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Sourcing

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#34 Amazon China Product Sourcing -Peter Zapf of Global Sources (part 1 of 2)

   This episode, #34, is the first of two parts of the interview with Peter Zapf of Global Sources. Peter has a huge background in working with Asian (mostly Chinese) suppliers and the whole supply chain. He has a fantastic ability to bring common sense and  simplicity to these complex issues.  

Show notes for Episode 34 (Tactics/Qs)

Peter has been working in Hong Kong for Global Sources for about 15 years.

Global sources has existed for about 40 years. It exists to help sellers/retailers find manufacturers and vice versa. They started off with magazines; since 1996, they have a website (http://www.globalsources.com); since the early 2000’s, they have run Trade shows twice a year (in April and October), in Hong Kong (http://www.globalsources.com/exhibitions).  They’re also running a Smart China Sourcing Summit for FBA sellers at their trade show (http://www.globalsources.com/summit)   

Tactical Qs (FB group) RECENT POLL/EMAIL & from recent FB group posts:

What are the pros and cons of using a sourcing agent?

The pros: often they will get you a lower price so they will pay for themselves.  And they provide feet on the ground.

Cons: Agents have a reputation for taking a cut from both sides – it could be an extra cost because you’re not going direct to factory.  Also, It’s an extra layer of communication which may be a hinderance, especially with a complex product.

Is travel to China, to source products, necessary to grow your business? 

Not really. Email and Skype work well for people starting out.

If you go Full time with your business, it’s very worth considering.

Travel “Lite” is to visit the Trade shows.

“Full” version is to go face to face and travel to meet the suppliers in the factory.

How do you work out what a “good” price is [for a product]?

The best thing is to get multiple quotes from different suppliers. Then go back to your preferred supplier and say “We’d love to work with you but can you match this price?”

However, low price is not the only factor! Consider also:

1. If you squeeze the price, the manufacturer will have to cut corners. This will lead to Quality Control (QC) issues. “You get what you pay for.”  Think about how you want to balance cost and quality. 

2. If you have say a 5% defect rate, that will lose any financial gains you make.

3.  If your product costs are about 25% of your Amazon selling price, a 10% rise in your buying costs only add about 2% to your selling price.

Other ways to save money than just product cost:

Ordering bigger quantities.

Going to directly to the factory vs. using an intermediary.

Using sea vs. air freight.

Shipping direct to Amazon warehouse vs. stopping somewhere in-between.

How your whole supply chain is set up is important for price.

How do you know if you are dealing with a factory rather than an intermediary?

Look at the Global Sources site and look at the Business Licence and see if it includes a word like “manufacturer”.  This works reasonably well in China.

But be aware they may manufacture some things but trade others!

The only way to really know if they manufacture your desired item, is to hire someone to visit the factory or do it yourself. (Compare name on business card, paperwork, factory itself, etc.)

Inspection and Quality Control (QC)- what are your basic recommendations?

It depends on the product but this works well for most categories.

1.    Get several samples. 

2.    Write down everything you don’t like about them.e.g. batteries don’t go in easily; doesn’t turn on; scratches, dents etc.

3. Make an objective list of QC criteria.

4.   Include this list with your Purchase Order. Your supplier may say “No, we can’t deliver at this level.” but it’s much better to know that up front!

5.   Make an initial payment of 30%. Never pay 100% at this point.

6.   Bring in a 3rd party inspector to do a Pre-Shipment Inspection. They should use your QC criteria from your Purchase Order (plus whatever you feel is also relevant).

7.  They will then send you an inspection report.

8. Only then, if you accept the shipment, do you release the remaining 70% of the funds.

By telling the supplier upfront that you’re having a 3rd party inspection done, you’ll get lower defects.  You are signaling to the supplier that you care about quality.

Inspection costs about 300 USD per man-day (for a 1st/2nd tier level Inspection company), and one man day is enough for a typical Amazon buyer shipment. 

How to set up the quality control level?

AQL (Acceptable Quality Limit) is the main [internationally standardised] way to set quality control level and the statistics depending on order size.

Define in your QC criteria if a  problem is =1. critical defect; or 2. major defect; or 3.  minor defect.

Minor=> customer won’t return product eg box folded wrong

Major=> product still works but customer may return

Critical=> product doesn’t really work.

Set how many critical/major/minor defects are allowed:

AQL level Big Box retailers use is 0/2.5/4 (critical defects/major defects/minor defects)

Higher quality: 0/1/2.5

A lot of shipments actually do not pass inspection but the buyer still okays the shipment the buyer may be okay with the minor defects and request improvement for the next shipment. 

Get advice on these topics from your inspection company. 

Overview of the inspection process in this multi-part article (Part 2 is my favorite): http://www.smartchinasourcing.com/home/china-product-quality/2485-managing-qc-inspectors-part-1-the-hiring-process.html 

Description of AQL here: http://www.smartchinasourcing.com/home/china-product-quality/354-back-to-basics-what-is-the-aql.html

How do you set an appropriate quality level? 

If the customer isn’t going to return the product, give negative reviews or negative feedback, then it’s probably fine. So that’s probably the main criterion for rejecting or accepting a batch.

This is another reason for not beating the supplier down too high on price!

Ocean Shipping

Do you recommend shipping insurance?

Like all insurance, it’s easy to get cover but it’s hard to get a payout if needed!

The actual probability of a loss is mathematically low. It comes down to risk tolerance.

If you can afford to lose the money, it’s may not be necessary. If it would bankrupt the company, that’s when to get insurance!

What is the cost difference between ocean and air freight?

There was a recent study on a product that was medium small sized, and they calculated a cost per unit of $6 by air and about $1 by ocean.

There are fixed port costs either end. A very broad rule of thumb is that above 150 kg or 3 cubic metres, sea shipping makes more sense. Also very bulky items need to go by sea (because of volumetric weight)

Customs clearance

How do you handle customs clearance at a US port? (also: What is the cost of customs clearance for sea shipping? How do you select a customs clearance agent for SS?)

Answer to all of these: let your freight forwarder handle it! Peter has talked to the folks at Flexport (based in the USA), but the industry is fragmented and there are many, many freight forwarders.

The Freight Forwarder will ask :

1.    Do you want

a. EXW (Ex works) (pick up straight from factory gates?) or 

b. FOB (Free On Board) (the supplier will get the products on board ship then the Freight Forwarder takes over)?

2. Where do you want it delivered to?

3. What are the dimensions and weight of the product?

They’ll handle port fees and inland freight fees. And they may or my not include duty in the quote but if not included in quote, and they will bill you for it.  When Sea shipping, always use a freight forwarder!

Do you need a freight forwarder for air freight?

Be clear about the difference between Air Freight or Air Courier service.  Here is a good article: http://www.thesourcingblog.com/air-freight-from-china-explained/

The latter is eg DHL, Fedex, UPS. [You may get away without a freight forwarder for this. I have several times. But it’s not foolproof- I also got burnt once! – Michael]

For air freight proper, you probably need a freight forwarder.  If in doubt – ask a freight forwarder if you need to use them!

Do you need a separate customs broker?

The Freight Forwarder will usually either have that in-house or have a relationship with one. So basically they take care of it.

When making initial contact with Chinese suppliers, should I act as if [I am] the buyer and have to OK prices with my boss?                     Peter doesn’t recommend starting a relationship with “untruths”! Mostly the reason for this is for price negotiations. That leads back to price vs. quality trade off (plus the time and aggravation spent on negotiating for small price differences)

If you do want to negotiate on price, you can focus on getting multiple quotes and then compare. (Traditional retailers also figure out the costs of materials and labour and add on margin for the supplier, but this is more complex)

Is it true that Chinese factories generally give you a price that is close to the cost of production?

It can be. Chinese factories often get their profit margin from the VAT rebate of say 9-17%.  If you are getting a good quote, the price can be close to cost – depends on how good your price is!

Any advice on Sourcing from US, UK and European Manufacturers?

This is not something that Global Sources focusses on although the issues may be mostly the same.

Is using a gmail address OK for contacting suppliers? (because of spam from would-be suppliers)

Suppliers are also getting more sophisticated – they will often look up you and your company in eg Linked-In. Good suppliers are capacity constrained. The new suppliers and ones that will work with anybody may not be the ones you want to work with!

To convince the good suppliers to work with you, you want to come across as well as possible (although some of the buyers from the larger retailers do use Gmail to avoid spam).

Try to have a company domain, a company website. Give background about you that sells you as a legitimate and experienced buyer or at least an experienced business person. 

NEXT EPISODE

In Episode #35, Peter gives his strategic big-picture thinking about how to develop a long-term sustainable Product business. Amazing thinking that I have not heard anywhere else. Stay tuned!

NEXT EPISODE

In Episode #35, Peter gives his strategic big-picture thinking about how to develop a long-term sustainable Product business. Amazing thinking that I have not heard anywhere else. Stay tuned!

HOW TO SUBSCRIBE TO THIS PODCAST

A podcast is a free downloadable audio show that enables you to learn while you’re on the go.  To subscribe to my podcast for free, you’ll need an app to listen to the show from.

For iPhone/iPad/iPod listeners – Grab your phone or device and go to the iTunes store and search “Amazing FBA”.

This will help you to download the free Podcasts App (produced by Apple) and then subscribe to the show from within that app.  Every time I produce a new episode, you’ll get it downloaded right on your iDevice.

For Android listeners – Download the Stitcher Radio app (free) and search for “Amazing FBA Podcast.”  Or, if you have already downloaded a podcasting client, follow the directions in the next sentence.

For podcast enthusiasts – If you already listen to podcasts and have a podcatcher that you prefer, the feed you’ll need to add is: http:// amazingfba.com/feed/podcast.

For those who don’t have a mobile device – You can always listen to the show by clicking the audio file at the top of this page.

If you have any queries, just go to www.amazingfba.com/ask.

2

#20 Amazon Private Label Sourcing Mistakes – Part 2 of 2

This Episode, #20 ,  is continuation from episode #18 of my personal Sourcing Mistakes and the solutions I’ve found.

Choosing Suppliers, Communication, handling Financial Arrangements, and  Quality Control and Freight/US Customs can be some of the scariest things for a newcomer to a product-based business. They are also  the source of many of the frustrations and blocks to progress for any Amazon FBA business owner, however experienced.

Here I continue to share with you all the mistakes I personally have made, and the solutions I had to find!

If you have similar stories to tell, please share them with your fellow Amazon sellers, either here, or in our Facebook Group. Let’s help each other!

For a detailed step by step guide to the  sourcing process, listen to Episodes #6-#10, which  are part of the 10-step Amazing FBA Startup System.

SHOW NOTES FOR EPISODE #20 -Sourcing Mistakes

            1. Going to the same place as everyone else to find suppliers
              1. HKTDC
        1. Getting exactly  the same kind of product!
        2. Not verifying supplier hard enough- solutions- checklist
        3. Not checking about details of product
        4. Not getting samples
        5. Not ordering exact model (eg blue vs. black colour) with total clarity
        6. Address errors (continent!!)
        7. Over-long or native-speaker only english
        8. Having only one possible supplier ready to go
        9. Letting supplier change carrier to non-standard.
        10. Not allowing for random delays eg typhoon, suppliers’ supplier (boxes!) delay, customs, supplier gets big order from big customer, hazmat
        11. Picking a product needing or including batteries!
          1. not understanding the technical info for batteries
          2. not getting technical info from supplier upfront
        12. Not getting products inspected in China
              1. At the very least, get them inpsected in the USA
              2. NEVER send in uninspected products to Amazon!
        13. HAZMAT (“Hazardous Material”) or other Amazon technical delays
          1. Not preparing MSDS exemption doc
          2. Not allowing for Hazmat delays
        14. Not allowing for delays by Amazon in receiving goods or Hazmat issues
        15. Not moving other parts of the business forward when sourcing isn’t going to plan
        16. Expecting the Chinese to give a straight answer to a confrontational question
        17. Getting angry about things outside your control. Remember the ideal:

The Serenity (calm) to accept the things you cannot change; The Courage to change the things you can; and The Wisdom to know the difference.

HOW TO SUBSCRIBE TO THIS PODCAST

A podcast is a free downloadable audio show that enables you to learn while you’re on the go.  To subscribe to my podcast for free, you’ll need an app to listen to the show from.

For iPhone/iPad/iPod listeners – Grab your phone or device and go to the iTunes store and search “Amazing FBA”.

This will help you to download the free Podcasts App (produced by Apple) and then subscribe to the show from within that app.  Every time I produce a new episode, you’ll get it downloaded right on your iDevice.

For Android listeners – Download the Stitcher Radio app (free) and search for “Amazing FBA Podcast.”  Or, if you have already downloaded a podcasting client, follow the directions in the next sentence.

For podcast enthusiasts – If you already listen to podcasts and have a podcatcher that you prefer, the feed you’ll need to add is: http:// amazingfba.com/feed/podcast.

For those who don’t have a mobile device – You can always listen to the show by clicking the audio file at the top of this page.

If you have any queries, just go to www.amazingfba.com/ask.

#19 Amazon FBA Seller Interview with David Aggiss

This Episode, #19,  is a very exciting first for the Podcast: our first interview!

David Aggiss was one of the first to join our Facebook community and has been a very active member, including taking the initiative to reach out to me and meet up in person at a conference.

David took some great training, and has been very committed to working his business. As you would hope, that has resulted in some very quick successes. Here, David shares his journey, what worked, what challenges he has had to overcome.

** REVIEWS CONTEST!**

The first 25 people to review the show on iTunes will be entered into a draw. The winner will receive a £50 Amazon Voucher from Amazing FBA!
Head over to iTunes now and leave your review! If you haven’t  already, you can also subscribe through iTunes to get all the info you need to start your own successful Amazon business!

CONTEST EXTENDED to the end of November or 1st 25 reviews, whichever comes first !

SHOW NOTES FOR EPISODE #19 David Aggiss Interview

  • David’s Background: got into property as an investor then moved into mortgage broking.
  • Was drawn to Amazon FBA private labelling model because it offered Passive Income.
  • Passive Income is important to him as a way to get to spend time with his young family and to escape office culture.
  • Also it can be as hands-on or hands-off as you like (Amazon handles sales and can do customer service – you can outsource a lot as well)
  • David started with Amazon training in April this year and his first product went live in September.

GIVEAWAYS and REVIEWS

  • He allocated 200 units to dollar giveaways, targeting 100 reviews (because of the psychology of triple digits of reviews, and because biggest direct competitor has 200+ reviews)
  • Aim was to give away 10 units a day for two weeks
  • Put in three batches of 50 codes to AMZTracker
  • Turned on PPC Amazon Ads after about 20-30 reviews
  • He actually gave away just 150 units, for about 100-110 reviews (so about 66% converted to reviews) as he was running out of stock and had hit his target no. of reviews.
  • David was able to be selective as his product was popular, so he tried to select reviewers who had reviewed similar products, had given a few video reviews and gave decent length reviews [i.e., not just one short sentence!]

SALES

  • Sales got quickly to 10 a day, then went up to 15, then 20, then up to 25 sales/day
  • Sales: Month 1: including $1 giveaways, $5000
  • Month 2: $6000 but that includes running out of stock!
  • PRODUCT SELECTION:
  • Don’t overanalyse
  • Avoided oversize items because of upfront costs and cost of Amazon fulfilment
  • Went for something that could be bought for about $2 a unit
  • Did due diligence and made sure the numbers stack up
  • Not too competitive
  • Happy to go for 10 sales/day

SOURCING AND FIRST ORDER

  • Manufacturer’s MOQ was 1000  to have his logo on product plus customised packaging
  • David negotiated down to 700 units only with custom packaging (no logo on product)
  • But then after firming up the order, he said to supplier he was going to be ordering more, so negotiated including logo on product on the 700 unit order

CAPITAL and CASHFLOW

  • David has only used his capital for stock ordering. Other costs e.g. Amazon Ads etc. are on the Credit Card for cashflow reasons.
  • He needed about £2000-3000 upfront to order inventory and launch the product

AMAZON ADS

  • David turned these on after about 2 weeks and about 20-30 reviews
  • He ran a manual and auto campaign alongside each other at the start
  • He put a $20 daily budget to Manual and $10 to Auto
  • The auto campaign only produced 1-2 sales and those were for a Keyword he knew already was important
  • He then paused the auto campaign
  • He launched with bids of about $3 a click to get onto page one with ads while product was on page 14 or so of organic search results
  • He then gradually reduced the costs per click over time.
  • ACoS (Advertising Cost of Sales)  started off over 100%; then it went down to about 65%; last month it was around 45%.

BIGGEST CHALLENGES AND HOW DAVID OVERCAME THEM

1. Stock management

  • running out of stock happened because he didn’t expect sales to take off so fast
  • The solution is that he will over-order (now has 1500 units in transit either in China or in the USA) and have 3-4 months worth of stock of his first product so he can focus on buying and launching product no. 2

2. Quality issues

  • These weren’t so terrible but there were higher returns than David wanted.
  • He is having the returned units shipped to him in the UK
  • He will then inspect these and then ship some on to China
  • David uses Viabox to receive returns, which gives a free USA Address. They’ll also store packages for up to 30-60 days and arrange shipping pretty cheaply.
  • David’s shipping 18 units for $40 (1.6 oz weight/unit). I make that 1.8 pounds in weight, so that’s about $22 a pound of weight or £14.75/lb (or about $49 a kg=about £33)

3. Reseller on his listing

  • One of David’s buyers for $1 (giveaway for reviews) listed his product for sale.
  • David had saved the URLs of the profiles of all of his reviewers
  • So he was able to track down the reseller and sent them a stern email
  • The reseller on his listing disappeared!
  • David had been prepared to just buy the product to get rid of the reseller anyway.

4. Time management

  • During the set-up phase, because of doing the Amazon business on top of having a full-time job and a young family, David was having to work evenings and weekends, sometimes 2-3 hours late evenings.
  • His solution is to commit to the business, and to try to fit in an hour whenever it’s possible, even if that’s 11 pm after a full day of work and family life!

BEST THINGS ABOUT THE AMAZON FBA BUSINESS MODEL

  • It can take off very fast
  • It requires very little input to maintain once set up
  • The money to be made is very substantial

ADVICE FOR NEWCOMERS TO THE BUSINESS

  • “Jump in and get going!”
  • Don’t over-analyse. For example, in his first batch of products, David had no inserts and no instructions. He’s just sorted both out for his last (2nd) batch.
  • If start-up capital is an issue, you can do what David did and use capital for stock but put the recurring costs on a credit card.
  • Have enough stock to not run out if you can!

HOW TO SUBSCRIBE TO THIS PODCAST

A podcast is a free downloadable audio show that enables you to learn while you’re on the go.  To subscribe to my podcast for free, you’ll need an app to listen to the show from.

For iPhone/iPad/iPod listeners – Grab your phone or device and go to the iTunes store and search “Amazing FBA”.

This will help you to download the free Podcasts App (produced by Apple) and then subscribe to the show from within that app.  Every time I produce a new episode, you’ll get it downloaded right on your iDevice.

For Android listeners – Download the Stitcher Radio app (free) and search for “Amazing FBA Podcast.”  Or, if you have already downloaded a podcasting client, follow the directions in the next sentence.

For podcast enthusiasts – If you already listen to podcasts and have a podcatcher that you prefer, the feed you’ll need to add is: http:// amazingfba.com/feed/podcast.

For those who don’t have a mobile device – You can always listen to the show by clicking the audio file at the top of this page.

If you have any queries, just go to www.amazingfba.com/ask.

2

#18 My Product Sourcing Mistakes & Their Solutions Part 1/2

This Episode, #18,  is kind of a confessional: My Product Sourcing Mistakes & Their Solutions. To be fair to my past self, when I first got into creating an Amazon Private Label business with ASM 3, Amazing Selling Machine was a little light on detail of how to source from China. I did lots of research and have made many mistakes. If experience is the best teacher, it’s still cheaper, quicker and less painful to learn from others’ mistakes! So I hope I can help you avoid mine!

** REVIEWS CONTEST!**

The first 25 people to review the show on iTunes will be entered into a draw. The winner will receive a £50 Amazon Voucher from Amazing FBA!  
Head over to iTunes now and leave your review! If you haven’t  already, you can also subscribe through iTunes to get all the info you need to start your own successful Amazon business!

CONTEST EXTENDED to the end of November or 1st 25 reviews, whichever comes first !

SHOW NOTES FOR EPISODE #18

      1. risking money without diligence
      2. excessive fear of fraud
      3. being too perfectionist/scared
      4. FNSKU
      5. not re-ordering soon enough
      6. setting up a shipping plan and activating it without being ready to ship boxes within 24 hours!
      7. not using clear paperwork trail

My Two Personal Checklists for Doing Supplier Due Diligence all the way to ordering product follow here:

CHECKLIST ONE: Chinese Suppliers- Due Diligence
 
COMPANY DUE DILIGENCE
Pre-contact checks:
IF Alibaba Supplier:
Gold Supplier
Verified Supplier?
Assessed Supplier?
Onsite Check?
Escrow
If HKTDC Supplier:
Dun & Bradstreet Check?
Invertek verified?
Detailed Check:
Do you have an export license?”
Do you have a business license?”
“What is the business owner’s name?”
 
Email check:
is [email protected] or free email address?
Address check:
find address on website or ask for it
request they mail copy of catalogue
check whether factory address is printed on this (if no address, probably not manufacturer)
Tel check:
find or ask for tel no
check if tel.  area code corresponds to address location http://www.china.org.cn/english/MATERIAL/120745.htm
Trade shows
Please could you confirm which Trade Shows your company has attended?
 visit the Trade Show’s official website and verify that the supplier has in fact attended.
Pass ** owner’s name, co address, co tel no for checks
Co. Passed **’s checks?
Please can you let me know your Skype contact details if you use Skype?
 if not, please can you give me a direct contact telephone number for you personally?

PRODUCT DUE DILIGENCE

Is it the right one?
Can you do Private Labelling (OEM)?
IP (Intellectual Property)
Is there a patent or trademark on the product?
If so, do you own it?

If no, are you a licensed reseller?

Safety certificates:
check with Customs Broker what safety certifications are needed for this product type
Do you have these certifications for the product:
CE?
UL?
FCC?
Others needed?
Chinese Suppliers – Product Negotiation & Ordering 
PRODUCT INITIAL CHECKS
Check product is generally the type you want
if YES-check they can Private Label product (with logo) & Packaging
IF YES – Please can you send a product sheet with details of the product?
PROCESS/PACKAGING
Do you sell this product under your own brand? If so, where can I see it? (website address)
We have our own graphic designer- Can you give packaging specifications and sample artwork?
What is your usual lead time for first order between order and delivery EXW, FOB, landed in LA?
What is your usual lead time for FUTURE orders between order and delivery EXW, FOB, landed in LA?
What is your monthly fulfilment capacity?
(Once we provide the packaging design, are you able to look it to check it meets all USA regulatory requirements?)
PRICE / MOQ
Ask for Quote for PL (Private Labelling) at 5-10X the quantity you actually want
There are 3 IncoTerms (freight terms) that you will be quoted: EXW, FOB, Landed cost in Los Angeles (Air Freight). I prefer always the DAP (Delivered At Place) cost, aka, Door-To-Door, but not including US customs clearance costs or US customs duty.
Never ask upfront for MOQ
“We are looking to run a market test for this product as it is in a new category. What is your minimum order quantity?”
(“What is the price per unit at [the MOQ] & what about at these price points: 100, 250, 500, 1000, 2500 units?”)
Request a formal written quote on their own stationery
SHIPPING INFO
Request no. of cartons, weight, dimensions
If price is too high, politely thank them for quote but say have lower quote from competition.
Remove all company identification from competitor’s quote – names, addresses, tel nos, logos, chinese characters, company nos, product no.s
“What is the next step to getting our first order if we decide to move forward with your company?
“What is the next step in the Private Labelling process?” (aka “OEM” in China)
SAMPLES
(wait until you have received a catalogue before ordering samples)
Find out package weight & Dimensions
Check with own courier how much for Freight Collect door to door delivery from dispatch location in China to you.
Double check price includes customs clearance
Get this quote in Writing
Go back to supplier and ask how much they would charge for a pre-paid package.
If you do not have a courier account:
plead that freight collect charges are very high and see if they will accept pre-payment
OR say:  “All our suppliers pre-pay the freight and that is why we do not have an account”
Check rates via Hong Kong post offices here: http://www.hongkongpost.com/eng/postage/ 
FIRST ORDER
Don’t tell supplier what quantities you intend buying in future
if they ask, generalise or evade the issue!
Try for an order of about 10-20% of their quoted MOQ
Get the quote in writing
Ask about Payment Terms and Process
Request a Pro Forma Invoice (PFI)
Double check Pro Forma Invoice:
price
dispatch date
freight method
payment terms
Carefully confirm the order – including:
quantity
quality
price
freight method
freight term (e.g. EXW, FOB, DDU)
dispatch date
packaging requirements
weight
colours, size etc.
Please could you send written confirmation & notification on dispatch?
when you get written confirmation back: check it thoroughly
PAYMENT
arrange payment as agreed
remind supplier that you must have a commercial invoice to accompany the goods
also ask for a copy of commercial invoice by email
Specify that one copy of the Commercial Invoice be attached to the outside of the parcel
and one copy packed inside the parcel
HOW TO SUBSCRIBE TO THIS PODCAST

A podcast is a free downloadable audio show that enables you to learn while you’re on the go.  To subscribe to my podcast for free, you’ll need an app to listen to the show from.

For iPhone/iPad/iPod listeners – Grab your phone or device and go to the iTunes store and search “Amazing FBA”.

This will help you to download the free Podcasts App (produced by Apple) and then subscribe to the show from within that app.  Every time I produce a new episode, you’ll get it downloaded right on your iDevice.

For Android listeners – Download the Stitcher Radio app (free) and search for “Amazing FBA Podcast.”  Or, if you have already downloaded a podcasting client, follow the directions in the next sentence.

For podcast enthusiasts – If you already listen to podcasts and have a podcatcher that you prefer, the feed you’ll need to add is: http:// amazingfba.com/feed/podcast.

For those who don’t have a mobile device – You can always listen to the show by clicking the audio file at the top of this page.

If you have any queries, just go to www.amazingfba.com/ask.

6

#9 – Amazon Sourcing from China 4/4

This Episode, #9, is the 4th of 4 Episodes specifically dealing in detail with Amazon Sourcing from China. It’s also part 7 of the “Amazing FBA Startup System”, which is a very highly structured series of podcasts designed to take you from zero to having a product launched and selling on Amazon.

If you haven’t already listened, you’ll want to at least listen to episodes #6, #7 & #8, which deal with Sourcing from China. Ideally, listen to the whole Startup System, so start from episode #3.

SHOW NOTES FOR EPISODE #9

“PAPERWORK” i.e. Forms/Contracts etc.

Overview

It’s all about the Commercial Invoice (CI), folks!

Everything in the final stages of documentation (meaning anything you or your supplier write to each other, broadly) is leading up to the CI.

After you have finished negotiating on price, product inspection/testing,  payment terms (100% upfront vs 30/70%  split are the usual options) freight terms, &  delivery date, you need to summarise everything in one crystal clear email. The end result of all your documents is the crucial COMMERCIAL INVOICE (See below). After that is agreed, your order is, in theory, set in stone

Of course in practice, you can look at a so-called “final” commercial invoice, realise you or your supplier have made a mistake, and go back to them and get a correction. But it’s a very good discipline for both you and your supplier to get documents right first time. The Chinese have a strong respect for written documents, so use that to your advantage. It’s all about 2 things: clarity of what you are both agreeing; and holding your supplier to that agreement.

So do your best to do any wiggling, renegotiating and corrections before you finally have the Commercial invoice.

Definitions and “final document flow” (see below for actual contents)

  1. Draft Purchase Order Email – this is of course not a technical term! But I put it in as it is a prelude to the Pro Forma Invoice (see below). So you need to be extremely precise in what you ask to be put in the PFI. See below for an exact list of all the info you need to put in the email.
  2.  Pro Forma Invoice (PFI) – basically a draft Commercial Invoice (see below). As it is a prelude to the CI, check it very carefully.
  3. Purchase Order (PO) – your business’s formal request to buy goods. This is a very important document so you need to basically do a “draft PO” by sending a very detailed email to your supplier (details below), so that you get a good quality PFI back and then your actual PO will be accurate.
  4. Commercial Invoice (CI) -this is the final document to result from all your back and forth before money gets sent to the Supplier and then goods  are manufactured then sent to you or your warehouse.

It is the final and most crucial document. 

The word “Invoice” in normal business life implies a straightforward document. Of course accurate invoicing is important, but there are not too many consequences if there are errors, as they can be corrected with an apology.

However, the CI can’t be corrected once it is printed and fixed to all the cartons of your precious products, and it is the main document that will get goods through U.S. customs -or cause issues and delays if it is wrong.

So it is a much more crucial document than a normal invoice!

My strong advice: check and double check every single detail. Then CHECK AGAIN. Trust me on this. (use the info below as a check list)

CONTENTS OF COMMERCIAL INVOICE (so put all of this in your “Draft Purchase Order”  email, telling the supplier to show all of this in the Pro Forma Invoice)

  • Address of “Ultimate Consignee” (US customers term for the person who is actually responsible for the products i.e. your business):  Your Name, Your Business, Your Address or Business Registered Address, UK ( note- even if you don’t have a Company registered, use your business name on all documents, websites etc. Be consistent)
  • Delivery address: probably Your Name, Your Business, #Work Number of some kind, Warehouse address, USA
  • Make crystal clear to your supplier that your UK address is NOT the delivery address! Have the two different addresses in  separate parts of the form. 
  • Your business’s EIN number (definition below)
  • Your business’s DHL account number (or Fedex or UPS – whichever courier your supplier is using)
  • The products’ manufactured value
  • Freight charges, assuming your supplier is handling freight for you (it’s nearly always cheaper and works more smoothly at their end). Exact Freight incoterms, e.g., DAP (see below)
  • Any bank or Paypal charges you have agreed to pay the supplier
  • Payment Terms e.g. 30% deposit, 70% balance
  • Make it clear if you are making the payment of balance dependent on successful product testing/inspection. Spell it out.

I’ll put a sample of each type of document up in the next few days.


FREIGHT INCOTERMS

I first dealt with this in Episode 6, because even at that stage, when first comparing potential suppliers, you need to be aware what prices they are quoting mean so you can compare like with like.

At this final stage of negotiations and placing the order, it’s more critical to be crystal clear exactly what you are getting.

“Incoterms” are internationally agreed freight termsChinese Suppliers are familiar with some of these, although as ever, they tend to use them in their own way.

There are 11 incoterms, each with a unique 3-letter abbreviation. The most important thing each does is: to define precisely when the responsibility for the shipment passes from the Seller to the Buyer. You can further split that into Risks, Responsibility and Costs but I don’t believe you should overthink this at this stage of knowledge!

Here’s a chart showing the detail if you want to educate yourself.

HOWEVER – The good news is that there are only 4 incoterms you’ll probably need to discuss or understand as long as you are using air freight (and I do NOT recommend using sea freight for a first order):

EXW – “Ex Works” – this is the price straight from the Factory Gates. I would never advise you buying on these terms because it means you would have to engage a Freight Forwarder to get the product through all the hoops (clear Chinese customs, get put on board plane, get freight plane over to USA, clear USA customs, etc. etc). It is useful sometimes at the sourcing stage for  a like-for-like comparison for price between different suppliers. But don’t agree to it at this final stage.

FOB – “Free on Board” – The Seller will pay for Land transport to the port, export customs, and loading on board the ship. This technically can only be used with Sea Freight but the Chinese use it all the time for sea or air freight.

Again, this is a very common way of quoting price so useful at sourcing stage. At this stage of ordering, I think you should avoid like the plague. I think this leaves way too much for you to organise (international freight, clearing US customs, unloading in US Port,  organising freight within the USA to your warehouse etc.)

DAP – “Delivered At Place” – sometimes (incorrectly) called “DDU” – Delivered Duty Unpaid (I am guilty of using this term too, possibly influenced by one of my suppliers!).

This means the supplier undertakes to do everything necessary to deliver your products from their factory door directly to your warehouse, EXCEPT for clearing U.S. customs and paying U.S. import duty.

This is the method I have used so far with both of my current suppliers and all my imports (6 to date). I like it because it takes care of most of the issues, but it still can leave you holding the baby with the U.S. customs. It is my recommended method unless you can get DDP (see below), which is even more straightforward for you.

If you use this method, you will almost certainly get a better freight rate than if you asked for it yourself. That’s because your supplier ships probably 100X more volume per month than you are importing. However, you can check this price is reasonable by opening an account yourself with DHL (or Fedex or UPS or whoever they use for freight), and getting a quote for air freight to your warehouse address.

You need to open an account with DHL (or Fedex or UPS) anyway so you have a way for them to easily invoice you for customs duty etc., so you might as well get a quote while you do that.

You’ll need to know the exact weight and dimensions of each (packaged) unit, or the weight and dimensions of each carton=case of products (and of course the number of units per carton). Then you can calculate the cost per unit and the total cost.

For reference, I’ve generally been charged about 7-8 USD per kilo for air Freight DAP to Portland, Oregon.

DHL/Fedex or UPS only, folks!

It’s really important if you use this method to only work with a supplier who will work with one of the standard courier companies: DHL, Fedex or UPS. That’s because of customs clearance in the USA. If you set up your own (company’s) account with DHL, they can pay for duty and customs charges upfront and will invoice you or charge you directly for it. This means you don’t need a customs broker to clear U.S. customs.

If you allow your supplier to use any courier company that uses a normal airline, you will  need to use a customs broker, meaning more costs and more complications for you. SPELL OUT to them that they are not to do this! Guess how I learnt about this!

DDP- “Delivered Duty Paid” – This is the De luxe and simplest of all Freight terms – your supplier will pay for and be responsible for everything from their factory gates up to your warehouse gates, including Customs duty and any customs clearance costs.

I haven’t yet found a supplier who is willing to supply on this basis, as it means they are exposed to the vagaries of U.S. Customs. BUT  if you can find one, I totally recommend this unless the price is outrageous.

It means that you effectively don’t have to think about the Freight part of your supply chain and avoid any potential complications with the U.S. Customs.

U.S. CUSTOMS

This is possibly the most worrying/stressful single area of importing, but if you get your paperwork spot on, you should have few problems with it. I’ve only had problems so far when the supplier didn’t use a standard courier as discussed already.

Duty Calculator www.dutycalculator.com As the name implies, you can calculate the import duty %age that any product attracts. Just follow the simple prompts – which country importing from? which to? Product description? etc.

Duty rates vary from 0% to 37% but I’ve only found between 0% and 6.5% for my products so far. Only 3 credits for free so use only when you’ve shortlisted to 3 product types in product research. Then use again at this stage to double check your costs for your Profit & Loss calculations.

WORKING WITH YOUR WAREHOUSE

This is something I’ll go into in more detail in the next episode, along with Amazon Inbound Shipping. But I’m including both here to complete the end of your Supply Chain.

Once you’ve got products to Amazon, you’ve completed the end of your Sourcing Phase of the Startup process.

If your warehouse is experienced and competent, Like ECM or FBAI, it should not be a big deal for them to work sensibly with you. After all, for the first time in a while, you’re dealing with native English speakers (for the most part, anyway!). Huzzah! Also, most places are experienced with Amazon’s requirements.

Again, just be crystal clear

a. that you know what services they can offer.

b. that YOU know which ones you want

c. that you communicate to the WAREHOUSE exactly what you want.

Services receiving warehouses generally offer include:

  • receiving goods (this is the most basic service for which you are using them)
  • sticking on Amazon FNSKU labels (Amazon can do this for you at 20 cents each, which is similar to what other places charge, but check)
  • putting in inserts, e.g., “Go to this website to activate your warranty” – which I use to capture email addresses within Amazon’s Terms of Service (TOS)
  • testing products if you haven’t had that done in China (in which case you need to create and send crystal clear instructions – see episode #8 for details)
  • inspecting products and product inner packaging   superficially
  • replacing damaged inner boxes  **TIP** get your supplier to create about 10-20% extra inner boxes to replace any damaged in transit. So for 500 units, you want 50-100 extra boxes. Amazon will count damaged inner boxes as defective units
  • repackaging inner boxes (units) into outer boxes=cartons=cases ready to ship
  • liaising with UPS (Amazon’s dedicated courier for inbound shipping)

Try to agree it all upfront. That’s better for (i) budget planning and (ii) smooth working & quicker timescales with your warehouse. However, stay in touch with them and if you need extra services last minute, they are normally happy to do those. Just expect a small extra delay if you do this. First time out especially, you’re likely to need to tweak things. Don’t give yourself a hard time- just keep moving!

INBOUND SHIPPING TO AMAZON

I’ll cover this in more detail in the next episode, but you need to know about this at this stage.

You will need to have set up a product listing at this stage. I’ll get into detail of that in the next episode but do the very basic steps, so you can therefore get an FNSKU, and set up Inbound shipping. 

A crucial Amazon term is FNSKU – The FBA SKU (FNSKU) is an Amazon product identifier for products that are Fulfilled By Amazon (the FBA of this podcast’s title) . The FNSKU identifies the product as yours. You need an FNSKU in order to create FBA Inbound Shipments, which is the next stage.

To get the FNSKU, set the product as Fulfilled by Amazon, and then launch it to Amazon. After a short period of time, Amazon will assign an FNSKU to the product. Click Get FNSKU on the Action Menu of the Amazon Properties page.

 

Inbound Shipping – simply means freight from anywhere in the USA (in our case, from our receiving warehouse) to whichever Amazon warehouse or warehouses Amazon chooses to store your products in. When you create a Shipping Plan (more in next episode), you will input the size and weight of your cases (cartons) and the number of them (and no. units/carton).

Amazon will then automatically assign your products to (a) specific  warehousese(s). You just need to fill in all the info, click “Create shipping Plan” & then send the resulting PDFs to your warehouse.
They should then complete the process of getting your products to Amazon. Voilà! You have product live, ready to sell!!

I’ve included the warehousing and inbound shipping info here as it completes the process of getting product from your supplier to Amazon. However, the place to go into both areas in detail is in the next episode. So click here and listen and read your show notes!

HOW TO SUBSCRIBE TO THIS PODCAST

A podcast is a free downloadable audio show that enables you to learn while you’re on the go.  To subscribe to my podcast for free, you’ll need an app to listen to the show from.

For iPhone/iPad/iPod listeners – Grab your phone or device and go to the iTunes store and search “Amazing FBA”.

This will help you to download the free Podcasts App (produced by Apple) and then subscribe to the show from within that app.  Every time I produce a new episode, you’ll get it downloaded right on your iDevice.

For Android listeners – Download the Stitcher Radio app (free) and search for “Amazing FBA Podcast.”  Or, if you have already downloaded a podcasting client, follow the directions in the next sentence.

For podcast enthusiasts – If you already listen to podcasts and have a podcatcher that you prefer, the feed you’ll need to add is: http:// amazingfba.com/feed/podcast.

For those who don’t have a mobile device – You can always listen to the show by clicking the audio file at the top of this page.

If you have any queries, just go to www.amazingfba.com/ask.

8

#8 Amazon Sourcing From China 3/4

This is Episode #8. It is also  part 3/4 of the episodes focussing step by step on Amazon Sourcing From China.  AND It is also part 6 of the “Amazing FBA Startup System”!

QUALITY CONTROL

CORRECTIONS From Episodes #6 and #7

alibaba.com “assessed” not “verified” supplier (It’s correct in the show notes)

DDU  Delivered Duty Unpaid doesn’t really exist.But some suppliers use the term.  The correct term is  DAP – Delivered At Place. This means you are paying the supplier to freight products from Factory gates to your chosen place (in our case probably a warehouse in the USA). It just doesn’t include Duty or other customs costs.  

QUALITY CONTROL

Supplier themselves – IFE – Initial Factory Evaluation

Product Quality Control 

Pre-Production (processes, equipment, raw materials)

During Production Inspection (DPI) — Catch issues as early as possible and point them to the manufacturer. And take samples at random for laboratory tests, in case you need to comply with strict regulatory standards.

*Final Random Inspection (FRI)* — Confirm the average quality of a product batch, a few days before the goods are shipped out. The audit is based on a statistically valid sample. It is the most common type of inspection. 

Pre-Shipment Inspection (PSI) = pretty much the same thing, but should include notes on and photographs of outer cases, which is useful to monitor as they protect the inner cases ie products in their individual packaging. THIS IS THE ONE I HIGHLY RECOMMEND GETTING 

Packing & Loading Supervision (PLS) — Record the quantity and check the packing    method. And supervise the loading method.

AQL – Acceptable Quality Limit – Renaud does an excellent job of explaining this in detail here at QualityInspection.org. 

I strongly recommend you read that whole webpage and digest it. It’s very important to be clear in your own mind about this so you can be equally clear with your Chinese Supplier.

He also runs or is part of a business that does inspection and testing in China called Sofeast.com.  I have not yet used his business but I am in talks with him about a new shipment so I’ll let you know if I use it, how it is.

defect rates <1%=AQL I

Amazon defect limits are also set <1% and their definition of defects includes Customer returns as well as any defective units they find in their warehouse. So Amazon is (as usual) very stringent in their quality requirements. 

However,  usual consumer goods level = AQL II, ie <2.5% major defect rate. This is not good enough for Amazon- don’t accept it!

Chinese supplier mentality re QC –  higher level of quality =higher costs to them so higher to you.  

If they refuse inspection/testing, walk away!

Make payment of final balance dependent on passing QC. And make this clear in all final communications (Skype chat, email etc.) and put it in the Purchase Order!

PAYMENTS

Fraud prevention – escrow

Ease/Speed & some protection – Paypal

Most liked by suppliers – T/T Bank or Exchange experts

30/70 split


HOW TO SUBSCRIBE TO THIS PODCAST

A podcast is a free downloadable audio show that enables you to learn while you’re on the go.  To subscribe to my podcast for free, you’ll need an app to listen to the show from.

For iPhone/iPad/iPod listeners – Grab your phone or device and go to the iTunes store and search “Amazing FBA”.

This will help you to download the free Podcasts App (produced by Apple) and then subscribe to the show from within that app.  Every time I produce a new episode, you’ll get it downloaded right on your iDevice.

For Android listeners – Download the Stitcher Radio app (free) and search for “Amazing FBA Podcast.”  Or, if you have already downloaded a podcasting client, follow the directions in the next sentence.

For podcast enthusiasts – If you already listen to podcasts and have a podcatcher that you prefer, the feed you’ll need to add is: http:// amazingfba.com/feed/podcast.

For those who don’t have a mobile device – You can always listen to the show by clicking the audio file at the top of this page.

If you have any queries, just go to www.amazingfba.com/ask.

8

#7 – Amazon Sourcing from China 2/4

Episode #7  is the 2nd of 3 episodes addressing Sourcing Products, i.e., finding suppliers and ordering and receiving products.

It is also part 5 of the 10-part “Amazing FBA Startup System” series of podcasts.

The steps in this episode are in part reiterating previous steps but in more detail. 

The first thing to do once you’ve found up to 20 suppliers is to create an email template, then copy and  paste and send it to each supplier (obviously changing the supplier contact name!). 

Try to do it in one -two work sessions if possible – it’s much more efficient. 

EMAIL TEMPLATE

Dear Supplier Name,

I am the Buying Manager for Mike’s Cookware Ltd. We sell Cookware products, mostly online on Amazon in the USA. Here is our company website www.mikescookware. com if you wish to find out more.

We are looking to add Silicone Spatulas to our product line and your product Model SS2 might be perfect for us. Please can you answer the following questions about your product?

  1. Can we private label (OEM?)

2. What is the cost of a sample?

3. How long does it take to receive samples?

4. Do you accept paypal for samples?

5. Do you accept paypal for orders?

6. Do you use DHL, Fedex or UPS for delivery?

7. If so, What is the cost DAP/door-to-door with DHL, Fedex or UPS to [Warehouse address] in USA for 200 pieces? for 500 pieces?

8. How many days between your receiving the deposit payment and you finishing manufacturing? [manufacturing lead time]

9. How many days between shipping product from your factory and receiving product in USA? [shipping time]

We have contacted several potential suppliers and will choose 3 suppliers to get samples  by X date [in about a week].

I would be grateful for your quick reply.

Thank you very much in advance for your help. 

Best wishes,

Michael Bloggs,

Buying Manager, Mike’s Cookware Ltd.,

Registered Company: 12345678

33 Any Road, Anytown, POSTCODE, United Kingdom

Tel: 0208 1234 567

  www.MikesCookware.com

 Email Language/Approach:

Do not come across as brand new to business! Use phrases like “we are looking to add this product line” and “our company”. Don’t say “I’m thinking of” nor “new to business” nor “new to Amazon”. 

Use simple language but don’t use slang. Keep sentences short (I struggle with this! Edit your message after you draft it). 

Format properly with Capitals, check spelling, neat layout (come across as professional – even if your supplier doesn’t do any of these things.) Remember that email is easier to read with plenty of white space compared to printed letters. 

Address supplier contact by name if you have one

Say you are the Buying Manager or Purchasing Agent or Procurement Agent for “Your Business” Ltd. Even if you don’t yet have a limited company, give your business a name.  

Ask  questions with numbering

Sign off with as many company/business credentials as possible, including registered company number (if you have registered a company yet), website address, dedicated tel. no. etc.

Size matters! It’s all about appearing bigger and more established than you are yet!

Setting up a receiving/inspection warehouse in the USA:

FBA Inspection – based near Los Angeles in California

Earth Class Mail (ECM) – based very near Portland, Oregon

International Payments for samples

Paypal – the simplest, quickest way of making international payments. It also gives you buyer protection. Not all suppliers will accept this because of the cost to them (ca. 4% of sum received) but it is worth offering to pay half of this cost or even all of it.

Otherwise, use your bank and do a “Wire Transfer”= T/T – Telegraphic Transfer. 

Yes, there is small potential for fraud but when dealing with a small amount like $30-80 USD, I wouldn’t worry about it – keep the process moving above all. You can’t control delays due to samples being manufactured or their freight, nor due to actual products being made or shipped, so don’t add any other delays!

Details on payments and fraud prevention for actual orders are here in Episode #8.

Designers/Photographers 

Until you have your sample, you can’t actually get photos done yet, but you can start the process of looking for and negotiating with a suitable photographer.

My Photographer: Brian Cottam of Brian Cottam Photography. He has done product photography for various UK companies that household names. Mid priced so not the cheapest, but the shots are of very high quality. High quality photos are seriously important for Amazon listings. He has an excellent eye and takes great care over the details.  Also fast and very friendly.

Equally, you can’t design packaging until you have decided on your supplier and got the packaging details from them.

However, you can a. choose a designer

b. get a professional logo made. This can immediately be used on your business’s website to give a more professional look.

Also, the logo will be ready to send to your supplier to print onto your product when you are at that stage.

Ask your designer to give you two forms of logo: one ready to screen print onto products and the other web-optimised. Also, ask for black on white and vice versa. If you’re using colour, you may want to also ask for black and white versions.

My Designer: Amanda Reid of Clear Moon Studios – UK based designer with a very good eye and very broad experience, including having lived in the USA She has done design work (using templates from  Chinese manufacturers)for me and several friends with Amazon businesses so she knows the routine. Very friendly and efficient.

She also does website design. I haven’t used her services for this yet but I’m planning to upgrade our company website soon and she will be my first port of call.

Other websites for design and photography

www.fiverr.com – probably the cheapest and easiest.

www.99designs.com – probably offers more choice and better end quality. You basically run a mini “Design competition”. A favourite of some internet business gurus like Tim Ferriss, so not to be sniffed at.

48hourslogo.com – specifically for logo creation, again, probably the cheapest and easiest.

Confession – I haven’t used any of the above for design or photography as I have my own trusted people. But I do know people who have had good results with all of the sites listed.

Subscribe to the Podcast to get the complete 10-part Amazon Startup System delivered to your favourite device!

HOW TO SUBSCRIBE TO THIS PODCAST

A podcast is a free downloadable audio show that enables you to learn while you’re on the go.  To subscribe to my podcast for free, you’ll need an app to listen to the show from.

For iPhone/iPad/iPod listeners – Grab your phone or device and go to the iTunes store and search “Amazing FBA”.

This will help you to download the free Podcasts App (produced by Apple) and then subscribe to the show from within that app.  Every time I produce a new episode, you’ll get it downloaded right on your iDevice.

For Android listeners – Download the Stitcher Radio app (free) and search for “Amazing FBA Podcast.”  Or, if you have already downloaded a podcasting client, follow the directions in the next sentence.

For podcast enthusiasts – If you already listen to podcasts and have a podcatcher that you prefer, the feed you’ll need to add is: http:// amazingfba.com/feed/podcast.

For those who don’t have a mobile device – You can always listen to the show by clicking the audio file at the top of this page.

If you have any queries, just go to www.amazingfba.com/ask.

4

#6 Amazon Sourcing from China 1/4

This Episode, #6, is the 1st of 3 parts dealing specifically with sourcing, i.e., finding suppliers, negotiating, getting samples, and getting product manufactured and sent to Amazon USA.

It is also part 4 of 10 of the “Amazing FBA Startup System” series.

**STOP PRESS** REVIEWS CONTEST!

The first 25 people to review the show on iTunes will be entered into a draw. The winner will receive a £50 Amazon Voucher from Amazing FBA! 
Head over to iTunes now and leave your review! If you haven’t  already, you can also subscribe through iTunes to get all the info you need to start your own successful Amazon business!

Resources mentioned

Supplier sites

Sourcing from Chinaalibaba.com. This is where nearly all  private labellers shop.

What filters to use on Suppliers on Alibaba:

Gold Supplier – Supplier pays $2500 odd to list on Alibaba.com. Not in itself a great safety check, but check how long supplier has been listed. The longer, the better.

Assessed Supplier – Which I called “Verified Supplier” in the Podcast. Here is Alibaba’s explanation. Basically, a 3rd party inspection company has been in to check their claims are true and that it looks like a legitimate business. Of course, this being China, we can’t be absolutely certain of the integrity the 3rd party, but it’s another level of check.

Onsite Check – on a laptop/desktop, this only seems to show in the sidebar on the Alibaba site. This means they physically check the factory, which is obviously a lot better than just checking the paperwork.

Certificates – again, in the sidebar. For certain products, you’ll need certification for the product. E.g. 1, silicone spatula touches food so it will need FDA (Food & Drug Administration) approval in USA.
E.g. 2, electric lamp as an electrical item will possibly need certification (More in episode #8  how to find out what certification is needed).

 


ALTERNATIVES TO ALIBABA.COM

HKTDC.com (Hong Kong Trade Development Corporation). These companies are more likely to be Hong Kong based, which has a stricter regulatory environment, a legacy of its days as part of the British Empire. You’ll find slightly higher prices, somewhat less choice but hopefully more consistent quality and business practices

Recommended by a friend of mine who is chief Procurement Officer for Europe for a huge company, so worth taking seriously if you’re concerned about supplier reliability/product quality/potential fraud. I found my supplier of my first product here.

To filter out riskier suppliers, use these filters:

Company Verified – (Checkbox just below the search bar)

All the major company information has been checked by Dun & Bradstreet, a very established (nearly 200 years old!) and respected auditing company based in the USA.   About as safe as it gets in China/Asia generally.

Certificates Verified (Checkbox just below the search bar)

Quality Compliance  (Checkbox just below the search bar for some searches) – a check that the supplier at least on paper has

Information on how to deal with Chinese Suppliers

China Importal – This company will try to sell you into a quick pricey service where they will find and assess suppliers for you. I don’t recommend that, but their blog (linked above) and their free email series are useful guides.

Proven China Sourcing (eBook) by Walter Hay & Jim Cockrum. This site is a sales page for “Proven China Sourcing”. It costs $97 USD. I bought it and I must say it is no B.S. precise information. But there is a lot to absorb and implement so I only recommend it if you are going to have time to do things thoroughly. If you try to implement everything in this eBook, and can only work it very part-time, you will possibly delay things by months – more or less the trap I fell into.

Glossary of Technical Terms

MOQ – Minimum Order Quantity – the lowest number of units that a supplier is prepared to produce in one order.

Pieces- this is simply the Chinese preferred word for “Units”, i.e., the number of “copies” of a given product line to be produced.  Abbreviated to “pcs”.

Private Label Product – A product produced by a manufacturer who will put your logo on the product and/or your design on the packaging. The same as “White Label Product”.

This is the essence of the business model that I use and that for example Amazing Selling Machine promotes. That’s because it is technically a “new” product so you can use a new UPC (product code) on Amazon and have a unique product so nobody else can compete for the “Buy Box” (more on this in future episodes). Also you are building your brand every time you sell a unit.

OEM –In normal usage with Chinese suppliers, it means the same as “Private Labelled”, ie with your own logo and/or packaging design.

In theory, OEM stands for “Original Equipment Manufacturer”. Also in theory, it refers to your own design being produced by a factory. Technically the alternative term for Private Labelling should be “ODM” but I’ve yet to find a Chinese supplier who uses that term.

FREIGHT INCOTERMS

Freight is dealt with in more detail in Episode #9, but I thought it worth putting this in here as you’ll need to understand what prices you’re being quoted during the phase of looking for suppliers and negotiating.

“Incoterms” are internationally agreed freight terms. Chinese Suppliers are familiar with some of these, although as ever, they tend to use them in their own way.

There are 11 incoterms, each with a unique 3-letter abbreviation. The most important thing each does is: to define precisely when the responsibility for the shipment passes from the Seller to the Buyer. You can further split that into Risks, Responsibility and Costs but I don’t believe you should overthink this at this stage of knowledge!

Here’s a chart showing the detail. The good news is that there are only 3 incoterms you’ll probably need to discuss or understand:

EXW – “Ex Works” – this is the price straight from the Factory Gates. I would never advise you buying on these terms because it means you would have to engage a Freight Forwarder to get the product through all the hoops (clear Chinese customs, get put on board plane, get freight plane over to USA, clear USA customs, etc. etc). But as it involves basically no Freight, it means you have a like-for-like comparison for price between different suppliers if you want to be extra thorough.

FOB – “Free on Board” – The Seller will pay for Land transport to the port, export customs, and loading on board the ship. This technically can only be used with Sea Freight but the Chinese use it all the time for sea or air freight.

This is a very common way of quoting price but I still think this leaves way too much for you to organise (international freight, clearing US customs, unloading in US Port,  organising freight within the USA to your warehouse etc.)

DAP – “Delivered At Place” – sometimes (incorrectly) called “DDU” – Delivered Duty Unpaid (I am guilty of using this term too, possibly influenced by one of my suppliers!).

This means the supplier undertakes to do everything necessary to deliver your products from their factory door directly to your warehouse, EXCEPT for clearing U.S. customs and paying U.S. import duty.

This is the method I have used so far with both of my current suppliers and all my imports (6 to date). I like it because it takes care of most of the issues, but it still can leave you holding the baby with the U.S. customs.

If you use this method, you will almost certainly get a better freight rate than if you asked for it yourself. That’s because your supplier ships probably 100X more volume per month than you are importing. However, you can check this by opening an account yourself with DHL or whoever they use for freight, and getting a quote for air freight to your warehouse address.

DHL/Fedex or UPS only, folks!

It’s really important if you use this method to only work with a supplier who will work with one of the standard courier companies: DHL, Fedex or UPS. That’s because of customs clearance in the USA. If you set up your own (company’s) account with DHL, they can pay for duty and customs charges upfront and will invoice you or charge you directly for it. This means you don’t need a customs broker to clear U.S. customs.

If you allow your supplier to use any courier company that uses a normal airline, you will  need to use a customs broker, meaning more costs and more complications for you. SPELL OUT to them that they are not to do this! Guess how I learnt about this!

DDP- “Delivered Duty Paid” – This is the De luxe and simplest of all Freight terms – your supplier will pay for and be responsible for everything from their factory gates up to your warehouse gates. I haven’t yet found a supplier who is willing to supply on this basis, but if you can find one, I totally recommend this unless the price is outrageous. It means that you effectively don’t have to think about the Freight part of your supply chain and avoid any potential complications with the U.S. Customs.

Checking Customs quotes

To check the price is reasonable,  get a  quote, then go and check all the customs costs. Even if it ends up being somewhat more, I’d still be inclined to take it, just to simplify my first purchase.

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INSPECTION IN CHINA

Again we get into this more in Episode #8, but it is important to try your best to get independent (3rd party) inspection and testing of your goods in China before they get shipped if you possibly can.

Since one of the keys to quality inspection is the integrity of the inspection person or company, it’s by far the best to get a recommendation via trusted friends or colleagues. This is when being a member of a community of fellow Amazon Sellers is most useful. Also look among your friends with corporate jobs – you may well find someone who deals with international buying, in which case, they’re very likely to deal with China frequently, since China exports pretty much every type of product in huge quantities. If you’re using a freight forwarder or Customs Broker (about which more in Episode #8), ask them if they have such contacts – that’s how I first found my first inspector in China.

However, if you don’t yet have such contacts , Alibaba.com has now started offering a service to find you a quality inspection company – click here to use this service.

I have yet to use these but am considering doing so for a new shipment. I’ll keep you posted as to how it works.

I’ve paid about $80 a day to an individual.

Bearing in mind that a day was enough to inspect and test 80/500 units and thus pass Quality Control for 500 units, that’s a cost of  16 cents or 10 pence per unit for QC – totally and utterly worth it for a crucial part of the supply chain.

The only company I’ve foundvia Alibaba.com  potentially suitable for my next shipment (that covers my type of product and in the right location) , charges $198 USD a day for full inspection.

You’ll need to have your chosen supplier’s  factory location to find inspectors of course – at least, the City and Province.

If you don’t have products tested in China, then at the very least get them tested in the USA when they land. You will pay a lot more for it and it gives you less control over your supplier. But at least it minimises the number of defective units going to Amazon.

That is the absolute must in this business to prevent a. Your account with Amazon being put into bad standing (remember, they want under 1% defect rate), b. lots of 1-2 star reviews and reputation damage.

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