Procurement and Purchasing Agents in China: How to select the right one?
Learn how to spot the right sourcing agent
The Procurement Agent works arranging various aspects of the purchasing process from China to buyers around the world.
Services provided by these agents include:
Supplier Identification & Price Research
Sample Management & Prototype Development
Product Compliance & Testing
Shipping & Logistics
This market, which has been growing steadily over the last 5 years in Asia, is segmented from independent consultants, to large trading houses in order to meet customers' needs. We will now talk about what can be expected from a procurement agent to do for your business.
When choosing a procurement agent in China, keep these guidelines at hand:
What is their product expertise?
If you're thinking to explore a product you have no previous experience on, it is key to select a procurement agent with comprehensive product expertise, which is much needed to understand what should you expect as good quality and price. It can also be beneficial during the suppliers selection and background check process since this type of agents will know beforehand what specs to look at and maybe they have a recommended list of suppliers that will meet your quantity and price requirements.
Is it the best practice to find an specific-product sourcing agent?
The answer is: it depends. Is your business selling that one only type of product? If the answer is yes, then chances are you will benefit by partnering with this type of agents. On the other hand, if you want to outsource your procurement needs to a third party, please keep reading to learn how to mix and match with current trading agencies trends.
Supplier Identification & Price Research
This is the base service for any procurement agent. You will find that fees and scope will vary depending on many factors including research methods, number of suppliers contacted, operation costs and their own network. We've seen independent procurement agents charging anything from USD$40 to USD$900 with various levels of success, hence price isn't a determining aspect that will impact the quality of results.
Some Purchasing Agencies have an in house Quality Inspection Team, while others subcontract this to a specialized Quality Check agency. But the one thing you must avoid is to ask your own supplier to conduct quality check on the products you are getting. It might sound obvious, but many people have asked me this question before. The most efficient way to run this critical part of the procurement process is to hire a renown local inspection company. This will reduce travel expenses and improve timing since distance is not a factor. Many purchasing agents will have established relationships across China thus making it easy to contract with a good inspection service provider.
Product Testing & Compliance
This service depends on the level of expertise you have over the product you want to source. Any purchasing office will be able to conduct product testing and compliance for you based on a checklist that you provide. This needs to include any chemical compound details you need to fit your market, as well as, any specific test you need to run. Procurement agents have a fixed set of tests to run on different products to ensure parameters like dimension, finished, washing tests, brokerage tests, and so on. The only one that can tell exactly what needs to be applied on the goods before importing is yourself and potentially a product agent in your destination country. Product compliance escalates to regulatory affairs, and this goes beyond most (if not all) purchasing offices scope.
Some agents are specialized in developing custom designed products. But you need to make sure they are qualified to provide this service by asking for referrals from previous customers, requesting examples of their most current experiences, and by being sensitive about their timing and quality of meeting while compiling your product information.
Shipping & Logistics
Usually this service is provided by most procurement agents in China. Many of them will have partnered with a local forwarder to run this, and charge a small fee over the freight charge. You will find that pricing is not too different from agent to agent, this is because the freight industry consolidated a while ago and keep a standard fees structure throughout the year.
Product Sample Management
Interestingly, very few agencies openly offer this service. The ones that do will have a varied of added value services during the sample or prototype testing process. This will help you reduce your shipping and sampling costs as well as response time.
Some Purchasing Agencies have subsidiaries in their target markets, helping their clients to manage this part of their business; however, it is recommended to compare fees and services with additional local agencies of your choice to maximize your cost management.
Finding a supplier isn’t hard. You can just go on Alibaba.com and you’ll have millions of options to choose from. But identifying reliable and cost effective suppliers is a total different thing. Broadly speaking, purchasing agencies will have:
Relationship Based Supplier Selection
Be wary when choosing this type of agencies. Keep in mind they choose their suppliers based on recommendations from other trading offices, friends, or acquaintances. This makes the selection process biased and ineffective since you might be leaving on the table potential savings and the opportunity to test leading production techniques available in the market. Ideally, you should have a wide variety of options available in order to see market prices before further negotiation. In sum, stay away from this sort of agencies.
Strategic Supplier Selection
This is a customized approach that will test many suppliers at the same time based on your unique needs to handpick those that will benefit and help you achieve your business goals. It is also called a Protocol of Selection, and will give you a transparent insight on the market in China regarding your product requirements. You can expect a proper document outlining detailed supplier information at the end of the research and selection process.
One Stop Shop
Many trading offices are currently working closely with different suppliers sourcing goods on a monthly basis. This is beneficial if and only if your product is currently covered by their network. On the other hand, they will be reluctant to share their suppliers information keeping you away from a transparent supply chain experience.
Fees and Commissions
There are many ways procurement agents charge their customers. Here's an overview:
Commission based: this carries a lower initial cost to the buyer, and will keep your procurement agent focused on a large order that requires more supervision than development. This is not recommended for custom made products in small batches since it will entice your agent to cut corners in order to fit a given budget, while leaving on the side critical details during production.
Fixed Price: this is a great strategy when developing custom made goods since the customer has control over all the expenses and services throughout the project. It is like going to a restaurant or having a private chef at home. You choose what you like. Procurement agents working under this structure are limited. Mainly because custom products are not ordered in large volume, and customers are more sensitive to their budget. So many agents prefer to work on larger orders and commission based.
I don't recommend to commit to one agent only. The best practice is to test different service providers while growing your network and seeking for hidden savings. Competition is fierce in the procurement industry, so more than likely, you will find a good agent out there looking for a customer too. Be aware of these practices, and how they affect the end result. Be an informed and involved buyer at anytime. And finally, be mindful to your supply chain health. There are many stakeholders involved to source the product you want, so don't focus on the price only, but the customer experience and transparency. Remember, your procurement agent is your partner in China.