Podcast

Learn from Fast Growing 7-8 Figure Online Retailers and eCommerce Experts

EPISODE 426 56 mins

Sourcing from China: Minimize COGs and Maximize Quality → JK Beaton



About the guests

John Kyle Beaton

Kunle Campbell

JK bootstrapped a home storage brand, scaling from a $8,000 initial investment in early 2017 to generating multi-million-dollar revenues by early 2020. All while working full-time and raising a young family. Now full-time across two businesses with an international team of 10, he is proudly growing the brand while helping other brands improve their product quality, cost and factory relationships through China Product Pros.



On today’s episode, Kunle is joined by John Kyle Beaton, President of China Product Pros, an agency helping brands first-hand with sourcing and logistics from their local networks in China.

John had always had a taste for adventure and when the opportunity came to go to China and pursue his studies, he took it and quickly fell in love with the country and decided to stay. He soon realized that he was passionate about helping brands source from China and decided to start his own agency.

Along with his wife, Xiaofeng, who’s also an expert in sourcing, they built China Product Pros. John, who’s also a brand owner of an eCommerce kitchen storage brand understands the pain points and challenges that Western brands face in sourcing from China. China Product Pros helps Western brands understand the Chinese supply chain and source the right products at the right price.

It’s an informative episode as you’d hear Kunle and John talk more about how John built China Product Pros, sourcing process and strategies, tips in sourcing, sampling, and logistics for brand owners, and the challenges that John faced in sourcing and manufacturing in China and how they found solution to them.

Here is a summary of some of the most important points made:

  • Transparency is one of John’s biggest issues with sourcing products from China, which is one of the reasons why he started his agency, to be a “shining light in the space.”
  • Factories can help design products but present both advantages and disadvantages in the long run.
  • Brands should be thorough from sourcing to manufacturing.
  • Cultural differences impact negotiations and relationships of sellers with their factories in China.
  • Talk to your factories. Negotiate with them. This fosters a relationship between the brand and the factory.

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Covered Topics:

In this episode, Kunle and John discuss:

  • John and the Founding of China Product Pros
  • Product Sourcing and Sampling
  • Sampling Product Designs
  • Process of Sampling
  • Quality Control
  • Green Flags and Red Flags in Sourcing
  • The Impact of Cultural Differences in Negotiations
  • Sourcing Strategies
  • Unboxing: The End User Experience
  • Facing Unexpected Logistical Challenges
  • Tips for Minimizing COGS
  • The Role of China Product Pros
  • Learning from John’s Experiences

Timestamps:

  • 04:46 – John and the Founding of China Product Pros
    • China Product Pros is based in Montreal and has an office in Guangdong Province, China.
    • “We help finding, vetting, and auditing factories. We do inspections.”
    • John grew up in Eastern Canada and was very adventurous as a kid.
    • He had an opportunity to go to China during a gap year in university and fell in love with the country.
    • He was given the opportunity to pursue his studies in China. He majored in Chinese language.
    • China Product Pros work with both startups and already mature brands which provides both pros and cons working with them.
  • 11:07 – Product Sourcing and Sampling
    • Profitability calculations should at least stand up to the factory cost side.
    • Start by looking into 5 to 10 factories and put out RFQs or request for quotes to get variance in pricing.
    • “From sampling, if you’re happy with the samples, you may go. Sampling usually takes a few rounds, it’s an iterative process.”
    • Sometimes, sampling takes 4 to 5 rounds.
    • “You may want to first get some available samples of similar products the factory has to have a look at the quality, the build, and the functionality of those before then moving on to further sampling steps.”
  • 16:24 – Sampling Product Designs
    • A lot of factories have industrial and product engineers who can work on the design of your product. This is especially helpful if this is not one of your in-house capabilities.
    • One of the disadvantages of factories creating the design for you is that they claim partial ownership of the design/mold.
    • John advises their clients to pay for the mold so factories will not have a claim on the ownership of the mold/design.
    • “If you design your own products in-house and it’s fully yours, there’s nothing to argue about. If you fully pay for the mold, the same is true.”
    • If you want to get it right, the way to do it is to do it yourself and then give it to the factory.”
  • 20:33 – Process of Sampling
    • Shortlist factories.
    • Request sample.
    • Get to a pre-production sample (a sample that is identical to the end product once it is manufactured)
    • Negotiate around the purchase order.
    • Communicate and track the progress.
  • 22:22 – Quality Control
    • A lot of brands are only doing pre-shipment inspections.
    • “The last thing any of us want as brands is to be selling a product and have a return rate that’s north of 10%, it’s usually not a good thing.”
    • John recommends doing an in-production inspection/audit which is something the China Product Pros does.
    • In-production inspection is done by someone going in midway through the production to track and make sure that there are no issues or if there are, they can help troubleshoot during the manufacturing.
    • “If I could ever preach a time to go slow, it would be during the sampling phase.”
  • 25:40 – Green Flags and Red Flags in Sourcing
    • “Alibaba can be great but it’s full of landmines. You can’t believe everything you see on there.”
    • Red flag: Some suppliers post pictures of other suppliers. Make sure to ask questions and probe.
    • Red flag: A trade company/middleman is not necessarily a red flag but as someone working between the importer and the factories, you’re also paying from 15% to 40% of your total order value.
    • Working with the factory directly will prevent you from paying the premium that you are paying a middleman.
    • China Product Pros has the advantage of working with their local networks in China and various Chinese sites like 1688.com
  • 31:56 – The Impact of Cultural Differences in Negotiations
    • “Within Chinese business, it’s not common to say no, which can cause issues.”
    • John uses an example of negotiating a 20% price decrease which may cause the factory to decrease the quality of a material even if they agree with the request for a price decrease.
    • Tell them your pain points and ask theirs too.
    • “In Chinese business culture, it’s expected that you negotiate.”
  • 34:48 – Sourcing Strategies
    • Chinese Product Pros used to wait for the bigger order sizes and wait until you have the full container. Bring them into the 3PL and then drip feed to various online platforms like Amazon, Walmart, etc.
    • After doing a re-assessment, the math wasn’t good so they changed to making the same order sizes and tried to negotiate so that they’re paying less upfront.
    • The pricing of air freight is prohibitive for John because they tend to sell heavy items.
    • They changed their strategy to LCL shipping. However, it made their inventory planning a little more complicated.
  • 38:48 – Unboxing: The End User Experience
    • The unboxing experience is the “one chance at a first impression” to customers.
    • John reflects constantly on the perceived value for end customers.
    • John shares an experience where they’re lowering their COGS and surveyed what the customers might think if the boxes had a minimalistic design.
    • Customers liked the minimalist design and the company also saved around $0.10 to $0.20 per unit.
    • John used ProductPinion in crowdsourcing for the packaging.
  • 44:13 – Facing Unexpected Logistical Challenges
    • One of the challenges that brands face is the “out-of-stock” challenge.
    • John used to use Excel in inventory forecasting. They now use a program called SoStock.
    • SoStock “helped take any emotion out of the decision.”
    • “It was also what tool we were using but it was finding ways to get out of our own way and to make data-based decisions instead of emotion-based decisions.”
  • 46:36 – Tips for Minimizing COGS
    • Talk to your factories, not only when you’re placing your POs or whenever there are quality issues.
    • If you’ve been working with only one factory for some time, think of getting a plan B in cases of unexpected situations like staffing issues or the factory getting shut down due to environmental concerns.
    • Negotiate with pricing, or lead times, or customizations, etc. Brands have leverage as factories need orders to stay in business.
    • “I’m not saying squeeze them for everything they’re worth because you want to maintain that relationship but be aware of it and go negotiate. You’re not going to rock the boat. In fact, you’ll probably improve your relationship.”
    • Usually, trade companies get commissions from factories and creates bad incentivization so look at your entire process. Working with the factory directly saves a ton of COGS.
  • 53:48 – The Role of China Product Pros
    • “We will liaise.”
    • Business troubleshooting
    • China Product Pros also share their factory information.
    • John wants to give their clients more than what they pay for.
  • 56:13 – Learning from John’s Experiences
    • “Talk to your factories. I can’t emphasize this enough and I don’t mean just around business.”
    • Put into your schedule a routine reach out. Have some strategy-based calls. Talk to the higher-ups or owners of the factory.
    • Document with photos or videos and create a process for factory defect returns. Reports can be acquired from the selling platforms that you use.
    • Ask customers for a detailed explanation of the defects so you can show them to the factory and ask for compensation for the defective units.
    • “Ask them to compensate you for any of those units, usually by means of adding the same amount of defective units to your next order.”

Takeaways:

  • Transparency is one of the biggest issues with sourcing from China. Some agencies favor some factories because they receive kickbacks/commissions from those factories which creates a bias system.
  • With product sourcing, look into a few factories first, and send them a request for a quote to get an idea regarding the pricing variations and product availability.
  • Sampling depends on the complexity of the product and may take 4 to 5 rounds.
  • Use tools or programs to make data-based decisions instead of emotion-based decisions.
  • Work directly with factories as it will save you a ton on COGS.

Links & Resources:

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Transcript

John, welcome to the 2X eCommerce podcast. 

Thank you, Kunle. I’m happy to be here.

I’ve been looking forward to this one, for sure. Sourcing from China is a challenge for us. We do have good people but it’s always good to expand your expertise on the horizon on what it takes to source products from China. What I like to start out with is your journey. You can go as far back as you like. I like to know your backstory as to how and why you founded China Product Pros.

I’ll be glad to share. Perhaps I’ll start with present day and then I’ll go back in time to stitch it all together to paint a full picture for the audience. Like many entrepreneurs, I wear a few different hats. Together with my wife, we run China Product Pros, a full-service agency. We help finding, vetting, and auditing factories. We do inspections.

We help with logistics to get the product out of the country and into the country wherever you’re importing into and we do a good job on product and package design as well. We’re based in Montreal with an office in Guangdong Province, China. I also run a seven-figure home-goods brand that I started back in 2017. We’re working on launching another brand this 2024 and that’s exciting. I always get pumped. It’s been a while. It’s been years now with the first brand. I’m looking forward to launching into a new space as well.

I won’t go quite back to my childhood but perhaps I’ll touch on that briefly. I grew up in Eastern Canada, in a small province, with was not much around. I was looking for adventure from a young age. In 2006, the opportunity came up to go to China and I took it. It was supposed to be a gap year from university. I ended up falling in love with the country. I found an opportunity to pursue my studies in China.

I majored in Chinese language at university. I’ve been doing business with China ever since, the first with the mid-sized clothing company here in Montreal. That’s where I first got my taste of manufacturing. I dabbled with Alibaba back in 2007. At the time, I wasn’t fully aware of the potential the platform had but that came with time and everyone’s very much familiar with it right now, of course. Later, I worked in management with projects with China for one of Canada’s largest universities here in Montreal.

In terms of entrepreneurship, I took a few kicks at the can and that’s dating back to 2010. The first time I got it right was in late 2016 in eCommerce. Thankfully, that initial investment paid off and then it became a seven-figure business within three years. It’s been quite the journey. During that time, I’ve been with my wife raising our three young kids. It’s been phenomenal. Our superpower with our brand was always in product sourcing. We always were finding ways to get better quality, better pricing, and to get our products to market quicker, to get those secrets from the factory that perhaps not everyone was privy to.

Over the years, like many agencies, it started with us helping people in our network. I was helping friends, acquaintances, and people from my mastermind groups. With time, we figured out, “We have something here.” Perhaps the last thing I’ll add is from launching and scaling my own brand, one of my biggest issues with sourcing from China is the lack of transparency.

There are a lot of agencies out there that have side agendas. They may be representing you at an hourly rate or a package rate but, unknowingly, they’re also probably getting a commission or a kickback from the factory so it creates this bias system that I always disliked. My wife and I came in the space thinking, “We can do a great job at this, be a shining light in the space, and be a full seller-side representing agency.”

I didn’t know they got kickbacks on the factory and then they get a fee from the sellers. The first question is do you tend to work with startups or do you tend to work with established eCommerce operations looking to optimize their supply chain or reduce their COGS?

It’s about 50/50, Kunle. We enjoy working with both groups. With startups, you get that fresh enthusiasm. There is more of an education piece guiding and sharing best practices. For more mature brands, they generally know what they want and you can get to work quickly with them. There are pros and cons to each type of client but we work with both.

Stepping back a bit for the sake of the audience, could you describe what sourcing from China entails, just the A to Z from your perspective? How is it done well and properly if you’re to do it to execute?

The first step through product ideation is, at some point, you’re going to want to see whether or not your profitability calculations stand up to what the factory on the factory cost side is willing to offer. Once you get to that point of validation in the product development process, you could do this yourself or you could reach out to an agent. Either way, you’ll want to find a group of factories.

We normally start by looking for anywhere from 5 to 10 factories where we will put out an RFQ request for quotes. Depending on the level of customization or uniqueness of the product, we will wrap into that maybe a process whereby we’re not sharing everything about the product quite yet. We would share the basic product, its specs, the materials, and we would come back with quotes. Through this process, you’re usually able to gauge the level of responsiveness and communication. Certainly, you’ll get a price.

One of the biggest reasons why we like to get 5 or 10 factories is because the variance in pricing can be large. Usually, you’ll find a cluster somewhere in the middle. You’ll have factories that’ll price you extremely high because maybe they have a ton of orders and they’re like, “If we want to take this client, they have to make it worth our while.” You’ll have factories that will low-ball you and then you’re left scratching your head thinking, “What’s going on here?” You’ll have a cluster of factories in the middle. Usually, you’ll end up moving forward with those factories in the middle. Every case is unique, of course, that may vary.

From there, you’ll then continue talks and it’ll move towards sampling. You’ll want to start your sampling process with the factories so you would have shortlisted it down. Maybe you’re now talking to anywhere from 2, 4, to 5 factories, and you’ll want to get samples to gauge their quality and samples to gauge their process. Communication is huge in this process. If a red flag comes up early in communication, it’s important for us, as brands, to pay attention to that.

From sampling, if you’re happy with the samples, you may go. Sampling usually takes a few rounds, it’s an iterative process. By the end of those rounds, hopefully, it’s shorter than longer. If you want to get it right, sometimes you have to sample for 4 to 5 rounds.  Other times, you may get it right in the second round. Rarely will you get it right in the first round and if you do, you may be not sampling enough. We try to get as perfect as possible of a pre-production sample before moving forward on production.

Are there any rules like apparel in comparison to electronics? How do you gauge the quality for different categories of consumer products you source from China? 

That’s a great question. It will vary and the type of sample you’re able to get will vary as well. Depending on the complexity of your product, you may want to first source a close product. What I mean by that is you may come into it and have an idea of, let’s say, an electronics product that has specific specifications. The cost to sample that may be prohibitive depending on your business.

You may want to first get some available samples of similar products the factory has to have a look at the quality, the build, and the functionality of those before then moving on to further sampling steps. When it comes to apparel, it’s usually a little bit easier. It all comes down to that complexity factor. If we’re talking about something like t-shirts or jackets, you could do the same approach, you could get a close sample or you could go straight for a specific sample that’s close if not exactly to your spec.

It's good to be thorough on our side as a brand. Click to Tweet

With electronics specifically, you often find that when you jump on a website like Alibaba and search for the device, you find lots of lookalikes. Especially if you’re trying to get differentiation, it’s a big problem. Would you, in that instance, say, “We’re happy with the technology in the electronic device factory. However, once we’ve passed this testing phase, we need a new mold that’ll be unique to us that has a tech in it but looks more on-brand like our brand and like the way we want to see it.” Is that prudent? Would you either do that in your local market in terms of getting that mold or can the factory help you with the 3D models and 3D designs for that new mold if there were to engage with you?

I love this question because it opens up a number of important aspects. A lot of factories will work with you on the design and they may have industrial engineers and product designers present in their office that can do that. That sounds great because you’re taking this job that you would otherwise have to contract out if you don’t have in-house capability and your factory is helping you.

On the surface, it sounds good but then when you get into it, when time passes and let’s say you launched this product and sales are good, there can surface arguments between you and the factory where the factory claims that they have partial ownership, if not full ownership of this design because they created it. The same is true for the mold cost. We like to advise our clients to pay for the mold.

Some factories, you could negotiate let’s say spreading the mold cost over a number of POs if you already have an established relationship or splitting the mold cost. You get into the same potential argument, which is, “Who owns the mold?” If you design your own products in house and it’s fully yours, there’s nothing to argue about. If you fully pay for the mold, the same is true. Of course, it comes down to what resources you have at hand and the time you have. If you want to get it right, the way to do it is to do it yourself and then give it to the factory.

The factory would have to hand you over some technical documentation as to the electronic layout whether it has a circuit board, where it should go, and rules that you can then give to your industrial designer or your industrial designer can make that request to the factory so you know exactly what you’re getting. 

There’s definitely still going to be communication around manufacturing feasibility. You have the best design in the world but if you don’t have consultation on if it can be manufactured and if it can be manufactured at a good cost, you’re probably wasting your time.Start that conversation early and they would have someone on staff that would be able to guide your industrial designer on how best to work with, let’s say, the other designers working on the aesthetic side of the product as well to make sure that it was something that they’re able to manufacture at scale.

Going back to the process you were talking about, you shortlist, you request samples, and what do you do next? 

Shortlist, request samples, and you get to a pre-production sample so it’s a sample in hand that should be identical to the end product once it gets through manufacturing. You would then go ahead and start your negotiations around your purchase order, your PO. After placing your PO, you don’t want to just place it and leave it, you want to place and follow up so make sure it’s on track.

Even the best factories at communication are busy. I wouldn’t leave the onus completely on them to keep you updated but have a process in place within your team to reach out to them at certain points in the process to see if things are on track. “Are we still on track for April 30th completion? Can you send me pictures? Can you send me videos of where things are? Can you send me a picture of the mold?” It’s good to ask questions.

It’s good to be thorough on our side as a brand. Following manufacturing, then you’d be looking at exporting it. At this state, you’d either want to work through an agent or you could go straight through a freight forwarder. Most of them usually have a customs department as well that would help you with the full A to Z of getting it from the Chinese factory to the end destination.

What about quality control?

A lot of brands will only do a single inspection, the pre-shipment inspection. It is great to do it. You want to make sure that the quality is as it’s expected to be before you send it to the UK and then you put up for sale. The last thing any of us want as brands is to be selling a product and have a return rate that’s north of 10%, it’s usually not a good thing. There’s a number of recommendations I would make. Depending on the size of your PO and the complexity, it may or may not warrant to do an in-production inspection or audit. That’s something that we offer and many other agents offer as well or third-party services.

You would have someone go in midway. Depending on the steps involved in manufacturing a product, they would go in, make sure everything’s on track, everything’s to spec, and see if there’s any issues and they would help troubleshoot through those with you. That’s a nice additional layer. To circle back, you want to make sure that you are patient sampling. As brands, we’re often wanting to go fast. If I could ever preach a time to go slow, it would be during the sampling phase. You want to get your sampling right because if you don’t, you are going to have expensive surprises in the future.

Earlier on, you mentioned Alibaba. Most people will go into Alibaba’s search, it’s got a fantastic search engine there, and the journey begins from a China-sourcing standpoint. Other, like ourselves, use Alibaba as a search engine and then we speak to our eyes and feet on ground in China. From your perspective, what is the appropriate routes to take? You’re on China Products Pro and you help source but how should entrepreneurs or startup founders navigate that first, the search and the selection of products? What are green flags and what are red flags?

Some Red flags, we’ll start there. Alibaba can be great but it’s full of landmines. You can’t believe everything you see on there. A lot of suppliers will post pictures of, let’s say, competing products and products they don’t manufacture so that’s one thing. Be aware of that and know that even though they may have a picture of something similar or identical to what you want to make, it does not necessarily mean they have experience making it so probe and ask questions around that. That’s number one.

The last thing you want to be is a guinea pig for a factory that’s trying to develop into a new product line.  Sometimes it works out but usually, if it does, it’s a painful route to get there. There are a lot of mistakes and stress. That’s one. The second is you want to be aware of who you’re working with. In Alibaba, there’s usually two types of suppliers. The first is what’s called a trade company and they’re a middleman that works between you as the importer and the factories. They usually have a Rolodex of factories that they work with.

It’s not necessarily a bad thing if they’re a trade company but it does mean that there’s usually a premium so you’re paying anywhere from 15%, 30%, or sometimes even up to 40% on your total order of value. If you’re working with a factory direct, you won’t have that premium but you also won’t have some of the advantages of working with a trade company. Usually, they have an office that’s dedicated to export and have English-speaking representatives. It’ll be a touch smoother.

Factories, in fact, many of them these days, because they want also to avoid the trade companies who take a big piece of their pie that they’re also developing if they haven’t already developed their own export offices.  In fact, it’s becoming less and less of an obstacle working direct with factories. As a brand, I’ve thought on this in terms of the investment we make in sourcing. If you work with a trade company, you’re looking at a premium of 15%, 25%, or 30% for every order.

If you’re working with an agent, it’s usually that same amount, anywhere from 15% to 30% but more so on your first order. A lot of the heavy liftings on your first order and then thereafter, there’s substantially less work to maintain and make incremental improvements as you go along. You don’t have that added on premium that you have with a trade company order after order. It starts diminishing over time. Bigger upfront investment and then smaller over time.

If we come back to Alibaba, the other thing is it’s where everyone goes. If you go there and your intent is to find a new supplier that maybe many are not working with that can become your gold supplier, it’s going to be very difficult to do that. Our agency, one of the benefits is that we work through our local networks, we work through various Chinese sites like 1688.com, and we try to find great factory partners. We usually try to skip the trade company and find that direct to factory route.

If I were going on Alibaba, their search engine is great. You want to make sure they have enough history. Usually, a factory that’s younger than five years, unless you have a very complex product and there’s not a lot of factories making it, you’ll probably want to avoid speaking with that factory. We usually look for ideally ten-plus years. You want to look at the gold suppliers that have been audited by Alibaba. In this case, it should be clear of whether or not they’re a trading company or a factory. You’ll often see a combination of a trading company plus factory, which usually means that they’re mostly a trading company.

In your experience, how do cultural differences impact the process of negotiating and maintaining relationships with Chinese suppliers? What strategies have you found effective to overcoming these challenges?

It’s definitely cultural differences. Within Chinese business, it’s not common to say no, which can cause issues. If you say, “I need a 20% price decrease,” your factory might say yes but you need to be aware of how they’re saying yes and what’s making it possible for them to say yes. They have their own margins to be concerned about. It could mean that on the backside of that, they are going to decrease quality somehow, maybe substitute materials. It’s important as importers that we have open conversations with our factories.

Our superpower with our brand was always in product sourcing. Click to Tweet

We’re not just telling them about our pain points but we’re asking about their pain points too. If you’re negotiating on terms, if you want to get better cashflow, if you’re negotiating on pricing, and you want to lower your COGS, it truly is a two-way street. Something I often try to preach to my fellow brands is that you want to consider your factory as your most important business partner. In most cases, as product brands, they are our biggest business partner. You want to communicate with them and have a system in place where you can have an ongoing conversation.

The other thing too that I frequently hear from brands is that they don’t want to rock the boat and they don’t want to go in and negotiate. They have a good thing going right there, their pricing is decent, the sales are good, and the quality is, for the most part, consistent. In fact, in Chinese business culture, it’s expected that you negotiate.

Our negotiators, I see them on the phone and they’re tearing into factories and the factories are going at the same pace as them as well. Towards the end of the conversation, everybody’s laughing and they’re talking about their kids. It’s perfectly possible to both be friends with your factory and to fiercely negotiate for better terms, better pricing, better quality, added functionality, additional packaging, or whatever it might be.

From a Western perspective, you pay what you see on the price tag, and there’s hardly any haggling. When you get to Asia and many Southern Asian countries also, there’s that haggling element to things. I want to speak to your home goods brand that you scaled up. As you were scaling it up, what key adjustments did you need to make in your sourcing strategy to ensure sustained visibility? Did you run out of stock? Do you have any stories in which you ran out of stock and there were learnings there? I’m curious to know how scaling and ops align.

Every year, invariably, I’m overhauling parts of the business. A great example is we used to, for the longest time, send full containers. Our strategy was wait for the bigger order sizes and then wait until we had a full container and then bring it into our 3PL in the US or Canada and then we would drip feed to various online platforms like Amazon, Walmart, or what have you. For the longest time, that made sense and our landed cost was decent.

Of course, when we started doing the math on it, it wasn’t all good anymore. It worked well at the time but when we reassessed for this point in our business, the cashflow has become more of a need so we ended up overhauling that entire process. We were paying a lot in storage in the US and Canada with our 3PL partners. We were paying a ton up front with our factories. We were on FOP terms. We would pay the balance to them once it arrived to the US. A lot of cash up front. We ended up overhauling that entire process.

Now, we make roughly around the same order sizes but we’ve negotiated down good terms for us so we’re paying less upfront. Let’s say we put an order in for 2,000 or 3,000 units per product. Depending on the factory, it’s usually around 20% down and then we will hold stock with a factory and drip feed from China direct to our various platforms in North America and that’s worked really well for us.

Does that mean you need to change from sea freight to air freight?

Thankfully not. Also, with air freight, the pricing is a little prohibitive for us because we tend to sell heavy items. We’re selling things like big storage units made of iron, for example. We’ve changed from doing full containers to doing less than container load to LCL shipping where we will consolidate containers with other exporters.

I will say it’s made our inventory planning a little more complicated because it takes that much more to get it right compared to sending in a full container and having a buffer in the US. There’s a lot of considerations to think about as you switch up your shipping strategy but it’s something worthwhile for all of us to touch on. Your pain points in your business will change over time and it’s definitely been the case for us.

That’s insightful. Consumers are discerning and they’re able to pick out a quality brand over a low-quality brand and there are many cues to that from the packaging and the way the manual is put together, even the boxes in which it comes in. There are many touch points. Where do you get all that done? What’s your approach? With the clients you’re working with, what is their approach? You can always bring products from China but what differentiates you?

When you’re on Amazon from time to time, you’d know a seller from mainland China. If it’s just a utility, if it’s just quite functional, it doesn’t really matter. When you start going further up the chain, particularly with electronic devices, there are expectations. What do you think are the building blocks for the product in which you’ve added more perceived value for the end customer?

I like this question, it’s what we reflect on almost constantly. It’s always a battle about how to differentiate yourself from competitors that oftentimes sell at a cheaper price than you. You touched on one that is super important and we spend a lot of time thinking of how to improve, which is the unboxing experience. You only have one chance at a first impression. We and a lot of our clients try to as well, they try to create an impressive, if not unique, unboxing experience so that might mean spending a little bit more on your packaging but depending on your customer avatar, it can be well worth it.

Another fun story is a story of how we had our cake and we ate it too. In our pursuit of lowering COGS, we looked at our packaging. Previously, across our entire product line, we offered full-color packaging. We thought, “How could we reduce the cost? If we reduce the cost, what would the customer reaction be? Would it be favorable?” We ended up pulling that.

We did some polls. We mocked up with our design team. We looked at what it would be like if we just offered a plain white box with black printing, very much more minimal than the box we had been offering previously. In my opinion and my team’s opinion, of course, we’ll create these echo chambers so you have to be careful with that and that’s why I like to do polls but we thought it looked more premium. It was more minimalistic and it looked more modern.

We put it out into a poll and thankfully, the customers largely agreed without our prompting. They said, “It looks more premium. It looks like a higher-end product.” We ended up saving on each unit, anywhere from $0.10 to $0.20. It doesn’t sound like a lot but we all know across volume that adds up. We were saving tens of thousands of dollars per year based on that decision and it helped improve the product. It was a nice win-win. Not all of those decisions work out as we know but it was nice to see that one.

Especially when you crowdsource the decision, you let data take its course. What did you use to poll? Was it a Facebook group poll or email?

We use a service called ProductPinion.

That’s a new one. Is that sent by email? 

It’s similar to PickFU. Have you heard of PickFu before?

No, I haven’t. 

Both of these a huge audience, it’s through Amazon’s Mechanical Turk, and they call it micro projects. They pay them a small fee to answer questions. Both PickFu and ProductPinion opinion tap into that. You can launch a head-to-head poll of a new box versus old box and you can ask a simple question and get feedback and you get results. ProductPinion, I like, because you can also send that out to your email list so you can set up your poll and you can choose to use their audience or you can choose to email it to your own audience.

Another question I have here is what are some unexpected logistical challenges you personally have faced in your journey and how did you address them to ensure timely delivery without compromising on quality?

We’ve definitely faced a number. What instantly comes to mind is the dreaded out of stock. Our inventory forecasting has become more sophisticated over the years. In the early years, we were using Excel. Now, we use a program called SoStock but it could be any other program too.

SoStock, we’ve used it.

I find that works well. It’s helped take any emotion out of the decision, which is important to pause on. Back when we were doing Excel, ultimately, your Excel sheet would result in an output that a human, usually myself or my operations manager, would need to go in and make a decision on. Based on whatever is happening that week, your decision might be biased. You might think, “Sales were crushing it. Let’s add 25% to that order,” or, “Let’s shave off a good chunk,” or whatever it might be. That was a big part of helping our process. It was also what tool we were using but it was finding ways to get out of our own way and to make data-based decisions instead of emotion-based decisions.

I bat on that quite often. You’re sitting around a campfire and then make decisions off the back of that and it rings true with you echoing this in the context of forecasting so good stuff there. For readers, this is 2024, and 2023 has been challenging to say the least. The focus has always been on profitability for 2023. Those who managed to pass through 2023 focused on profitability against top-line growth, which is smart. It’s about preservation. Some of that behavior is going to extend into 2024. One of the ways to maximize your SDE or your profits is getting a grip on COGS. With all they are doing, what tips do you have to retailers who are importing or rely on a China supply chain to minimize their cogs in 2024?

Consider your factory as your most important business partner. Click to Tweet

It’s a great question and it will probably be a summary of some of the points I’ve made so far. The first one, and it’s worth spending a bit more time on, is talk to your factories. It sounds like an oversimplification but I know so many brands that they only talk to the factories when they put in POs or if there are quality issues. Perhaps some of you out there who are reading, certainly maybe early on in the process, I’ve reflected on that too. It’s real for many brands.

You want to almost put a system in place. You’re talking to your factory, at a minimum, every month if not more frequently depending on your volume of orders and products that you manufacturing. I would reassess your manufacturing setup. If you’ve been working with the same factory or factories for the last five years, are they still the best partner for you? Would it make sense to have an option B to play them off of or just an option B in case your main factory suddenly faces a staffing issue or get shut down because of environmental concerns for a month. These things all happen in China.

It’s good to have a plan B both to help you negotiate but then also to have it for when you need it. If you have a plan B, it’s a good idea to try test orders with them. It’s always better to have a vetted plan B where you have experience ordering with them before versus if your main factory shuts down and then suddenly you have to pivot and put in a 10,000-unit PO with this new factory you’ve never worked with. It’s a good idea to float them over a test order while you work with your main factory to get your feet wet working with them.

The other thing is, as brands, we have leverage with factories that we didn’t have years ago. If you haven’t negotiated with your factories on your pricing, on your lead time, or maybe additional customization, there are many different negotiation points, there’s no better time. Exports are low across most categories. Factories need orders. We have leverage now. Go and talk to your factories.

I remember, during COVID, there wasn’t nearly as much leverage. Aside from some categories that were hit hard by COVID, most factories were at capacity. If you came to them, you said, “I need a 10% discount on my next order.” More often than not, they were in a good place to negotiate hard against that. Now, they’re in a different place. I’m not saying squeeze them for everything they’re worth because you want to maintain that relationship but be aware of it and go negotiate. You’re not going to rock the boat. In fact, you’ll probably improve your relationship.

If you haven’t been to China, this is the other thing, a lot of brands have not been to China since before COVID. It’s usually worth the investment to spend the money. I find negotiations usually go best in-person in China. You have dinner together, you’ll go out to karaoke and sing together, and then maybe you’ll pop over to their office the next day and talk about the business relationship and what you need, your pain points.

More often than not, you will get much better results than if you tried to do that over a WeChat call or an email. Usually, depending on your company size and your capacity to invest in that type of trip, it’s usually worth it. You usually come back having paid for your trip. As a brand out there, if you’re reading this, if you haven’t gone to China, go to China, meet your factory, and maybe go during the Canton Fair if you want to do some scouting out for other factories.

What time of the year is the Canton Fair?

It’s twice a year so it’s usually in October and April. The next one is coming up.

Is it in Guangzhou or Shenzhen?

It’s in Guangzhou.

Any more tips?

Look at your entire process. I hate to say this to you because I have my personal bias but if I put on my brand hat, look at who you’re working with as well. Are you working with a trade company? If you are, the chances are, if you were to go direct to factory, you could probably save a ton on your COGS. Are you working with an agent? If you are, are you aware of whether or not they’re getting commissions from the factory or whether they’re getting introduction bonuses from factories?

I dislike most of that because it introduces a bad incentivization for someone that’s supposed to be on your team. Look at that. I would review that. I would look at your shipping strategy. There’s usually chances to cut costs. It all comes down to where your pain point is and where you forecast your pain point will be. Sometimes that’s also cashflow. If that’s the case, your conversation with your factory, maybe your priority shouldn’t be as much on price as it should be on terms. If you’re paying 30% down and 70% on completion, maybe you try to spread that out.

Where does China Products Pro sit in all of this? If I was to work with yourselves, would I have a direct relationship with the factory? Would you be liaising because you have feet and eyes on the ground and you speak the local language or Mandarin? How do you play into sourcing?

We all share factory information and not everyone does that so that’s why I mentioned it first off. We will liaise. A lot of clients come to us. Usually, it’s 1 of 3 scenarios. They might be a new brand that is launching their first product so we’ll help them. That’s always fun, working with a brand-new brand and helping that come to life. We’ll help them find and vet and help with communication around negotiating through the sample phase, putting in their purchase order, helping them get the best pricing shipping from China to wherever it’s going.

The other scenario is troubleshooting. We have a mature seller that comes and have an issue with their factory, it might be a quality issue, or it might be a delay issue. We come in and we can help that type of business troubleshoot. We also certainly have mature businesses that are looking to save some time and money.

As a brand owner, I can appreciate this. Our intent always with every client is to give more than what they pay for. We want them to save more by using us than they would if they were to do it by themselves, not just in money but also in time. It should be a time-consuming process. If it’s not, your internal team may not be spending the time that’s needed to ensure the best results. That’s what we do. We love what we do. We love working with sellers of all different sizes.

That makes a lot of sense. We’re coming to the top of the hour. I’ve thoroughly enjoyed this conversation, John. We should wrap up but before we wrap up, do you have any parting piece of advice as we navigate 2024 with the hindsight of your experience in 2023?

Talk to your factories. I can’t emphasize this enough and I don’t mean just around business. Depending on your comfort level, you can also reach out to them. Chinese New Year is coming up, wish them and their families a happy new year. Put into your schedule a monthly reach out, someone on your team. I recommend doing a quarterly call with them, ideally, not just with your factory rep but also with some of the higher ups in the factory.

Oftentimes, the owners of the factory can also be present in that call. You could have a strategy-based call around the next half a year, a year, or whatever it might be at that point. You can do troubleshooting. The last tip is if you do not have a return compensation strategy or process in place, you can put one in. What I mean by that is for any factory defect related returns that you get from customers, you can create a process where someone on your team is notating those down. You can pull those reports from whatever platform you might be selling on.

Try as best as you can to document it with photos and sometimes videos if you’re able to get it. It’s part of our process with our customer service. If we’re processing return, of course, we will be gracious about that. We ask, if possible, if the customer can give us more details, if they can send us a photo or even a video. In turn, you would approach your factory and ask them to compensate you for any of those units, usually by the means of adding the same amount of defective units to your next order. This simple process can help adding back what you would have lost otherwise in returns. This is also another negotiating point with your factories if you don’t have this set up already.

Especially when you do it upfront. It’s not like it happens and then you react to it. You’re being proactive from the start. That’s when energies are really high when they’re trying to win your business. That is key. John, for those who want to find out more about what you do, it’s ChinaProductPros.com. Are you active on any social media platforms?

I’m active on LinkedIn. You can find me, follow me, and reach out to connect via my full name, John Kyle Beaton. We can reach out via email at JK@ChinaProductPros.com.

It’s a pleasure having you. I’ve learned a thing or two in regards to China sourcing. Thank you for coming on the 2X eCommerce podcast.

Thank you. This was a lot of fun. I appreciate you having me on.

Likewise. Cheers.

About the host:

Kunle Campbell

An ecommerce advisor to ambitious, agile online retailers and funded ecommerce startups seeking exponentially sales growth through scalable customer acquisition, retention, conversion optimisation, product/market fit optimisation and customer referrals.

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