The Procurement Agent is a freelancer, or part of a larger organisation, arranging various aspects of the trade between China and the buyers around the world.
· Supplier Identification & Price Research
· Sample & Prototype Development
· Quality Assurance & Quality Inspections
· Social Compliance Audits
· Product Compliance Consulting & Product Testing
· Shipping & Logistics
· Customs Procedures & VAT
This industry, which has grown very big in Asia in the last few decades, includes everything from rogue agents to major trading houses. The purpose of this article is to explain what a Procurement Agent , and how they differ.
Evaluating a Procurement and Purchasing Agency in China
a. Product Expertise
Knowledge about a product and industry is a decisive factor. First, and an insider has a much more comprehensive product expertise, which is required to understand what makes good quality (and price) for a certain product. Second, this may also speed up supplier sourcing and vetting procedures, as they can utilize an existing network of suppliers.
However, don’t expect to find an existing Procurement and Purchasing Agency for every single niche product out there. And, even when you do, it’s up to you to communicate your quality requirements and product specs – to properly educate your agency.
b. Offered Services
There is no set standard for what exactly a China-based Procurement and Purchasing Agency should offer. Some offer more of a ‘one stop shop’ solution while others are strictly specialized, only performing specific functions. We will get back to the latter later, but first, let’s dig deeper into what various Procurement and Purchasing Agencies actually offer:
& Price Research
Supplier sourcing is the foundation of any Procurement and Purchasing Agency, unless they are working with an existing supplier network. However, the methods used to select suppliers varies greatly. While some agents base their selection entirely on relationships, kickbacks and low prices, others have sophisticated methods of identifying suppliers.
Some Purchasing Agencies have in house Quality Inspectors, while others subcontract this to a specialized Quality Assurance agency. In most cases, it makes sense to find your own QC partner, as this is not only more cost efficient, but also more secure. Specialized Quality Inspection firms tend to operate according to international evaluation protocols, for example AQL. In addition, they also have local offices all over China, thereby reducing travel expenses and speeds up the process.
Product Compliance & Testing
This one ties in directly to Product Expertise, so read the following closely: There is not a single individual, or even company, in this world, that possess the expertise and experience needed to ensure compliance with all regulations, in all markets, for all products. At best, a Procurement Agency may have relevant experience in their field, but most may not even have basic knowledge. in itself that you shouldn’t even expect your agency to know what is required. You’ll need to find a specialized, probably local, partner for this.
Shipping & Logistics
Customs Procedures, Import Taxes & VAT
is normally not managed by the Procurement Agent. Instead, this is within the service scope of most Freight Forwarders. However, some Purchasing Agencies have subsidiaries in their target markets, helping their clients to manage this part of their business.
Finding a supplier isn’t hard. You can and you’ll have millions of options right in front of you. However, identifying industry leading, and in relative terms, reliable, suppliers is a whole different thing. Let’s make a broad comparison between different types of Procurement Agencies:
Relationship Based Supplier Selection
This is the sort of agency you don’t want to work with. Instead of selecting a supplier based on their product expertise and compliance and manufacturing capabilities, this type of agent choose suppliers based on they can get. This sort of agency rarely have any operational protocols whatsoever. Stay away.
Method Based Supplier Selection
A proper supplier selection shall be based on customers specific needs. This requires that the agent understands the products technical specifications, and how a supplier’s ability to manufacture the product can be assessed. This requires a supplier assessment protocols that takes various data points into consideration. For example, the following:
– Product Compliance & Test Reports
– Company Data: Location, Registered Capital, Registered Business Scope
– Quality Management System: QMS Certificates and on site inspections
– CSR & Social Compliance
The agency shall be able to explain how they make this assessment, and provide documents outlining the details.
Established Supplier Network
Many organisations don’t offer supplier sourcing and vetting as a service, but prefer to work within their existing network of suppliers. This has many benefits, but only works if your product is covered. However, for good reasons, these agencies may be reluctant to share information about their suppliers.
d. Revenue Model
There’s more than one way for a Procurement and Purchasing Agency to make money. While many importers assume that all agencies make their way by charging commissions based on the order value, that is not the case. Below follows an overview:
Lower costs before the product starts. Maybe.
Gives the agent an incentive to focus on large volume orders of products that require little to none development, prior to production. Not suitable for OEM products.
Suitable for customized products that takes time to develop before they are ready for mass production. As you pay a fixed service fee, the agent has no incentive to cut corners to speed up the process, or convince you to place large initial orders.
Higher costs upfront
For you, none.
The agent selects a supplier willing to pay the biggest kickback, or bribe if you will. That’s all there is to say.
Some Procurement agents combine two or more revenue models. For example, they may charge a commission based on the order value, while charging you for additional services, such as Quality Inspections and Supplier Sourcing. Many also receive kickbacks from the suppliers, as an alternative side income. This may, however, come down to individual employees of the agency, rather than kickbacks as a company policy.
I don’t recommend attempting to find a ‘one stop shop’ managing all procedures involved in buying from China. This is regardless of your industry. You must works ‘hands on’ with the supply chain, and ultimately maintain control. The alternative, to let a consultancy set up a functional supply chain, is simply too expensive for most SME’s. This is how I would do it:
1. Supplier & Price Research
Use a specialized Sourcing Agency or manage the process yourself. You must know which suppliers you’re going to work with, and on what merits they are selected. Vetting ten to twenty suppliers at once is a lot of work, so you better have a specialized partner for this.
2. Prototype Development
You are the product expert. Submit specifications and communicate your quality requirements directly with the manufacturer. Otherwise, important details may be lost in translation. In addition, having a middleman between you and the supplier is not only risky, it’s also inefficient.
3. Product Compliance, Certification and Testing
b. Submit reference samples to a China-based testing company, for example, Asiainspection or SGS.
4. Quality Assurance, Quality Control and Factory Inspections
5. Shipping, Customs, Import Licenses and Taxes
Use a local Freight Forwarder, with a presence in China. It’s critical that they know local customs procedures and tax regulations.