The pros and cons of buying through a sourcing agent

Sourcing agents are becoming increasingly relevant in today’s global market. As an importer, finding reliable suppliers overseas can be pretty difficult and that’s where sourcing agents come in. Their main duty is to secure and maintain a supply of products from low cost nations particularly China and help you get the best quality, terms and price.

For outsourcing services, there are two kinds of sourcing agents you could consider. You can opt for the regular sourcing service providers acting independently or turn to the sourcing departments of top global retailers like Walmart, Kroger and Groupe Casino. In as much as they can be a great asset to your business, working with sourcing agents isn’t all smooth sailing. Renaud Anjoran gives some insight into this in his article about top 10 mistakes when outsourcing your China sourcing on QualityInspection.org. You therefore have to be aware of both the advantages and disadvantages of buying through a sourcing agent.

Pros:

Increase in bargaining power

Sourcing agents have strong relationships with suppliers. This is especially true for the sourcing divisions of top global retailers with a large purchasing power. This allows them to constantly order for huge quantities of products from the suppliers. These large orders let them take advantage of economies of scale to negotiate for lower prices than you could meet on your own. Also, by consolidating orders from different clients, the effective costs for each client can be lowered. This is because costs such as production costs are fixed and therefore the burden is shared among many. Furthermore, their long-standing relationship with manufacturers also allows them to ask for smaller order quantities. This is great news for the small business owners who would normally struggle to afford the MOQ (minimum order quantity) specified by the manufacturers.

Information on local suppliers

Sourcing agents can be instrumental in passing on knowledge about local suppliers. For instance, when importing products from China, a sourcing agent with offices in China will provide a wealth of information regarding the suppliers present in the region. With representatives able to speak the local language, communication won’t be an issue thereby guaranteeing an insider’s perspective on the manufacturer’s capabilities. Such information will be very hard to acquire on your own while you still have to navigate the language barrier and contend with the general distrust of a foreigner. The end result is access to a wider supplier network and good insider knowledge for picking the most reliable supplier.

Saving time

Sourcing for products is a time consuming process that could take weeks or even months of your time due to the sheer number of activities and responsibilities involved (meeting with suppliers, negotiations, factory inspections etc.). Such responsibilities will be handled by your sourcing agent and free you to focus on other aspects of your business. Moreover, the experience and connections possessed by the sourcing agent will ensure they go about such duties much more efficiently than you could. Any problems met along the way regarding the manufacturer should ideally be solved by your sourcing agent with little or no contribution from you. You therefore don’t need to travel to China anytime the production process hits a snag but you can instead rely on your agent who has local presence.

Better vetting and security

Sourcing for suppliers overseas is an undertaking that is fraught with risk as evidenced by the huge number of cases involving fraud or outright scams. As an amateur, you are much more susceptible to foul play by unscrupulous suppliers compared to a veteran, and that’s exactly what a good sourcing agent is. Due to experience, knowledge of the supplier network and more resources, agents are able to successfully navigate this perilous landscape and get you a reliable manufacturer. Reputable sourcing agents have quality teams to help in the vetting process and even perform factory audits social compliance audits to ascertain that everything is aboveboard

Cons:

High costs

One of the major disadvantages of having to deal with sourcing agent is the costs you’ll have to incur. Sourcing is risky and time-consuming therefore sourcing agents put in a lot of work to ensure everything runs smoothly. For this reason, it’s not surprising to find their service fees adding up to thousands of dollars or even tens of thousands for complicated projects. For many small businesses and start-ups, these prices are too high to justify the convenience of hiring a reputable sourcing agent, making them out of reach. Hiring cheap sourcing agents is a worse option as they could be scammers. Most small buyers therefore opt to eschew sourcing agents altogether and end up having to find manufacturers on their own, an option that is much cheaper but inherently more hazardous.

Conflicting interests

Whenever your interests and those of your sourcing agent don’t align, your business suffers. The most common cause of this is the hidden commissions offered by the suppliers to the agents. The fact that manufacturers offer the agent a commission that importers don’t know about is basically a public secret in China. Such a commission can adversely alter the priorities of your sourcing agent. Instead of focusing on finding a supplier that will produce quality products at an affordable price, your agent will only be interested in suppliers that will offer the largest commission and disregard everything else. Your agent could also turn a blind eye to quality issues and refrain from pushing for better prices all to retain a lucrative supplier. To prevent this, sign a contract with your agent preventing them from accepting commissions from suppliers. You should also perform regular price-checking with other suppliers to confirm your agent isn’t overcharging you.

Unreliability

Whether or not your agent is trustworthy and reliable is a question that plagues many. Some sourcing agents have been known to be too disorganized to follow the correct procedure when identifying potential suppliers. Such agents may forego due diligence or just perform a perfunctory background check hence leaving you vulnerable to shady suppliers. Worse, some agents have been known to liaise with the supplier in order to take advantage of you. For this reason, you have to be very careful when hiring a sourcing agent. To help you do this, Justin Yuan gives some advice in his article ‘How to find a good China buying office, sourcing agent or purchasing agent’ on LinkedIn.

 

About Author

Sarah Kaiser is a digital marketing manager at Casino Global Sourcing, the sourcing division of a French retailer Groupe Casino. Godirek.com is the product catalog of Casino Global Sourcing, which offers helps and tips from product sourcing, cost saving to sales boosting for Amazon third party sellers . She’s a fan of water sports and has studied business management in France. Her works have been published on dozens of websites and blogs.