.
One last step to really check if your manufacturer is legit is what I like to call the picture trick. Your manufacturer will probably have images of their facilities online, yet how do you know if these pictures are actually theirs?
Request that they take photos of their facilities with a paper that has your name on it. This way you know the images you’re being shown are theirs and can also see the current conditions at the manufacturer’s facilities.
I would only suggest taking their verification step once you’re about ready to place an order, as it is a nuisance to the manufacturer.
Wrapping It All Up
Finding the right manufacturer for your business isn’t a one night endeavor. Manufacturing is a process and ensuring you’re manufacturing securely is what will matter in the long run.
Would you rather have a mix up on your first production run or spend an additional few weeks validating your manufacturing source? These extra steps will enable you to validate your supply chain and when you’re planning to grow your business, feeling comfortable with production will be essential to success.
That’s one of the reasons why we started Sourcify: to ensure entrepreneurs could feel comfortable when bringing new products to life.
If you’re currently looking for a new manufacturer, it’s time to figure out the type of manufacturer you’re dealing with and cross-reference their existence.