Module Three

Sourcing Products – How To Get The Best Products?

In our previous chapter, we came across product selection in detail. We understood how selecting the right product can give a perfect direction to our e-commerce business. We believe you have identified a suitable product that would be profitable for your business.  

 

So, now you might be planning to list those products and start selling them through your website. Right? But wait! How will you arrange an ample supply of the product once you receive orders? Do you have any plans to ensure that? Well, for this, we have a specialized operation known as sourcing. 

What do we mean by the sourcing of products? How can you ensure this for your business? The process of sourcing refers to finding and acquiring products at a reasonable price to sell them later for a decent profit. 

 

The global e-commerce market is expected to grow by $7.9 trillion by the year 2027. So, you must be prepared well with sourcing strategies to meet the growing demand of consumers. Isn’t it? 

 

Hence, in this chapter, we are going to talk in detail about sourcing. By the end of this chapter, you will learn in detail about:

 

• What is sourcing? 
• Different types of sourcing methods
• Why should you build relationships with suppliers?
• What are importing and exporting considerations you should be aware of?
• Sustainable and ethical sourcing practices
• Points that you cannot miss while sourcing

 

So, let us start with our discussion and understand every aspect of sourcing you should be aware of. 

 

Understanding Sourcing Products

Let us take an example if you want to open an e-commerce business. Now, you need to understand that opening a business and continuously meeting customer’s demands are two different aspects. 

 

In addition, it would be a lot more challenging for you to get the stock to sell if you are not the manufacturer. Hence, for this, you need to rely on the process known as sourcing. 

 

As we learned in the section above, sourcing refers to the process when you arrange the supply of goods or stocks at a reasonable price from the supplier intending to sell it at a higher price. Sourcing helps individuals carry out businesses that are not themselves manufacturers. 

 

Different Types of Sourcing Methods

Just like every other aspect of e-commerce, sourcing also plays an important role that cannot be undermined. Especially when you are not manufacturing the products that you sell, you have to rely on sourcing to a large extent. 

 

Do you know that there are different types of sourcing methods, with each of them having their unique set of advantages and disadvantages? Let us talk about them here in this section. 

Sourcing from Manufacturer/Being a Manufacturer 

The primary type that we can consider is you being the manufacturer or you are directly sourcing your products from the manufacturer. So, the first type of product sourcing involves you, directly sourcing from the companies that produce it. 

 

When would you source directly from the manufacturer most probably? Well, it would be when you might want some specific products, or need customization or private labeling on the product of your choice. This type of sourcing usually requires the buyer to make bulk purchases and have large order quantities associated with them.

 

 Let us understand this through an example. You are looking forward to selling customized t-shirts on your online store. All the designs available are specially made by you and the consumers are in love with the product. In this scenario, it will be ideal for you to source products directly from the manufacturer. 

 

Advantages

• You are going to pay a lower cost per unit. 
• You have control over product quality and specifications. 
• You have the opportunity for custom products and branding. 

 

Disadvantages

• You have to make at least a specific amount of order and that is usually high. 

Sourcing from Wholesalers

Now comes another type of sourcing that you can make use of. As we saw above the issue of large minimum orders, thus sourcing from wholesalers solves this issue effectively.

 

Wholesalers are usually buying large quantities of products from the manufacturers and then sell them in relatively small quantities to other businesses. It provides moderate pricing as compared to ordering from manufacturers and also does not have any minimum amount of order value that you need to make. 

 

Advantages

• You will have the leverage of lower minimum order quantities. 
• As an e-commerce business selling a diverse range of products, sourcing from wholesalers provides you access to a variety of products, and that too from different manufacturers. 

 

Disadvantages

• One of the primary setbacks of wholesalers is that the buying cost is generally higher than buying directly from manufacturers. 
• You do not have much control over product customization. 

Dropshipping

Today, one of the most common forms of sourcing, especially for budding eCommerce entrepreneurs is dropshipping. With drop shipping, businesses can sell products to customers without keeping any inventory. 

So, how does this happen? Well, you act as an intermediary between the customer and the supplier. Once the order is placed, the dropshipper will buy the product from a third party, and ship it directly to the customers. 

 

Advantages

• You do not have to deal with a lot of financial risk and the business can be started with low investment costs. 
• There is no need for you to invest in inventory management.
• You have access to and availability of a wide range of products. 

 

Disadvantages

• You will have a lower profit margin because of the high per-unit cost that you are bearing. 
• You do not have much control over product quality and shipping timings. 

 

Why Should You Build Relationships With Suppliers?

Now, we know what different types of sourcing our products are. One can source from both national and international sources. However, one thing that most of us miss to focus on is building relationships with suppliers. Is it important? Yes! 

 

Let us take a simple example. You go to buy groceries from a shop. Once, twice, thrice, and now every time you go only to him to buy groceries. Earlier it was because of the qualities of good available, but now it is also because you have a good relationship with them. 

 

Now, what you observe is that the shopkeeper has also started giving you additional discounts on your purchases. How did it happen? Well, thanks to human interaction and bondings. Building a good relationship with a shopkeeper is benefitting you. 

 

The same principle can be applied here as well. When it comes to sourcing products, building a good relationship with suppliers can be of great advantage. Why do we say so? Let us understand in detail. 

 

Long-Term Support – We know how competitive the e-commerce industry is. In such dynamics, one cannot afford to halt operations even for a while. Moreover, the rising demands of the consumer have to be met by enough products that can be delivered. Thus, by building a good relationship with the supplier, you develop a long-term relationship that will provide mutual benefits to your businesses. 

 

Better Pricing – Another prominent advantage of building a good relationship is better pricing that you get as compared to others. As we discussed in the example above, getting better pricing will not only save costs for you but will also generate great profits. 

 

Trust and Reliability – Trust lays down the foundation of any business. The sense of reliability that you will get if you know that you will receive the supply on time, every time, is something that will give you confidence in your business. Building a bond with the supplier will help you in this too. 

 

Thus, building a good relationship with the supplier always helps. From getting better pricing to having long-term business support, it will be advantageous for you from different fronts.  

 

Importing and Exporting Considerations to Know

 

Now, we know certain aspects of sourcing goods and we also have an idea as to why it is important to build good relationships with suppliers. As we discussed earlier in this chapter, you can source goods from both national and international suppliers. But, are there any importing and exporting considerations to note?

 

Each country has its own set of rules when it comes to importing and exporting. To ensure smooth sourcing operations, you must keep these aspects in consideration. So, let us understand this in more detail. 

 

Do you know, as per the reports of the year 2022, India was the 5 largest economy in the world and is soon to be number 3? Moreover, it ranked 15 in total exports and 8 in total imports globally.

 

Importing refers to bringing goods into the country from outside (abroad) and on the other hand exporting refers to sending goods to a different country. Both of these operations have a significant role to play in eCommerce. 

 

Imagine you are looking forward to selling fashion accessories. Now, you see that sourcing your products from an international supplier is far cheaper and will yield you higher amounts of profits. You are going to choose that option. Isn’t it? So, let us understand some of the considerations that you cannot miss. 

Regulatory Factors

The primary aspect that you have to keep in mind is the regulatory considerations. In each country, these regulatory considerations are different. Hence, make sure that you are well aware of custom regulations and have the necessary licenses available. 

 

It is important to understand that licenses and permits are crucial for you to run seamless operations. Moreover, many people commit the mistake of not being familiar with tariffs, duties, and taxes. So, familiarize yourself with taxes to avoid any legal issues and ensure the smooth operation of your business. 

Logistics and Shipping 

While sourcing, always choose the best shipping methods that are available. Be it sea, air, or land. Consider factors like time taken and the cost of delivery. It will help you find the best strategy that would work for your e-commerce business. 

 

You can also partner with the best and most reliable freight forwarding companies so that it ensures proper packaging of your products. In addition, they would also ensure proper packaging and labeling of products which would ensure the protection of your goods during transit. 

Supplier Verification and Quality Control

It is crucial to verify the legitimacy of the supplier, especially foreign when you are sourcing. The verification process will help implement quality control measures that would definitely maintain product standards and even customer satisfaction. 

 

When sourcing products, we always want to secure the highest quality of products at the most reasonable price. Isn’t it? Thus, make sure that you do not take supplier verification and quality control for granted. 

 

Consider everything that will help you get the goods of the highest quality at a reasonable rate. Be respectful of cultural differences, if any, between you and the supplier. Building good relationships is one of the key elements to getting the best quality products. 

 

What are Some Points You Cannot Miss While Sourcing? 

 

Let us consider one simple situation. You searched for the supplier and found one instantly. As you were already in a rush, you did not verify their authenticity and gave them the order by paying some amount in advance.  

 

Once you received the order, you saw that the quality of the items that you got was not as good as you expected. When you confronted the same to the supplier, they did not respond. Now, neither did you get the right quality of products, nor are you getting your money back.

 

See, in this scenario, everything that could have gone wrong went wrong. All of this could have been avoided if you would have considered some basic precautions. What are these? The following are some points that you cannot miss while sourcing:

 

• Always research the background of potential suppliers. Make sure that you check references and reviews that would help you to understand if these suppliers are reputable and reliable. 
• Never compromise with the product quality for the sake of saving some bucks. Before committing to the supplier, make sure to ask for products that you can inspect for quality assurance. 
• Keep in consideration that the suppliers comply with industry standards and regulations. How can you do this? Well, you can verify certifications and find out about necessary documentation, ultimately avoiding any legal issues. 
• Make sure that you discuss each aspect of the costs associated with the order. Negotiate with suppliers to reach a favorable price for your order. In addition, be aware of any hidden costs that may affect your profits. 
• It is important that the supplier responds to your queries and is timely in communications. For a smooth partnership, building a flowing chain of ideas and thoughts is important. Hence, communication is important. 
• Do not be lenient when it comes to reviewing contracts and legal agreements. Make sure that you understand the terms and conditions of the process to protect your interests and ensure compliance. 
• Make sure that you are aware of the potential risks associated with sourcing such as supply chain disruptions. Hence, to tackle these issues, come up with the right set of contingency plans that help you deal with such issues. 
• Choosing a supplier that aligns with your values of sustainability is important.  
• Always aim for long-term partnerships rather than short-term gains. Bond building with suppliers who aim for stability and growth can lead to more reliable and mutually beneficial partnerships. 

 

Product sourcing plays a crucial role in the development and smooth operation of an eCommerce business. So, are you prepared to deliver the best to all your customers and earn some profit too? 

Image Source: Unsplash.

 

Crucial Takeaways from this Chapter

1. Sourcing involves finding and acquiring products at reasonable prices to sell them for a profit.
2. Different sourcing methods include sourcing directly from manufacturers, wholesalers, and dropshipping, each with unique pros and cons.
3. Building strong relationships with suppliers ensures better pricing, reliability, and long-term support.
4. Consider importing and exporting regulations, logistics, and quality control for smooth sourcing operations.
5. Always verify suppliers, prioritize quality, and aim for sustainable, long-term partnerships.