What are the key considerations for your China supply chain?
If you are an Amazon seller, your “sales rank” can be damaged when your inventory runs out. With a high sales rank, your products are much more likely to show up first on organic search results of product searches. A critical step to maintaining your sales ranks, is keeping your product in stock and to not let inventory run out for seven days or more. If the product is out of stock for more than 30 days, your sales rank can virtually become zero.
Third-party sellers are the backbone of Amazon with gross merchandise sales on Amazon's site rising to 60% in 2019 from a mere 3% in 1999. As per Marketplace Pulse, an e-commerce intelligence firm, Amazon sellers sold products worth $200 billion in 2019 as compared to the retail sales of Amazon that totaled $135 billion. The source of products for close to 70% of sellers on Amazon is China. Third-party sellers depend heavily on Chinese factories to produce products they sell successfully online.
However, the coronavirus outbreak has led to supply chain disruptions across the globe, and China is no exception to this. Many Amazon sellers are dealing with the impact of manufacturing facilities and supply chains being shut down in Asia. The added delays to supply in China due to the coronavirus can result in interruption of inventory shipments, which increases the risk of products going out of stock for more than thirty days.
While larger companies have the resources and resilience to withstand such supply chain hold ups, independent entrepreneurs can find it challenging to maintain their sales volume in the face of supply chain disruptions.
To succeed as an Amazon seller in these challenging times, not only is it important for you to get insights into the overall supply chain trends in China but you’ll also need to find the right suppliers who can meet your product specifications. This will help you avoid the risk of running out of inventory for 30 days or more, which is crucial to maintaining your sales rank as an Amazon seller.
Seven out of the ten busiest ports in the world are located in China. As 80% of global trade occurs through the sea as per the United Nations Conference on Trade and Development, Chinese ports handle the bulk of the global trade. The initial lockdowns imposed due to the coronavirus pandemic impacted global shipping due to a shortfall of labor in warehouses, ports, and in the transport chain. Container lines reduced calls on Chinese ports and resulted in delayed shipment deliveries even after the pandemic was brought under control.
The pandemic resulted in factory shutdowns, shortage of labor, longer shipping times, and closure of ports across the world. Close to three-fourths of companies in the U.S. are said to have experienced supply chain disruption to some extent.
With countries shutting down ports and requiring people to stay at home, most Amazon sellers were presented with the uphill task of meeting the product-supply demand. While production suffered to a significant extent, businesses also found it increasingly difficult to ship products to consumers.
According to a Baker McKenzie poll, 93% of companies in China were considering making changes to supply chains in the current situation. Out of these, 18% consider the total transformation of the supply chain, while 58% are looking at making major changes.
While there is a rise in demand for specific skills in the supply chain industry, the last couple of years have also heralded the growing use of automation in China’s supply chain, such as robots in warehouses that improve efficiency and security. As more and more Chinese supply chain companies recognize the benefits of artificial intelligence and the interconnection brought by the Internet of Things, they are increasingly focusing on digitizing the supply chain. A recent Deloitte report states that Chinese supply chains have changed from linear operations to open and interconnected supply operations.
However, analysts and economic experts are optimistic about China bouncing back from the pandemic-related disruptions to supply chains. A poll in which 40 economists participated, indicates that these experts believed the Chinese economy would pick up when the pandemic is contained. This will result in a positive impact on the supply chains across the globe as well.
For unprepared Amazon sellers, the disrupted supply chains in China and across the world can negatively impact sales. However, by working with China sourcing agents, you can realign your business strategy, find the right supplier, determine the suitable shipping mode, and get back on track with your sales.
One of the profitable business strategies is to ship direct to Fulfillment By Amazon (FBA) from China. This can be done in two ways: to ship directly from China to Amazon FBA warehouses or ship to yourself or a middleman and then ship to Amazon warehouses.
The pros of shipping directly to Amazon FBA from China:
The challenges of shipping directly are
You can also opt to ship products to yourself or a middleman who then forwards them to Amazon FBA warehouses. These middlemen are known as 3PL or third party logistics, Pick and Packs, or Prep and Ship.
The advantage of using a middleman is that the products are inspected to ensure they meet the quality specifications and your sales strategies are undisclosed to the Chinese suppliers. The shipment also has low chances of being rejected by Amazon FBA. The cons include the fact that you have to pay the middlemen to both inspect and forward the products which adds to the transit time.
The other factor you should consider relates to the mode of transport. Ocean shipping may be ideal when you have to ship large volumes, while air freight is advantageous when you need to ship products quickly. However, apart from the time and cost savings, you also have to consider the kind of product that has to be shipped, how susceptible to damage your product is, and the environmental impact the particular mode of transport may have on your product.
Airfreight can cost up to sixteen times the sea freight as per World Bank figures due to the limited cargo capacity of airplanes as compared to ships. The cost also is dependent on the weight and volume of the shipment. You can look at shipping a smaller volume of the consignment by air, as the price difference may be lesser.
Although the pandemic has hit global supply chains, China is slowly getting back to normalcy. Amazon sellers can leverage the tremendous opportunities offered by China by formulating a procurement plan or a sourcing strategy that reduces uncertainty and market volatility.
Finding a reliable supplier can be challenging, and making ill-informed decisions can spoil the chances of making the most of your business as an Amazon seller. It is important to understand what sourcing from China entails before engaging with them, determining shipping modes, and finalizing a supply chain strategy.
Alibaba is one of the most popular marketplaces for Chinese suppliers and manufacturers. It is important to verify the details of each supplier to ensure they are genuine. Alibaba provides certification for sellers who are authenticated and offers detailed supplier information on its website. While you can go through the information, it is important to implement due diligence by calling up the company, checking the license, and asking for references. A comprehensive background check is necessary to hire the right supplier.
If your budget permits, you can also make a factory visit or hire a third party to inspect the factory in China. The Canton Fair is the largest import/export convention in China. It is held twice a year and showcases products from across industries including electronics, machinery, chemical products, consumer goods, gifts, textiles, office supplies, medical devices, and recreational products. You can plan to visit the Canton Fair to seek out contacts in person and get samples of products you intend to source.
Other than Alibaba, Global Sources and Made in China are the other websites where you can find suppliers and manufacturers. Other China supplier directories for bulk sourcing include DHGate that features two million sellers and offers escrow protection and guaranteed refunds on every order. There is also the HKTDC (Hong Kong Trade Development Council) that organizes international exhibitions.
No matter which website, directory, or event you visit, there are many things you need to know beforehand to avoid getting scammed on these B2B marketplaces.
Resellers sometimes pose as manufacturers, which may not be a huge problem if you intend to source clothes, toys, and low-value goods. If the products have exacting specifications, it is important to interact with a manufacturer directly. Although these websites provide ratings, there may not be complete transparency on the suppliers’ ethical practices or quality standards. Even if suppliers appear at the top of the listings, you would still need to be thorough in your evaluations of a potential supplier.
After you finalize a supplier, you can request samples before placing an order. Due to the communication barriers, at times this process can be a long-drawn-out one. It can be challenging to explain to the Chinese supplier the specific technical or other requirements through live chat or emails. Most suppliers do not fully understand product usage or the units of measurements commonly used in Europe or the U.S.
Partnering with a China sourcing agent who can act as the go-between is the best way to avoid getting scammed or making poor sourcing decisions. Experienced China sourcing agents have the inside knowledge of how the supply chains work in China. They know which sellers are genuine, and can carry out onsite inspection of the manufacturing facility. Working with a China sourcing agent is highly recommended, particularly when you do not have much experience as an Amazon seller or sourcing products from China.
A China sourcing agent helps you get your products manufactured to precise technical specifications. These agents have offices in China and can make factory visits to monitor quality control processes and check on whether the manufacturing processes are compliant with your standards and product specifics. The agents also inspect raw materials and monitor the first batches to determine their quality.
Agents with an on-ground presence in China also speak Mandarin well, which means the communication and cultural barriers will be diminished. The agent not only negotiates the price better but relays the technical and other specifications to the Chinese manufacturer in a precise way that would eliminate confusion or misunderstanding.
Working with a sourcing agent is the best way to build a long-term, strong relationship with Chinese suppliers. The agents establish sourcing strategies that prevent and protect you from the consequences of engaging with the wrong supplier and the impact of natural disasters such as COVID-19. While crises such as the ongoing pandemic can create unpredictable supply chain disruptions, experienced agents can come up with smart strategies that limit the negative effects (both digital and physical) that you face as an Amazon seller during disasters. This enables you to rebound quickly once the crisis has subsided. In other words, partnering with a reputable and experienced China sourcing agent empowers you to look beyond the supply chain disruptions and recreate business success.
Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.
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