Which is the best product sourcing method? This is the most frequently asked question of 2022.
Today, there are many ways to source products in the market, but you need the one that best suits your business needs and doesn’t affect your business growth.
Because product sourcing strategy is the foundation of any business, your business’s overall success significantly depends on this one factor. It doesn’t matter if you have a unique product idea that no one has in the market, but you cannot provide it to customers.
Therefore, it’s important to validate your product sourcing idea, whether you are sourcing products for an online store or Amazon FBA.
Validation is necessary to test whether the product sourcing idea you are using is right for your business or not? So, before we talk about how you can validate your product sourcing idea, let’s start with the basics,
What is product sourcing mean?
Product sourcing is the process of finding a source (manufacturer, wholesaler, distributor, or drop shipper) to acquire products to resell in your store.
In simple words, “it’s the process of finding a reputed supplier for your products”.
Not every seller has a manufacturing factory; therefore, they connect with some third-party seller or supplier to source products.
The seller negotiates with the supplier on the price and shipping method. Now there are many types of third-party sellers, but you have to validate which type of supplier is best for your business.
Therefore, before we validate which sourcing idea suits your business, let’s discuss them first.
Common Ways of Product Sourcing
There are 3 common ways you can use to source products.
Manufactures are the companies that make products on a large-scale using machinery.
A manufacturer is a great way to source products if you have a unique product idea. This could be a new product or an existing product with a variation.
Manufacturing is a bit lengthy, complicated, and expensive process as you need to focus on so many factors like quality, design, packaging, etc.
Also, it could be a little challenging to outsource a manufacturer on your own from countries like China or Korea, especially when time and language difference is the biggest barrier.
In these cases, you need a sourcing company or agent like Bizistech, that helps you to find suppliers for your product at a low cost with quality standards.
Let’s validate this sourcing idea by discussing its pros and cons.
Low-cost per unit: Sourcing products from manufacturers gives you an advantage of low cost per unit because there are no middlemen in this whole process. You will be directly dealing with the manufacturer, which means you can make a higher profit.
Private label: You can print your private label or logo on the packaging when working directly with the manufacturer.
Easy to expand: It’s easy to expand your business when working directly with the manufacturer. You can create new products or existing products.
Minimum Order Quantity: Most manufacturers have set large order quantities. For example, an MOQ of 500 units means you cannot place an order of less than 500 units. This is one big problem if you have a small business or a low investment budget. Because even if you place an order for 500 units, there is no guarantee that this stock will sell.
Need larger storage space: If you work directly with the manufacturer, you will need a larger storage space to store many units. However, if you are doing product sourcing for Amazon FBA, you need to focus on your Amazon inventory limit
Logistically difficult: Working directly with the manufacturer will be logically challenging because you must manage product development, shipping, storage, prototyping, and order fulfilment.
Longer lead time: Creating a new or existing product with a variation. Especially if you are working with a foreign manufacturer, it will take months to clear the shipping and customs process.
Chances of fraud and foul play: Working with a manufacturer always involves a risk, especially when sourcing products from abroad. It might be possible that your manufacturer will try to do a scam with you.
Wholesalers are distributors that own their brand, and you buy products from them to sell on your website or your own Amazon or eBay store.
Wholesale product sourcing is easier to manage than manufacturer sourcing. Because in wholesaling, the products are already ready, you have to source, whereas, in manufacturing, you have to create products.
But the biggest drawback of wholesaling sourcing is that it’s like a pie. Everyone takes their little piece of the pie. The more people eat that pie, the smaller pieces they will get.
Let’s validate this product sourcing idea:
No MOQ: The biggest benefit of working with a wholesaler supplier is that there is no MOQ (minimum order quantity) which means you can order as many units you want. This is a great sourcing method if you have a small business and you want to start with a low budget
Quick and simple: Wholesale product sourcing is relatively quick and simpler than manufacturer product sourcing because it takes less time, effort, and money than developing new products.
Branding opportunity: Many wholesale suppliers allow you to print your private label or logo on the packaging. This gives you a great branding opportunity.
Low margin: You usually find low margin profit when working with wholesalers because the supplier is the middleman.
Lack exclusivity: The biggest disadvantage of wholesale product sourcing is that your product is not unique. Many sellers are already selling the same product in the market. Therefore, it won’t be easy to differentiate your product from others.
Difficult to manage: If you are sourcing products through a wholesale supplier, it will be very difficult to manage its inventory. And if your business grows, you have to source products from multiple wholesalers to fulfil orders.
Drop shipping product sourcing is the simplest method of sourcing. It’s also a very popular method of fulfilling orders.
Now, how does dropshipping work?
You don’t order any inventory or stock; instead, you partner with the supplier and list their products on your store or website. So, whenever any customer places an order on your website, you notify your supplier, and he will fulfil that order on your behalf.
Before you choose this sourcing method let’s validate by discussing its pros and cons.
Less Capital is required: The biggest advantage of dropship sourcing is that you don’t have to invest thousands of dollars in starting your store. You don’t have to purchase the product unless a customer places an order for that product and pays you. This means that you can start your business with very little money.
No Storage Space is Required: If you are working with the dropship supplier, you don’t have to order any inventory, which means you don’t need any storage space.
Easy to start: Running an e-commerce business through dropship sourcing is quite simple and easy. You don’t have to worry about warehouse space, packaging fees, shipping fees, or returns handling.
Easy to Expand: As in dropship sourcing, you don’t have to pre-purchase the products you want to sell, so you can easily expand your business by listing a variety of different trending products.
No Risk of Failure: There is no risk of failure in dropship sourcing because you are not investing your own money in creating a product. So, if one product you listed is not selling you can easily go for another product.
Low Margin: If you are working with a dropship supplier to source products, the biggest disadvantage has a very small profit margin. Because the supplier is not selling his inventory, he is also sourcing products from other suppliers. So, to make higher profits, you have to sell so many products.
Competition: According to stats, about 30% of e-commerce is drop shipping now because it’s easy to start. As many sellers are selling the same products at different prices, the competition is tough.
Limited Branding Opportunity: Dropship sourcing doesn’t allow you to print your label or logo. This is because you have a lot of control over the product. The product is packed and designed by the supplier itself. However, some suppliers do offer you to change a product, but they will require minimum order quantity, further narrowing your profit margin
No control over Inventory: If you are using the dropship sourcing method to source products, you are dependent on your supplier. As soon as your supplier goes out of stock, even your established business will be stopped.
After reading this article, I hope that you can validate which Product sourcing idea is suitable for your business. Now it’s up to you whether you want to create your unique products or order already existing products. Every product sourcing is profitable in its way.
Therefore, it’s hard to tell which sourcing idea is right because it depends on your business.
Which Product Sourcing strategy do you use for your business? Please share with us in the comment section.
If you have any questions after reading this article, feel free to ask. Thank you.