After years of development and evolution, sourcing agents and sourcing companies start to be in role-playing an increasingly vital part in operating an international supply business. However, lots of startups and small importers are still confused and bewildered about sourcing agents, especially since there is ambiguous and antiquated information online misleading them.
Since then, we collected and assorted some questions that buyers are mainly concerned about and confused about sourcing agencies. Here, we provide you with the most objective and detailed answers within this post.
What is a Sourcing Agent or Sourcing Company, and How to Differentiate Them?
A sourcing agent is a person or agency that on behalf of a buyer to sources cargoes, and purchases products that are out of the buyer’s reach. Sourcing agents or sourcing companies are invariably required in international trade.
Conventionally, a sourcing agent is only to source suppliers for his client. Indeed, the services provided by sourcing agencies can include selecting the right supplier, making price negotiations, following up production, quality control, product compliance and testing, shipping, etc.
It’s not said that sourcing agents or companies are due to provide the full range of services. The work scope depends on the agreement reached by both sides.
Sourcing Agent or Sourcing Company?
In the global marketplace, people often use these two words as if they stand for the same meaning. For instance, provided that you want someone to source for you, you may say – I need a “sourcing agent” or a “sourcing company”, but it doesn’t matter. But in reality, these are two different concepts.
Sourcing agents can be personal and can be hired as your full-time agent. These personal sourcing agents are rarely the combination of one or two people who commonly work in a small office or home office.
Some of them may have years of experience working in trading or sourcing companies. These personal agents can be found on many freelance platforms (e.g. Fiverr, Upwork, etc.), some of which may also have their websites on Google.
Sourcing company, also known as sourcing agency. It is easy to understand, that a sourcing company is supported by a team of expert sourcing agents and organized apartments, like sourcing, quality inspecting, warehousing, and shipping systems. They can integrate supplier resources more efficiently and can serve various buyers at the same time.
Sourcing companies are commonly located in industrial areas. For example, most China sourcing agents and companies are located in Yiwu, Guangzhou, and Shenzhen in China.
In summary: Both sourcing agents or companies are a link between buyers and vendors, and it’s all about which one you prefer to serve you.
What Services do Sourcing Agencies Provide?
Procurement service charges vary based on the scope of work you order from the agency. Therefore, before starting cooperation, please clarify your service scope and fees to prevent some potential disputes. That’s why I dedicate a chapter to the services of purchasing agents and purchasing companies.
The following are the main services provided by most purchasing agents:
- Select the right suppliers
- Price negotiation with vendors
- Production follow-up
- Quality control
- Product compliance and testing
- Shipping and logistics
Sourcing Product Suppliers
Validating and selecting suppliers that meet customer requirements is an essential service for every purchasing agent. They will negotiate with suppliers on behalf of the buyer to get the best price and confirm production details.
However, some buyers may struggle with whether the purchasing agent or company should provide them with supplier information. Some even believe that agents are cheating them or making black money by not giving them supplier information.
Here to explain to you, whether the supplier information is provided to the buyer depends on the service mode of the sourcing agent.
Individual Sourcing Agent
Some individual sourcing agents can be found on the internet, they usually get a fixed salary (hourly/day), or can pay a fixed commission for a project. This way of working together is like finding a purchasing assistant for yourself abroad.
Literally, the buyer pays for the supplier’s information, so the agent is obliged to give the supplier’s contact details to his boss – the buyer and the buyer themselves will communicate with the supplier to negotiate a price.
Sourcing Company / Agency
If it is a sourcing company /agency, they will not give the supplier information directly to the buyer. The following are the two main reasons.
Firstly, these quality suppliers are their accumulated resources (including those that can’t be found on B2B websites), which is why you can get a competitive price from the sourcing company.
Secondly, they charge their service fees by a certain percentage of the total value of goods, that is to say, this is their profit model. (I will discuss the sourcing agent/company charge methods further in question 5 later).
Although they are not unveiling the factory contact information to the buyer, they are willing to take the buyer to visit the factory and let the buyer have a certain understanding of the production output of the factory.
Follow-up Production, QC, and Shipment Arrangement
Once a suitable supplier has been found, it is time to arrange the production of the goods. The purchasing agent/company will help coordinate with the factory and monitor the entire production process to ensure that the factory completes production on time and the goods are of good quality.
They will also provide quality inspection services and work with quality inspection companies to inspect finished products and minimize defective products before shipping.
Then the final step is the shipping arrangement, which requires a high level of expertise. Because besides haggling with the most competitive shipping price, they also need to inform you which documents and product certificates should be prepared for customization, such as CE, RoHS, FDA, COC, etc.
These services are also available by most sourcing agents or companies. You can choose any part of their services based on your own decision.
Apart from the mainstream services mentioned above, some large professional sourcing companies also offer private label solutions, including but not limited to the following aspects:
- Customize the product
- Customize packaging/labels
- Free product photography for e-Commerce
Who Needs a Sourcing Agent or Sourcing Company?
People who have no experience in importing
Importing from overseas involves too many complicated steps, such as finding suitable suppliers, following up on production, product testing, and quality control, handling shipping, etc.
If you have no overseas purchasing experience, you can find a purchasing agent/company to help you start your first import journey. People who have multiple product categories to deal with
Selecting 2 reliable suppliers for 1 product may require you to contact more than 10 suppliers. Say you’re looking for 10 products, then you need to contact and verify at least 100 suppliers. In this case, the purchasing agent/company can not only do the tedious work more efficiently but also consolidate all the goods you need.
Large retailers, supermarkets
Does it mean that large, well-funded, and experienced importers do not need purchasing agents? of course not! Large enterprises also need them to better manage their supply chains.
Take supermarket chains as an example, they need to buy thousands of products. It’s nearly impossible for them to go to every factory and buy every product themselves.
Retail giants such as Walmart and Target source their products through sourcing agents or trading companies
Strength of sourcing agents and sourcing companies
A reliable sourcing agent/company plays a vital role in international trade procurement.
1. They can find suppliers with a competitive price and prior quality.
A good sourcing agent can help you find competent and reliable manufacturers. Because a good agent/company has accumulated a lot of resources of qualified factories that you may not find online.
2. They can improve sourcing efficiency.
A local sourcing agent/company can help you delimit barriers of culture and languages. He knows exactly what you want and negotiates the details of the product with the supplier and delivers the information to you in fluent English, greatly reducing the cost of communication.
3. Reduce your risk of importing from overseas.
A good sourcing agent/company must be experienced in dealing with product production, quality control, compliance certifications, import and export process rules, and international shipping.
How do Purchasing Agents or Purchasing Companies Charge?
As there are thousands of sourcing companies and agents worldwide, there are no specific charges. Sourcing agency fees vary greatly according to service scope, cooperation method, product category, order amount, etc.
To get a general idea of procurement service fees, I’ve outlined three common procurement agent fees below.
Fixed salary for each project or a certain period
Many individual sourcing agents charge a fixed salary per product or for a specific period of time (week/month). They usually charge less than $50 per product. Quite a bargain, right? You can discuss your products with the supplier and establish a direct business relationship.
The downside is that these agents are usually unprofessional and the suppliers they find are usually not the best value for money.
Some experienced buyers prefer to hire a personal, full-time sourcing agent for a few weeks or months to do simple sourcing tasks such as finding suppliers, translating, and communicating with suppliers. If you want to import from China, you can hire a full-time Chinese sourcing agent to work for you for about $800 per month.
With No surcharge but earn from the price difference
Many individual sourcing agents or sourcing companies use this type of fee. Often, in this case, the sourcing agent can provide good suppliers with more competitive prices or better quality products, which the buyer is unlikely to find through normal channels, such as some online wholesale sites.
In turn, if the buyers could find their competitive prices on their own, they would never consider such sourcing agents.
Percentage service fee based on product value
Charging a percentage of the entire order value is the most common method among purchasing agents or companies. Why? Because they usually provide other services such as tracking production, quality control, shipping arrangements, consolidation, etc. Therefore, they will charge a percentage of the value of the goods as a service fee.
In China, a common service fee is about 3-10% of the total value of the order. Another point is that the product category and the order size greatly affect this percentage. For example, if the order is for some product with competitive prices and high demand, or if the order value exceeds $600,000, the service fee may be about 3% of the order value or even less.
Lesson learned: Regardless of the fee method used, the agent should be evaluated for its ability to reduce overall procurement costs, improve procurement efficiency, ensure the quality of goods, etc.
Analyzing Sourcing Agent’s Issues
You may have heard a lot about the dark side of sourcing agents, such as accepting kickbacks or bribes from suppliers with little industry experience, which deters buyers from choosing a sourcing agent. This section will analyze the sourcing agent issues that concern you.
Kickback and Bribe from vendors
First, kickbacks or bribes occur from individual sourcing agents or sourcing companies. It becomes an illegal or unethical practice when a buyer and a sourcing agent have agreed on product prices and supplier information transparency at the beginning of their partnership, but the agent still asks the supplier for a kickback.
Objectively speaking, kickbacks usually occur on large orders of tens of thousands of dollars. For small orders of a few thousand dollars, most purchasing agents don’t bother with kickbacks or bribes.
Compared with 4-5 years ago, kickbacks are now much less common, especially in the daily goods industry. This is because buyers can find suppliers directly through many channels, such as B2B sites, including Alibaba, Made in China, and DHgate.
They can make their own comprehensive comparison and then measure whether the price of products and service commissions offered by purchasing agents are reasonable.
Service Fees Looks Low but Actually High
Many sourcing agents and companies attract customers with low service fees or even free trial orders, but buyers eventually find that the overall purchasing cost (product cost + shipping cost + time cost) is not low at all. In addition, even if agents claim they do quality checks, buyers may receive unsatisfactory goods.
In fact, most sourcing agents can offer low service fees, but that doesn’t mean a good product sourcing service for you. They will offer a higher price for the product to compensate for their profit, but you don’t even know it. Customers who know nothing about the product can be easily cheated.
No business is charitable. I can tell you for sure that no sourcing agent can charge a lower service fee, give the most reasonable product quotes, and provide a quality and complete service compared to the slightly higher fees charged by other sourcing agents.
This is because service fees must be charged in accordance with industry rules. Therefore, when you choose a sourcing agent to work with, service fees should not be the only criteria.
Unprofessional or inexperienced buyers are very common
In recent years, many purchasing agents have sprung up, but most of them are not professional and have no experience in purchasing from China. They just know very little about the industry and start their business with a few people and almost nothing.
They do not have the concept of purchasing services, nor do they expect long-term cooperation, but only do one-off business, so their service quality cannot be guaranteed. If you are importing from China for the first time and have no experience in choosing a reliable purchasing agent, it is not surprising that you find an unprofessional or inexperienced purchasing agent.
As mentioned above for procurement services, a range of services provided by a procurement agent requires the accumulation of time, experience, and resources, including a lot of cooperation, trial, and error.
With this accumulation, they can find the best products and suppliers for their customers from so many factories and suppliers. But young or unprofessional purchasing agents cannot provide these resources or fulfill them.
There are good and bad sourcing agents in this industry, but you don’t have to be afraid of trying a sourcing service. A good sourcing agent plays an important role in your supply chain management, helping you get competitive prices for your products while taking care of the follow-up process because good service is a core competency of their business model.