If you’re private labelling a product to sell on Amazon FBA, you’re probably thinking of sourcing from China. Not only will manufacturing prices generally be cheaper but there will be a wider selection of suppliers that you can contact and source from.
Finding a factory to manufacture your product in China can seem daunting at first. There could be lots of factories manufacturing your product so how do you choose the right one? How will you know the factory you’ve chosen won’t send you inferior products or even worse scam you? In this article we will explain the process of sourcing from a factory using one of the most popular marketplace directories in the world, Alibaba.
- 1 Know the Product Inside Out before Even Thinking about Suppliers
- 2 Know the Difference between a Trading Company and a Manufacture/Factory
- 3 Using Marketplace Sourcing Directories
- 4 Running a Search on Alibaba
- 5 Common Scams on Alibaba
- 6 Contacting the Factories
- 7 Ordering Samples
- 8 Making the Actual Order
- 9 Payment Options
- 10 Using Trade Assurance
- 11 What to do When Your Products Have Been Manufactured?
- 12 Shipping your Product
Know the Product Inside Out before Even Thinking about Suppliers
Before even thinking of contacting a supplier you will need to know the product you’re thinking of getting manufactured. You may have used JungleScout to check popular items that are selling well on Amazon and that have low competition. You’ve also checked your competitor’s listings on Amazon and found out what customers like about their product and most importantly what they dislike about it. You know the average selling price and you have checked out whether you have to comply with any regulations if you plan to go ahead with getting your product manufactured.
By now, you should know the product inside out and have compiled a product specification list with your key requirements.
Know the Difference between a Trading Company and a Manufacture/Factory
Before covering how we go about finding a supplier, we first need to go over an important topic. This is the difference between a trading company and a manufacture.
Trading companies are third-party companies that may act as an agent for a factory and have no involvement in the manufacture of the product being sold. Some trading companies may represent one factory while others may represent several. Factories often use trading companies as a way to market and sell their products especially if they have limited/no skilled English speaking employees.
A manufacture will be the ones who make the goods. Often factories that manufacture similar products will be located in the same province. For example, factories that specialise in producing cotton textiles products will be based in the Xinjiang province.
Although trading companies will often be legitimate, they essentially act as middle-men who add a mark-up to the end price of the product so you will probably be paying more if you’re using a trading company instead of going directly to the source which is the manufacture.
One of the easiest ways to check if you are actually dealing with a factory is to check the products they are selling. If they are selling hundreds of different products, for example, if they are supposed to be manufactures for wetsuits and they are also selling pet toys and baby clothes you can be pretty confident they are a trading company as factories will specialise in just one or a few related products.
Using Marketplace Sourcing Directories
Online marketplace sourcing directories are a great way of finding the right factory to produce your private label products. The largest and most popular business-to-business (B2B) marketplace site in the world is Alibaba and allows you to contact factories directly and source anything that you may want.
Alibaba has literally tens of millions of products listed. If you can’t find your product there, it probably means it hasn’t been invented yet! Its suppliers are located around the world although most are based in Asia.
Running a Search on Alibaba
Let’s see how Alibaba works. Let’s say we are looking to source a bamboo cutting board branded with our own logo.
We first need to launch the Alibaba website and enter ‘bamboo cutting board’ into the search box and click on the Search button.
As you can see below, it’s returned 27871 results for the “bamboo cutting board” search term. This is clearly is too many results and it would be impossible to physically go through the whole list as it would take too long.
You may be asking out of all these results, how do we know whether they are trading companies or manufactures or whether they are out there to scam you? We need a way to filter, to only show reputable manufactures. Thankfully Alibaba allows us to filter against certain criteria.
One of the criteria you can filter by, is to show only suppliers that offer Trade Assurance. Trade Assurance essentially guarantees your money back in the event that the supplier fails to deliver the terms laid out in the order contract. This can range from late delivery, to products not meeting the specifications initially agreed upon. If a supplier offers Trade Assurance, it means they are less likely to scam you and more likely to produce high-quality goods on time.
Gold Suppliers is another term you can filter by. Although suppliers do have to pay Alibaba on a yearly basis to have the gold supplier badge it does help root out scammers. One of the reasons Gold suppliers are vetted by Alibaba, is to ensure they do indeed have a physical site and a legal trading business. Without a Gold Supplier badge, someone could quickly set-up a fake profile and start scamming users before they eventually get shut down after getting negative feedback.
Ok, let’s now filter by Gold Suppliers that offer Trade Assurance. As you can see the results have now gone down from 27871 to 2539 which is a marked improvement.
2539 results are still a large number. What we can do is now sort by Transaction Level, this will display the suppliers who have larger order volumes. This means the companies are more likely to be well established ones who receive regular orders on Alibaba. The Transaction level metric only includes orders that have gone through trade assurance so the measure is not fully accurate as other orders may have not gone through trade assurance.
Now that we have narrowed down the search to all Gold Suppliers that provide Trade Assurance and these have been ordered by trade volumes, let’s load some listings up.
Let’s assess the supplier’s listing:
1. We can see that the company has been trading for at least 12 years on Alibaba which is a positive. Try to stay clear of companies who have been trading less than a couple of years. Naturally this doesn’t mean they are not legitimate, but try to work with more established companies who are more experienced and this will reduce the risk.
2. They have had 29 transactions in the past 6 month period totalling over $300,000. This means they are receiving regular orders which is always a good sign. Their top three markets are North America, Western Europe and South America. America and Europe will generally have stringent quality standards so this suggests they are used to meeting more higher quality requirements.
3. Their response times are less than 24 hours which means they get back to their customers queries quickly. The response rate is 86.4% which is not an issue.
4. They offer a number of payment options and they are also provide Trade Assurance, meaning if they fail on their terms, Alibaba will refund you providing everything is laid clearly in the purchase agreement contract.
5. They include photos of their factory, naturally these could be faked. Although you can cross-reference with their address and check on Google maps to see if they correspond.
6. They’ve also passed a number of audits relating to their supply chain. Always ask to inspect the documents just to confirm that their factory details do actually appear on the certification and they haven’t just included someone else’s documents.
7. They provide a FAQ section with helpful information about payment terms, lead times, how they guarantee quality etc. So the factory is being helpful with their customers which is always a good sign.
8. & 9. They’ve included address details of the factory as well as key contact details.
10. Their factory has been assessed by an external auditor which shows they have nothing to hide.
After analysing the listing, we can see that this specific factory looks genuine as its well established business with good trade volumes so we’ll add this factory to one of favourites so we can contact them later. Now we need to perform the same steps with some other factories to come up with a selection of at least 15-20 which look reliable and are trustworthy.
Common Scams on Alibaba
Now that we have gone through the steps of how to filter for reputable companies, let’s now see the type of scams that can occur on Alibaba:
1. A Supplier only allows payment with Western Union
If the supplier only accepts payment by Western Union and they don’t provide Trade Assurance then run a mile. Western Union is the most risky way of payment and it’s often used by scammers.
2. Bank transfer details don’t match up with the factory details
If you have agreed to pay by bank transfer and the sales contact asks you to pay to a personal bank account rather than the factory’s then you should definitely avoid this.
3. Supplier requires full payment upfront
If a supplier requires full payment before manufacturing commences then move onto another factory. The usual terms involve a 30% upfront deposit before manufacturing commences. The factory will need to purchase raw materials before they can begin manufacturing so they will use part of your upfront payment for this. You pay the remaining 70% once they have completed your products and they have sent you a scanned copy of the bill of lading. Never pay the 70% unless you have a scanned copy of the bill of lading as even though your items may have been manufactured. The reason being is the factory may refuse to transport your goods to the port even though you agreed to FOB (Free on Board) in your purchase agreement contract.
4. Your factory is selling branded goods
If a factory is offering the latest iPhone or another branded product for sale than you can be 100% certain it’s a scam. Most large companies will definitely not give permission for factories to sell their products to third-parties.
5. Prices are extremely cheap
Manufacturing prices are normally cheaper in China than elsewhere. However, if the factory is offering unbelievable low prices for just a small minimum order quantity (MOQ) then it’s probably too good to be true. If you’re wondering how they are making any profit out of your order, well, they are probably making money trying to scam you so avoid at all costs.
Even if you believe that the potential factory is genuine, always perform a google search and include the factory name and the keyword ‘scam’ and see if anything pops up, it’s always better to be safe than sorry.
Contacting the Factories
Now that you have compiled a list of 10-20 potential factories, you will need to contact them in order to reduce your selection down to at least 5 factories.
You can contact the supplier, either by clicking on the ‘Contact Supplier’ button or ‘Chat Now’ on the Alibaba product page.
A typical initial contact with the factory should be similar to as follows:
Hi <factory name/sales contact>,
My name is John Brown and I’m the purchasing agent for Orchid Homewares. We are a growing homeware brand based in the United Kingdom.
We are in the process of adding new kitchenware products to our line and your bamboo cutting board set seems to be what we are looking for.
These are the specifications we are looking for:
The bamboo chopping board set (2 units) must have the following specifications:
* Size: 40*20*1.5cm + 35*15*1.5cm
* Material: 100% bamboo
* Colour: natural colour
* Must be non-slip
Our first order of 500 will be a test order, and in the future we will be ordering 1,000 to 5,000 units.
I have a few questions which I wonder if you could answer please.
1) Are you a manufacture or a trading company?
2) Can we brand the chopping board with our logo (laser printed)?
3) What are your FOB costs for the following order quantities: 500, 1000 and 5000 units?
4) How long are your manufacturing lead times once we place an order?
5) What packaging options do you provide?
6) What are you samples costs (shipping by express courier to the UK)?
7) What are your payment terms?
We are looking forward to hearing from you soon.
John Brown – Senior procurement agent for Orchid Homewares
Here are some guidelines when writing your initial message to a supplier:
- Give a short introduction about your company and which country you are based in so that the supplier knows who you are and the sector you are based in.
- Don’t say you’re the owner of the company but mention you’re an employee of the company. Suppliers will deal with hundreds of messages from potential customers every day so they don’t want their time wasted and they want to know that they’re dealing with a serious business.
- Always be specific on your product specifications. Include relevant information such as required size, weight, packaging, colours, material composition, whether you want the product branded i.e. your logo added etc. If your specifications are not clear, the quotes they provide may not be accurate. If you have photos of the actual products you’re looking for, always attach these to your message.
- Always number your queries, this way you’re more likely to get answers to all your questions and they won’t miss anything.
- Ask the pricing for different order quantities. You can then see how competitive their pricing are against other factories for different quantities. Always ask for Free on Board (FOB) quotes, this means the price includes the costs of manufacturing your product as well the costs to transport them to the port/airport depending on whether you’re shipping your order by air or by sea. You the buyer, then pays the costs of transporting the goods across the sea or by air to the final destination. We go into more detail regarding this in our importing article.
You should normally expect a reply back from suppliers within 24-48 hours. If they don’t reply back within the timeframe, it could mean that the sales contact is at a trade exhibition or could be a Chinese public holiday so always give it a week at least.
A tip when contacting suppliers is to set-up a separate email address (Gmail/Outlook) as you may be bombarded by emails from potential suppliers.
Once you’ve received a reply back, it is probably best to then contact your selected suppliers by Skype or WeChat (China’s most popular messaging app) to discuss any queries that you may have and negotiate on price and minimum order quantities (MOQ).
Once you have come up with shortlist of at least 5 suppliers, you will need to ask them to manufacture a sample so that you can check and verify the quality. Always expect to pay for samples. The pricing will usefully be dearer then the unit price you will pay once you place the actual order. This is to prevent timewasters from ordering single products from them.
When you order the sample always ensure it has the same specifications as the final product. If the product has packaging, make sure they also produce the packaging so you can verify things such as printing, quality, spelling etc.
Always ask for your samples to be shipped by express delivery (DHL, FedEx, UPS, TNT, EMS), you don’t want to be waiting a month for your sample to arrive. If it’s dispatched by express delivery, you should expect to receive it within a week.
When your sample is sent, ask your supplier to mark it as “Commercial Sample” this way it shouldn’t attract additional expenses such as tax and customs.
Remember, never place an order without receiving a sample first. It is vital that you inspect a product thoroughly before even thinking of placing an order.
Making the Actual Order
Once you have received all your samples and checked and verified the quality of each one, it’s time to decide on the supplier. Before even going ahead with paying your supplier it’s important that you come up with a Purchase Agreement Contract.
Purchase Agreement Contract
The purchase agreement contract as the name suggests, is a contract between the buyer and seller and details such things as: product specifications, pricing, payment options etc.
If your supplier on Alibaba supports Trade Assurance, you can use the purchase agreement contract in case anything goes wrong with your order. If you don’t have one in place and if anything does go wrong it will be difficult to prove who is in the wrong and what was agreed to in the first place and you may not get refunded by Alibaba.
The Purchase agreement contract should include such things as:
- Specifications of the product such as size, weight, material composition etc. Include photos of the samples that they sent.
- Packaging details, colour, what text should appear on the packaging. Does your logo need to be printed on it? If so, include your logo in the contract.
- The unit price in $ and quantities ordered and total costs.
- The type of quote i.e. is it FOB? If it is, include the name of the port that they have to deliver your product to. Also list the FOB costs and mention the supplier is fully liable for these.
- The payment terms i.e. 30% upfront payment before manufacturing commences and the remainder 70% payment once they have provided a scanned copy of the bill of lading.
- Mention any penalty terms in case production is not completed within a certain date.
- Mention what happens if you receive any faulty items. For example, will they refund you or will they dispatch a replacement?
- What shipping marks should appear on your cartons (carton number, units per carton, carton size in cm (LxWxH), net weight in kg, gross weight kg, country of origin (China), product description, handling marks (fragile, handle with care, this way up, keep dry, protect from heat)).
- Any confidentiality agreement details i.e. the seller is unable to disclose that they produce products for yourself.
- Intellectual property right details.
Usually suppliers will accept different options for payment including Alipay (a Chinese version of PayPal), PayPal, Western Union (a payment option which we don’t recommend), Escrow and bank transfer.
Although PayPal is generally considered a safe way to pay your supplier, especially as it provides buyer protection so you can get your money back if anything goes wrong. You do get hit by fees and also their exchange rates are not very competitive and therefore these costs can affect your profit margins.
We therefore recommend using Transferwise for bank transfers. Using TransferWise you can pay using USD to non US bank accounts, ideal if you’re paying your Chinese supplier in US dollars. It’s safe as it’s fully regulated by the Financial Conduct Authority. The exchange rate quoted are guaranteed for 24 hours and they will be use the real mid-exchange rate (the going rate) so you won’t get ripped off unlike if you use your bank to make a transfer. When you make the transfer, you will only pay a simple fee which is laid out plainly and you won’t pay any hidden charges.
Using Trade Assurance
As we have mentioned earlier in the article, if your supplier offers Trade Assurance, we would definitely recommend using it especially as it’s free and if anything does go wrong you can get your money back providing everything has been laid out clearly in the purchase agreement contract. Please note, the trade assurance limit depends on the individual supplier but it’s usually ranges between $10,000 – $30,000.
In order to place an order through trade assurance follow these steps:
1. Ask your supplier to draft an order for you on Alibaba. If you would like a third-party inspection when the goods have been manufactured then you will need to let the supplier know so that they include the details in the Trade Assurance order. Make sure all the terms included in the purchase agreement contract are included.
2. Next sign into My Alibaba and find the order and make the initial payment. You can pay using the following options:
a) E-checking: this is currently only available for people who have a US bank account. Transfers normally take 4-5 workings days and it has low transaction fees of just $15.
b) Credit Card: You can pay using your Visa or MasterCard although it does have a payment limit per transaction of $12,000. Payment usually take 2-3 working days to reach your supplier. If anything goes wrong and for whatever reason Alibaba refuses to refund you, you can always file a chargeback claim to your card issuer.
c) Telegraphic Transfer: Which is basically a bank transfer. If you chose to pay using this format we would recommend using TransferWise.
3. Once you’ve paid the initial payment, you can negotiate with your supplier to pay the remainder before the order has been delivered or after. Once you’re ready to pay the remainder payment, just go to the “Order Details” page and click “Pay the Balance” and chose the payment option.
If you do have to involve Alibaba in a dispute and they grant you a refund it can take up to 10 working days to receive your refund.
Throughout the manufacturing process, we would recommend that you ask your supplier for regular updates. A useful way to ascertain progress is by asking your supplier to send you photographs of the products being produced so you can get a good idea what is happening. If you do spot anything that is wrong at least you correct it before the manufacturing process completes saving you time and hassle.
What to do When Your Products Have Been Manufactured?
As we have mentioned earlier in the article, you can employ a third-party inspection company to review the products once they have been manufactured by your supplier. It does involve an extra charge although it is pretty reasonable considering it gives you peace of mind in case there any issues with the finished product. You don’t want to be finding out once the products have arrived at your office/home/warehouse that they are of inferior quality or they’ve printed your logo on your product upside down.
An inspection company can perform any of the following checks for you and much more:
- They can verify there are the correct number of units that are in the cartons.
- They can confirm the product specifications as per the ones laid out in your purchase agreement contract are met. You can ask your inspection service company to perform a full inspection or just inspect products at random.
- They can supervise when your products are loaded onto the container to confirm the cartons contain the correct shipping marks and the correct unit quantity.
You can find more information regarding inspection services from Alibaba.
Shipping your Product
Once you products have been inspected they are ready to be shipped to you. As we have discussed in the article we would recommend that you use Free on Board and then once it reaches the relevant Chinese port your freight forwarder takes over from there. You can find much more about the importing process in our importing article.