By Peter Zapf
My take-aways from Global Sources Smart China Sourcing Summit. Please feel free to add yours in the comments.
Manuel Becvar (ImportDojo): When I was working for a large trading company, we spent 0.7% of revenues on Quality Control (including inspections). I estimate Amazon sellers could very well be spending 10% of product sourcing costs on Quality Control (including inspections). [PZ Note: A 1 man-day inspection costing $300 on a $3,000 order would work out to 10%.]
Ben Wong (Global Sources): Bringing a new electronic product to market incurred $179K of total cost for an initial run of 5,000 units. This included:
(a) $54K of product development costs: design costs ($7.5K), hand made samples ($5.2K), mold costs ($11K), Safety & Compliance costs ($14K), crowdfunding Marketing ($7K)
(b) $79K for manufacturing 5,000 units and
(c) $46K for fulfillment of the crowdfunding campaign.
Christ Thomas (Hibermate): It takes 2 – 3 times longer to get a new product to market than you expect. And for product development, finding an intermediary (with product knowledge) that can help with design and DFM (design for manufacturing) is helping me a lot.
Ash Monga (IMEX Sourcing): There are certainly advantages for FBA sellers to work with smaller factories rather than the mega-factories. With these factories, you’ll be a bigger fish in a smaller pond. You’ll be more likely to get and keep the factories attention and less likely to have your order bumped because of another customer.
Michael Bellamy (PassageMaker): When I ask a supplier for a non-compete (or any other important terms and conditions), I try to review it verbally with the boss and as many of his colleagues in attendance as possible. The potential loss of face among his colleagues prevents violations better than any threat of legal adjudication.
Supplier Panel (they were totally awesome): We get too many inquiries that say “send us your catalog” or “send us your price list”. If you want meaningful responses from us, just send a detailed inquiry, with detailed product requirements that makes it look like you’ve thought about the product, you understand what you need, and you understand your market’s needs.
Gary Huang (80/20 Sourcing): When you are at the exhibitors booth, ask the supplier which countries they export to. If they mainly export to the Middle East and Africa, you may get a different quality level than you expect. If they export to Japan or Korea, you may get great quality at somewhat higher prices. It’s hard to bring a factory geared toward lower price and quality to higher quality. Their sourcing, labor skill, QC, etc., isn’t set up for this. Ask about price last, after you’ve ascertained issues like quality level. [PZ: Asking about their main export markets is a good tip for online sourcing as well.]
Greg Mercer (JungleScout): When you see a product you like on the trade show floor, look it up on Amazon to get its BSR. You can then goto JungleScout.com/estimator to get estimated sales volume. Helps you understand product demand when you see products you like on the floor.
Patrick Muir (SellerLabs): I was sourcing a product for 25 cents. I asked the supplier to prep the product and I thought they were going to double the price. They incrased the price to 26 cents per unit. It’s faster and cheaper to have products preped by the supplier and ship direct to FBA than other options. I stopped shipping to my house and started shipping direct to FBA when my wife got tired of all the inventory in our house.
Ash Monga (IMEX Sourcing): In a lot of cases, trading companies or agents provide value that you may not get going factory direct. This can include an English speaking account manager, better QC processes, credit terms, or product accessories the manufacturer may not be making.
Michael Bellamy (PassageMaker): Consider a term and condition in your purchase order for the supplier to pay for the inspection if the inspection fails. [PZ: You may then spend more time ensuring the QC requirements are written clearly and fairly, as the supplier won’t want to pay for a failed inspection that is really quite okay after all – it only failed because the QC specifications were poorly written.]
Sam Boyd (GuidedImports): My supplier qualification checklist includes: does the supplier attend exhibitions or fairs (suggests they are more serious about growing their business), will they allow quality inspection visits and audits (if they don’t, they might be a trading company that is trying to hide the real manufacturer), will they provide you a business bank account to wire to (rather than a personal account, in which the company may say they didn’t receive a payment).
Sam Boyd (GuidedImports): One logistics option is to use local China freight forwarders. They tend to have better rates than international freight forwarders. You can also ask this local forwarder to consolidate samples from multiple factories and ship them to you. You can use Upwork to find these freight forwarders. And you can use Transferwise to pay them in RMB.
Anthony Chen (Flexport): Freight forwarder quotes should have all cost line items broken out. Most quotes do not include customs duties, so don’t forget to factor this into your overall costs. If you have high value goods that may gets stolen (think tablets), use black shrink wrap to wrap the pallets – it costs the same as clear shrink wrap.
Habib Rkha (Asia Quality Focus): (a) Include product specifications with your quotation. The more detailed the product specifications, the less likely there will be mis-understandings between the buyer and the supplier (b) For regulatory compliance, own the process and own the results. That way you can be sure the certifications are real. Do these through your inspection company or other partner rather than through the factory. (c) Pepper grinder example required US$722 in testing fees to check for FDA regulatory compliance. (d) Stuffed bear example required $474 in testing fees to check for ASTM regulatory compliance. (e) Regulatory compliance is not always expensive.
Anthony Lee (ZonBlast): Sales velocity is an import component of ranking in Amazon search results. For new products, instead of treating historical sales as 0, Amazon treats them as null values. That means it’s easier to get ranking out of the gate, and if you are going to do PPC, start on day 1 to get the sales velocity and subsequent ranking boost that PPC provides.
Danny McMillan (Amazon Specialist): A couple PPC strategies including running multiple auto campaigns for the same products, but with higher bids for each campaign. Interesting to watch which words each campaign delivers results for.
Will Tjernlund (AMZHelp): If you have several products but are running into working capital problems then (a) put your money into your highest margin/return items and (b) sell your lowest margin/return business line to raise cash. Demand is higher than supply for Amazon businesses, and Amazon businesses are currently selling for 2 to 3 times annual profits. [PZ: I have a new nick-name for Will - “The Information Machine Gun”. What do you think?]
Paul Johnson (Seller Labs): It’s okay to lose money on Amazon PPC, Facebook Ads, Youtube ads, etc. The advertising will drive improved sales velocity, which will improve organic amazon ranking, which will improve organic Amazon sales, which will make up for losses on advertising. Your mileage may vary, but worth thinking about.
Michael Michelini (Host, Global From Asia Podcast): A lot of Amazon businesses are incorporating in Hong Kong. Makes the most sense for digital nomads and/or Amazon businesses of US$500K annual revenues or more. Benefits include lower corporate profit taxes (16.5%) and multicurrency account online banking with low/no TT fees and instant transfers in many cases.
Anthony Lee (ZonBlast): Showed some very interesting optimization examples they'd done with customers. Moved from a product image to a lifestyle-like product image resulted in double the click throughs and 50% increase in conversion rate, generating three times as many sales. A title optimization example that resulted in 5x sales increase.
Will Tjernlund (AMZHelp): One Amazon strategy is to find a brand whose products are being sold by multiple sellers, not following MAP, and with poor product descriptions. Call up brand owner and tell them you'll represent their brand on Amazon with better listings, resulting in better sales and better brand presence. But, if they don't manage their supply chain well, and some of their distributors or retail customers sell on Amazon below MAP, you'll break MAP, sell out your inventory, and end the relationship with them. Do this as a vendor, buying their inventory, rather than a sales partner on commission.
Peter Zapf (Global Sources): In order to mitigate quality risk, get a pre-shipment inspection done. Established Inspection companies, like Asia Quality Focus, charge US$300 per man day. Best if you can also define your product specifications and quality requirements with the purchase order. Factories often source parts and components from other suppliers, and may not be able to control the quality. If you share your quality requirements as part of the purchase order, the supplier may tell you he can't meet those requirements even before you even pay your 30% deposit. It's good to learn and know this as early as possible and move on to another factory.
Anthony Lee (ZonBlast): Do something creative in your review follow-up sequence. He's had luck with including an instructional or thank-you video as part of his follow-up series. If the link is to something stored on Amazon S3, it will get through Amazons filters. He's seen 29% and 45% review conversion rates with tactics like this, which are far above the typical 3% rates.
Food: If you know someone who joined, ask them about the food. Hint: it was good!
A big shout out to the speakers and attendees. Really appreciate everyone's generous support!
Feedback from the April Summit
We had a great group of attendees, great speakers, great networking, and a lot of learning. Here are some of the posts about the summit from the Smart China Sourcing Facebook group.
Next Summit is 17 - 19 October, 2016
Want to join the next Smart China Sourcing Summit in October? We'll be holding it 17 - 19 October 2016 at the AsiaWorld Expo in Hong Kong, co-located with the Global Sources Mobile Electronics and Gifts & Home shows. We haven't finalized the agenda, but you can reserve a ticket now at the super early bird price. To get a feel for what we'll be doing, you can see the description and agenda of the recently concluded April 2016 Summit.
How to Keep Updated
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Hong Kong-based Peter Zapf is Chief Information Officer at Global Sources Ltd.