Sourcing product from Alibaba

Types of manufacturers

Factory: This is the actual factory that will be producing your sourced goods. Many factories have their own sales teams to deal with retailers like you. Often times, trading companies will source from factories.
Trading Company: A middleman that sources straight from the factory and sells to you. In some cases, it may be difficult to find a factory that produces your goods, but a trading company can assist.
It’s important to pick which option is right for your business.

Both a trading company or straight from the factory can be a good option, so it’s really up to you to determine how you like to work, your relationship and comfort level with the company, the quality of the product and so on.

Alibaba Vocabulary

MOQ: Minimum Order Quantity (MOQ) requirement on Alibaba. It specifies the lowest quantity of a certain product that a supplier is willing to sell.
OEM: OEM stands for Original Equipment Manufacturing. You can come with your own specifications, your own requirements, your own detailed visions of your product and hand them off to an OEM factory. The OEM will start manufacturing your product from scratch. This is the kind of supplier you should looking for if you want a unique product under your brand name.
ODM: ODM stands for Original Design Manufacturing. An ODM factory will give you products ideas. Give the factory some expected functions, some expected performance and some expected ideas of the conceptions and the factory will suggest some final product options. Don’t know how to build a product? An ODM factory can help.
Trade Assurance: If you have a dispute with your supplier, you can submit a claim to Alibaba. They’ll review it, and If they agree that the factory has not made good on their promises, they may give you your money back. Just keep in mind that from the very beginning your sales agreement must list the points that could cause a dispute, like QC, lead times, etc.
Gold Supplier: The factory is paying Alibaba to appear more favorably in the search results. The factory is pushing their business forward, so take it as a good sign.
Assessed Supplier: Alibaba has had a third-party company visit the factory to check out their facilities.
QC process: Alibaba has lots of quality control processes and terms. Here we go:
- IQC: Incoming Quality Control means the control of raw materials or anything that enters the factory (the workplace) for the manufacturing of goods and products.
- OQC: Outgoing quality control is concerned with the finished goods ready for shipment.
- QC & QA: Quality Control and Quality Assurance are the ways that quality is controlled and assured during all the process.
- IPQC: In Process Quality Control is made during all steps of the manufacturing of a given product.
- FOB: Free on Board (or Freight on Board). This means that the cost of delivering the goods to the nearest port is included but YOU, as the buyer, are responsible for the shipping from there and all other fees associated with getting the goods to your country/address
- CIF: Cost insurance and Freight (named port of destination). Seller must pay the costs and freight includes insurance to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the ship.

Sample Product Sourcing

We’ll follow below steps to source hat:

Picking a Supplier
Contacting the Supplier
Securing a Sample
Reviewing Your Sample
Placing Your Mass Quantity Order

Sourcing criteria

Hats are picked because it meets all of below sourcing criteria:

Hats are light and easy to ship
We can source at a low price and sell at a competitive price
Hats have few health risks
I feel like I understand the market for hats
There is a market for hats.
It not costly

Pick a supplier

After we’ve searched for the hat on Alibaba, a number of suppliers will appear. As you look through the options, you’ll want to consider a few things:

Price
Minimum order quantity
Time listed on Alibaba
Time listed as a Gold Supplier
Supplier reputation and reviews

In evaluating supplier reputation and reviews, you may ask below questions

How structured and detailed is their page?
Do they have pictures of the factory? Detailed information about the location and history?
Do they have professional descriptions and images of the products?
Do they describe their QC process and delivery times?

Asking and answering these questions should take out much of the fear from your Alibaba search and can help ensure that you work with legitimate factories and suppliers.

Contact the supplier

Now that you’ve identified some suppliers that meet your criteria (low MOQ, gold, trade, etc.) you’ll be able to shoot them a note and get additional details. Here are a few tips on outreach:

Keep it short and sweet
Introduce yourself & your business
Describe what you are interested in
Inquire about shipping times and sample cost

In short, your end goal is to determine which suppliers can meet your basic requirements. Depending on your budget, you’ll want to engage a few suppliers for your product. Typically reach out to 5-10 and track findings in Excel.

When you engage these suppliers, you’ll interact with them to secure a sample. A few things to know about samples:

Samples are important because you’ll want to see the product prior to selling it and investing more money into inventory.
Many manufacturers will charge for express shipping via DHL, UPS, FedEx to ensure you get your samples quickly.
In some cases, they’ll also charge you for a sample, which can often be refunded once you pick them and place a larger order.

Most Alibaba suppliers respond within 24-48 hours. In your communication you’ll want to look out for a few things:

Does the prospective manufacturer answer all of my questions?
Do they communicate clearly?
Do they show that they can meet your basic requirements?

Alibaba suppliers are bombarded with emails on a daily basis and it’s important to let them know that you are a legitimate customer.

You will want to ensure that you respond in a timely manner to any Alibaba correspondence.

Secure the sample

Eventually, your supplier will reach back out to you. They will provide answers to your questions and in some cases, offer to chat via WeChat or Skype to further discuss your request. After confirming details with you, they’ll either ask for a small nominal charge plus shipping for the sample. This small fee does two things:

It often weeds out non-legitimate customers
Pays for express shipping.

One thing that is important to remember is that sample costs can quickly add up. Be selective in who you request samples from otherwise you may find yourself having lost a small fortune as you scope out new vendors. At the end of the day you’re looking to source a quality product that will still deliver your target profitability per unit.

If you are planning on selling the product as-is, you’re done here.

Private label products

There are two types of private labeling that is possible with products from Alibaba.

With ODM, you are essentially buying a relatively finished product and throwing your label on it. You may have a few small tweaks as well. If you’re planning on private labeling the product, you most likely will have a set of designs you expect to print on the pre-manufactured item as well as a tag that has your brand name and other information.

OEM is when you start something completely from scratch. In your discussions with the manufacturer, if you have a design that you’d like on this hypothetical hat, you can send them artwork (often in the form of .jpg, AI, etc.) and for a small charge, they’ll be able to put this on your sample. This is often called “OEM.”

If you are opting for the private label route, you can also often put a tag on the product with your brand.

Analyze samples to ensure quality.

Once your sample arrives, you’ll want to check for a few things:

Does this sample look like the pictures?
What is the quality of the product? Is it durable? How’s the stitching?
Is the packaging what I expected? Do I need to request something different?
Feel free to take the product for a test run.

Pretend you’re a customer buying your product:

How does it feel?
Does it accomplish the task?
Does it solve the problem you’re solving?
Feel free to also show others.

Additionally, you’ll want to be sure that the price for this product will deliver you your targeted profitability per unit. If the sample is amazing, but the per unit cost will come at an unprofitable price, you should continue to explore additional manufacturers/suppliers.

Place your order

We like our sample and are ready to move forward. At this point, you can reach back out to your supplier to let them know that you like the sample and to discuss terms for your larger purchase. These details include:

Price per unit
Order quantity
Delivery time
Shipping method
Address.

The supplier will send you a trade assurance order form and you’ll place your order. When they get to you, be sure to inspect them (you’ll want to do this for your future orders as well).

Hopefully, the count you ordered, the design and the workmanship will be similar to your sample (and you should be ready to start selling).

At this point, take a picture for your product photography and get your products live on your site. And you have your private label product!

Continue to get feedback

After you launch, be sure to monitor your inventory levels. Ultimately, you’re going to want to decide as to whether your product will remain viable (i.e. maintain margins, low return rate, etc.) or whether demand is actually quite low.

If you do find that your product is successful, you can reach out to your supplier and place larger orders.

For any entrepreneur pursuing a private label business, I would encourage you to “follow a passion” or “sell something you know.”

Price discrepancies between products that look same

On Alibaba.com, you will often find a huge range of pricing for a single product. Here’s why:

The product was listed at a time when the cost for the item was higher. Now, the price has fallen and those listing the product are pricing it correctly as of current.
The quality for one of the items is better than for the other.
The company is a trading company rather than a manufacturer.
The company with the higher price wants to earn a higher profit via their margins.

Many businesses looking to source from Alibaba.com assume the price differentiation is due to the latter option, leading them to choose the cheapest item.

In all, do your due diligence when sourcing your products and request samples. Business that are successful when sourcing from Alibaba.com often:

Reach out to more than 10 of the suppliers they are considering
Go with the one that is the easiest to work with, taking into account pricing and quality.

Shipping costs

It is wise to contact a supplier before finalizing a transaction. Simply emailing them a letter of inquiry requesting a quote (yes, you can negotiate the posted price on the product page) and samples. Here are a few good things to be sure to inquire about within your email:

Minimum Order Quantities
Pricing for Samples
Production Pricing
Production Time
Payment Terms

Of course, not all suppliers will reply. In order to increase your response rate, be sure to keep your inquiry short and sweet.

Customs fees are a big variable that will depend on the product, the country of export and the country of import. A great solution to figure out customs is to use pitneybowes.

Trading company v/s Manufacturer

A trading company often acts as a middleman between the buyer and the supplier. For the most part, businesses prefer to buy straight from the manufacturer in order to cut costs.

Trading companies often price their products a bit higher in order to produce revenue. The upside, however, is that trading companies can offer a larger variety of products, allowing a buyer to source from one supplier rather than multiple – as may be the case if a buyer chooses to buy solely from manufacturers.

Here is a quick breakdown of how to tell trading companies from manufacturers:

“Factory” means manufacturer on Alibaba.com. Trading companies buy from factories and then re-sell to profit from the price difference. Generally, buyers can get a better price buying from factories directly. Some trading companies unfortunately list themselves as factories, so, be aware. In general, if a company supplies an array of items, rather than a quality selection of a single category (i.e. if they supplied apparel versus if they supply sneakers –– the latter here is likely the actual factory).
Ask to see a copy of a factory license. If you are unsure of whether or not your supplier is a trading company or a manufacturer, ask the manufacturer to supply the factory license. After all, you’re already requesting samples.
Don’t be so quick to judge. If you find a quality trading company via which you source multiple products without any problems, that’s great! The convenience of finding a good supplier and sourcing all or multiple of your products from them can be worth the extra spend.