5 Sourcing Mistakes? Avoid These Pitfalls
When it comes to the world of sourcing, there are plenty of mistakes that can be made. Many people think that it’s as simple as finding someone overseas who will sell you your products at a discount, but that’s not always the case.
Here are five common sourcing mistakes to avoid, so you can keep your business running smoothly and maximize profits.
1. Picking the Wrong Supplier
To select the right supplier for a specific order using unit price as the major criteria is a classic beginner trap. Issues to consider other than just unit price are:
- Sample development time and mass production lead time
- standards and regulation compliance of destination country
- Ability and cost to pack according to your requirements
- distance from your freight forwarder’s port
You may choose the lowest quote available, but when you add up all the individual bills, it ends up costing you more than another supplier that appeared to be more expensive in the first place.
When dealing with suppliers, you should always start by finding a vendor that specializes in the product you are sourcing. In other words, if you’re in the garment industry, you might need to work with over one supplier because each of them specializes in a different type of material.
For example, your favorite sweater supplier may not be capable of producing high-quality leather materials, just as the leather handbag supplier may not be the best choice when you want products made with polyester because each material requires different technology and machinery to manufacture.
Choose the right supplier for each product you source.
2. Not Knowing Your Incoterms
When sourcing for products overseas or in China, it is your responsibility to ensure that the products meet your budget and quality standards. They should also arrive on time.
It is therefore important to understand the incoterms of the deal. Incoterms help to make sure that you have a smooth hassle-free export or import transaction and prevent costly mistakes. Internationally recognized incoterms help to clarify costs, tasks, and risks for both the seller and the buyer.
There are 11 internationally recognized incoterms rules. We are not asking you to remember all of them like the back of your hand, but to excel in sourcing, you need to know the most common ones like Ex-Works (EXW), Free on Board (FOB), and Delivery Duty Paid (DDP).
Under EXW, the supplier or seller ensures the goods are delivered timely at the agreed place, such as a warehouse or factory and the buyer makes arrangements for pickup. This means that as a buyer, it is your responsibility to pick up and ship your products from the seller’s factory or warehouse.
Under FOB, the seller is responsible for everything, including freight. FOB is put more risk to the buyer because you are liable for any damages or losses that occur during transit from the port of origin to your doorstep.
DDP implies the seller is responsible for the shipment and other responsibilities, including import clearance and duty payments.
Costs will differ between different incoterms, so keep in mind that choosing the right incoterms for your situation may save you time and money down the line.
Many people get excited when they see the EXW price but later get a cold shower. After paying the freight, customs clearance, truck fees, and local VAT make sure you carefully study and consider the Incoterms in the quotation before you sign any contract to prevent problems.
3. Not Checking the Product HS Code
HS-Code is an abbreviation for Harmonized System Code. The World Customs Organization in Brussels creates and maintains it. Customs authorities all over the world use HS-Codes to categorize products. There may be additional requirements, import duties, tariffs, or taxes to pay based on the HS-Code of the product you intend to import.
Your product needs to be correctly classified under one of the HS Codes as per Importing Rules. If products are misclassified, they could face non-compliance penalties, delays at the border, or even be confiscated. You are liable as the importer of the product to ensure that they are correctly classified.
Most importers rely on customs brokers to classify their products. If the broker does not fully comprehend the specifics of a product, he or she may frequently send a list of possible classifications and ask you to confirm.
Ultimately, it is up to you to make the right decision, since you will be the one who will bear the brunt if it is misclassified.
If you are not sure yourself, do not try to “wing it”. Get a broker who is specialized in the products you are dealing with. Otherwise, if you don’t have the budget, you can learn to become an expert yourself by learning how to use the HS lookup system and the EN (explanatory notes) on the Harmonized System published by the World Customs Organization.
It goes without saying that you shouldn’t trust and rely on HS codes given by your factories, broker, or exporter as-is, since they might be incorrect. Wrong HS codes could affect the tariff rates and thus your final costs. Always confirm the HS code by verifying against the HS lookup system or get a second opinion from another broker.
4. Sending Incomplete Specifications
It’s important that you’re clear about your specifications with any product you’re sourcing. Sending only a brief email detailing what you want is a surefire way to get back a quotation that is not relevant to what you have in mind.
Also, be specific when requesting things like sizes, colors, and textures. If it seems like too much information at first, trust us—it’s worth taking a little extra time upfront to make sure everyone is on the same page later down the line.
It’s also important that you discuss any issues or requests in detail during negotiations with suppliers. You may find yourself tempted not to be too fussy because of pricing pressures, but knowing what you need before buying will save both parties headaches later on down the road.
5. False Expectations on Lead Time
The most common sourcing mistake is for companies to expect a quick turnaround. This isn’t like buying something from a store.
Orders are produced by suppliers within a certain lead time. With most suppliers, especially overseas suppliers, production lead time is at least a couple of weeks. If you don’t have lead time built into your sales cycle, then you might miss out on sales.
Most suppliers also have more specific (and different) lead times for other production lines—and the two don’t always match.
For example, a gaming chair supplier may have a target lead time of two weeks on orders for Gaming Chair A. However, the other chair, Gaming Chair X may have a lead time of four weeks. They may be made in different facilities and shipped by different warehouses.
If you are working on a tight schedule or budget, then make sure that you consider your supplier’s lead time
Failure to do so will cause delays and additional costs, costing you money and potentially your project. In some cases, it can also cause frustration between you and your supplier.
Business owners’ most common sourcing mistakes are not communicating requirements, not being specific enough, and failing to include everything in their RFQ.
Once you have an RFQ that’s been well thought-out and includes all of your requirements, you’ll be more likely to get bids that meet your needs.
If a supplier turns in a bid that doesn’t meet all of your requirements, kindly ask for an updated bid, or consider taking your business elsewhere.
Keeping up communication with prospective suppliers can prevent errors like these from happening.
And remember, a mail will always be better than a chat, a phone call better than a mail and a physical handshake will beat all the 3. EQUALIZE will be your eyes and ears in Asia so you don’t have to worry about clear communication and mastering sourcing procedures.