In this newsletter we're going to introduce you to manufacturers. These guys actually make the product, and as the first link in the supply chain, they are the cheapest way to source items to sell.

What Is a Manufacturer?

Manufacturers are the first link in the supply chain. They are responsible for bringing a product to life - taking the designer's specifications and turning it into a physical reality. Manufacturing is a massive operation, and most manufacturers have large factories and employ a lot of staff to turn raw materials into shiny, finished products that can be sold to consumers.

Manufacturers operate in most major cities all over the world, with huge concentrations in 'manufacturing giant' cities such as New Delhi and Beijing.

But sourcing from a manufacturer is not for the faint hearted. As the manufacturer's primary job is creating the product, they don't have the time to fuss around selling in dribs and drabs to small retailers. If they do sell direct, they will only sell in huge quantities - usually orders would need to contain hundreds, if not thousands of units. Smaller orders are simply not profitable for manufacturers to process, which is why most manufacturers sell the majority of their product directly to wholesalers for distribution.

However, for established online sellers, buying directly from the manufacturer is the most cost-effective way to source products. When you reach this stage, you know you've really made it in the world of online selling. You're a big player!

Read on for the 5 essentials you need to know to successfully source from a manufacturer.

Essential #1: The Pros of Using a Manufacturer

 

• Some of the best prices possible! When you deal directly with a manufacturer, you cut out the middlemen, which gives way to amazing deals.
• Going directly to the manufacturer gives you access to some of the newest and hottest products. If you are the only one selling them on eBay (even if it's only for 10 days) you could make a killing.

Essential #2: The Cons of Using a Manufacturer

• Selling to retailers is not what most manufacturers are set up to do. They usually only sell in very large quantities of 1,000+ units. For this reason, many small-to-medium retailers will find that manufacturers are out of their reach. Sourcing from a manufacturer requires a huge investment and a lot of market research to ensure that you are buying a product which will consistently sell.
• Buying from a manufacturer often presents additional challenges, such as deciding how to safely pay a Chinese manufacturer $20,000. Importing also requires some expertise to negotiate shipping and customs duties and taxes.

Essential #3: The Requirements for Sourcing from a Manufacturer

A lot of people want to know how much it costs to deal with a manufacturer, and while that is a difficult question to answer, we can tell you that buying directly from the manufacturer does not come cheap!

Put it this way, you can expect to pay up to US$20,000 to meet some manufacturer's MOQs. Each supplier will have their own MOQ which you will need to meet, which is set depending on the cost per unit of the item, among other factors. As a general rule, you will find that the higher the MOQ, the better the price you get per unit which equals better profits for you.

Storage space: When you buy from a manufacturer, the back of your closet just won't do. More than likely, you will need a large empty garage or a separate warehouse or storage unit to store your inventory.

Some retailers end up using this space as an office. Rather than going between their home office and their storage unit, they set up an internet connection and do all their work from there.

 

An inventory management system: When you are dealing in large quantities, you're going to need a proper system to keep track of all your items. Most inventory management systems work by tracking how much you have in stock and how much you have sold. They are a big help in ensuring that you don't end up listing an item you don't actually have, which can be a real customer service nightmare!

Selling Manager Pro offers an inventory management system. It is an eBay selling tool, so perfect for all the eBay sellers out there. It automatically updates your inventory data whenever you sell an item, which is very handy!

It costs US$15.99 and they offer a 30 day free trial, so if you think it might be helpful to you, it is certainly worth checking out. It can also do helpful things like automatically re-list your items and place feedback on a buyer.

Essential #4: Dealing With a Manufacturer

Once you have found a manufacturer you wish to deal with, it's important that you begin corresponding with them as soon as possible. It is likely that you will be dealing with a sales rep or agent. Whatever the title, try to deal with the same person each time you make contact. It's the best way to close a deal as smoothly and efficiently as possible. It might take time to negotiate a big deal with them, so start asking questions from the outset.

Some of the important questions to ask  about include:

• Their returns policy
• Their quality control
• Their MOQ
• Bulk discounts they may have available
• If they restrict how you price your items

That last bullet point may have you gasping. The truth is many manufacturers do control the price that their clients sell their items for. When you deal with manufacturers, you might come across the term MAP, which stands for 'manufacturer's advertised price'.  Some manufacturers require that you do not sell below this price. This is simply to ensure that the products don't lose value. When sellers price-cut each other, they devalue the item and give buyers the impression that they should never pay more than the lowest price they have seen.

This can cause big problems for manufacturers. For example, brick and mortar retail stores who buy from the same supplier as you might not be able to compete with online prices, and therefore, they stop buying product. The manufacturer would then lose out on a client, or at least part of that client's usual order. 

As a worst case scenario, a pricing war between retailers could cause the bottom to completely drop out of the market: The product is priced so cheaply that consumers no longer perceive it as having any value whatsoever!

Payment options

Some manufacturers will insist that you pay for your order via a wire transfer. While this is not something that SaleHoo generally recommends, it's a pretty common requirement among manufacturers and we certainly understand their reasoning.

Because they are accepting such a large payment, manufacturers prefer to avoid services which charge high fees based on a percentage of their payments received, such as PayPal. PayPal and credit card payments also allow the buyer to request a chargeback, and some have been known to do so fraudulently, resulting in the poor manufacturer losing tens of thousands of dollars.

Some manufacturers understand a retailer's concerns about making a large payment using an unsecure method. For this reason, they might ask that you pay for a percentage of the order initially, then the remainder once you have received your order. Two even safer options (for both you and the manufacturer) are Escrow.com and using your bank's Letter of Credit service. 

Whatever option you choose, ask a lot of questions first, do your research and use common sense.

Essential #5: Where to Find Good Manufacturers

Alibaba.com is a directory of Chinese manufacturers and many of our SaleHoo members are curious about what they offer.

First of all, Alibaba is a free service (for all non-premium members) that connects retailers and manufacturers. While you cannot access the manufacturer's contact details directly, Alibaba helps you send a secure email through their site to the supplier to ask questions about their advertised products.

You can find a wide range of suppliers and products on Alibaba. There are manufacturers offering almost every product imaginable! That said, some are not manufacturers in the true sense of the word. This is pointed out to users when they view a supplier's profile. While you can still get some great wholesale deals with these suppliers, you may not necessarily be paying manufacturer's usual rock-bottom prices.

Alibaba make a point of verifying their Gold Supplier Members, but not the majority of their suppliers. This is common for free directories, as verifying suppliers is a timely and costly process. It's also important to note that Gold Supplier Members are verified by a third party company, not Alibaba itself, and must simply be a legal business entity to meet their verification and authentication process - their actual trading track record is not verified.

Alibaba is a really useful way of finding suppliers, but all sellers using manufacturers from the Alibaba directory need to exercise caution and spend plenty of time getting to know the supplier and their products before placing an order.

Using Google.com to find manufacturers

If you are lucky, a simple Google search can get you well on your way to finding a great manufacturer. Try searching for the name of your product, plus the keywords "manufacturer". For example, if you want to get your hands on costume jewelry, enter "costume jewelry manufacturer".

Google will no doubt come back with thousands of results; the only downside here is that there is no knowing if they are safe to deal with - or if they are even manufacturers. Don't even think about using an unverified supplier until you have checked them out. To help to determine whether they are legitimate, you need to:

• Check for safe payment options, such as PayPal, which offer the buyer some protection against transactions that turn pear-shaped.
• Do a quick background check using DomainTools.com. Enter the suppliers URL and see if they have owned the domain for more than 2 years. If it is anything less, we recommend finding an alternative supplier. This might seem frustrating when you have to walk away from a supplier who appears to be everything you are looking for, but when you are dealing with unverified suppliers, you need to be extra vigilant.

Although a Google search for manufacturers can be fruitful, bear in mind that many manufacturers don't even have a website, so it's not always the best option.

Directories

Supplier directories are by far and away the most reliable and popular way to find good manufacturers. SaleHoo offers its members a selection of several hundred verified manufacturers based all around the world. There are also some other good directories like Global Sources and Made in China that are worth a look, however we can't guarantee that their verification processes are thorough, so you need to be careful.

Wherever you go to find manufacturers, be prepared to be patient. It takes time to find the one that is right for you and once you find them, you'll need to send quite a few emails to ensure all your questions are answered before you sign up and place an order. It's not uncommon to spend a couple of months getting all the details and negotiating terms before going ahead.

In our experience, we've found that the more impatient the online seller is with this process, the more likely they are to get scammed! Retailers who can't be bothered asking lots of questions and requesting photos and product samples etc, end up paying for their negligence with poor quality product, or by simply being ripped off! On the other hand, retailers who are conscientious about checking everything before going ahead will almost always have a good trading experience.

Quick Recap:

• Manufacturers are responsible for producing a product from raw materials. Although distribution is not their primary objective, they may be willing to sell directly to retailers who buy in large volume.
• Sourcing directly from the manufacturer cuts out the middlemen, giving you the best prices possible.
• Manufacturers are not the most user-friendly supplier type for smaller retailers due to their high MOQs.
• Patience and persistence are key when dealing with manufacturers. Using a manufacturer involves doing a lot of homework and asking a lot of questions.
• You can find manufacturers by searching Google, using a paid supplier directory such as SaleHoo, or by using a free directory like Alibaba.

Baffled about which supplier type you should be getting started with? That's OK! Have a think about your goals over the next few days, then read our next newsletter, which is all about helping you select the RIGHT supplier for your business.