The business environment keeps on changing because of various geopolitical reasons. Due to several developments that took place in China for the last twenty years, now it has become one of the major sources of manufactured as well as raw materials for all kinds of businesses in the world.
As a result, industries can enjoy significant cost benefits. This can offer more profitability as most companies all across the world have started directly sourcing from the manufacturing companies of China and eliminating the trading companies.
Due to this direct sourcing solution, there is a substantial amount of cost reductions that an importer may get and hence they can be quite competitive in the market too. However, importers also need to take care of quality control and many other aspects of direct sourcing.
Just imagine the scenario that existed about 15 to 20 years back. The concept of direct sourcing was almost nonexistent. During those days the trading companies had a major role while importing any products. They were the intermediary between the importers and the manufacturers.
All these trading companies used to import various items manufactured in China on the behalf of the actual consumers and then they used to export them.
China was the main supplier of all these finished goods and the majority of all these traders were based mostly in Hong Kong. These companies used to import from China and then export to the actual consumers.
When the consumers used to source products through traders, then the traders used to charge a minimum of 20 percent as margin. However, the traders were also responsible for quality control of the products. They also used to resolve any issues that ever occurred in the supply chain.
When the consumer started preferring for direct sourcing solution then the traders were left with only one option to stay afloat, by cutting the middleman as much as possible so that they can survive.
Because of direct sourcing from China, the consumers could surely eliminate the 20 percent margin that traders used to charge them. However, by adopting direct sourcing, they had to face a new challenge that they did not realize before.
The traders were also offering a few other services besides only looking at the quality of the products. The following were the additional services that traders of Hong Kong offered.
- Since most of the traders were Hong Kong-based, they were culturally more closer to China. Hence, they were taking care of the communication with the manufacturers quite effectively.
- Since the traders were quite familiar with the Chinese market and hence they were more effective in making proper matchmaking between the requirement of the importer and the manufactures of China.
- If any new products are to be developed then it becomes very difficult for any companies based in the USA or Europe to deal with the manufacturers of China because of language barriers. Traders were quite effective in these activities.
- Clearing the specification was another issue that needs plenty of discussion, which was efficiently managed by these traders.
- In case any local problem ever arises, then it becomes very difficult for a consumer to resolve it. Since the traders are located in the same region hence it is more convenient for them to resolve such issues.
- Any payment-related issues that ever arise could be easily resolved by traders.
- Last but not the least, quality – which used to be a major issue with Chinese supplies. Traders had their own infrastructure facilities available to ensure that the right quality of the product is produced by the manufacturers.
Now all these responsibilities are to be managed by the consumers as a part of the direct sourcing solution. However, despite that, this new solution offers the following few benefits to the consumers.
- Consumers have the liberty to choose the manufacturer
When consumers decide to eliminate traders and import directly from the manufacturer, then they can develop their vendor according to their choice. They can also create multiple sources so that in case of any disruption from one vendor the alternate supply will be available.
- Consumers can negotiate based on their priorities
By directly importing from the manufacturer, consumers now can negotiate the price directly and can get a much better price as compared to what the traders used to offer earlier.
Since consumers are more knowledgeable about their requirements and priorities, hence they are free to negotiate their requirements as they desire.
- Consumers can set the quality control methods to match their requirements
Consumers are better aware of what they need from the product that they are sourcing, so far as quality control is concerned. When they will directly deal with the supplier, they can educate them about their need and once the supplier fully understands it then the quality issue will be nonexistent.
- Consumers can get a direct alert from the supplier
Once the supplier and the consumer establish direct communication between them then the supplier can always alert whenever there is going to be any disruption of supply due to any reason.
This will help the consumer to be more proactive than before when they were getting late info from traders.
- Consumers can have a direct relationship with manufacturers
Consumers can now establish professional relationships with the vendor directly and that can lead to a long-term business relationship. In the future, if any new products need to be developed then this professional relationship can greatly help.
- Significant cost savings
One of the major reasons to go for this direct sourcing is cost saving. Not only does this solution eliminate the 20 percent margin that consumers have been losing all these years by paying to traders but also with proper negotiations, directly with the vendor, enabled the consumers to save much more.
A direct relationship with the vendor can also eliminate many other unforeseen costs that were never considered before.
There can be initial hick-ups while implementing the direct sourcing solution, however, once the process gets stabilized then the benefits that consumers can get will be enormous.
