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Purchasing and procurement agents have proven to be essential during the COVID-19 pandemic – keeping supply chains running when buyers have been unable to visit suppliers and trade shows in China. That said, all procurement and purchasing agents differ in terms of expertise, transparency, methodology, and pricing.
In this guide, I clarify what importers must know when selecting purchasing and procurement in China – or when scrutinizing their existing agents.
Procurement Agent Evaluation
a. Product Expertise
Knowledge about a product and industry is a decisive factor. First, an insider has much more comprehensive product expertise, which is required to understand what makes good quality (and price) for a certain product. Second, this may also speed up supplier sourcing and vetting procedures, as they can utilize an existing network of suppliers.
However, don’t expect to find an existing Procurement and Purchasing Agency for every single niche product out there. And, even when you do, it’s up to you to communicate your quality requirements and product specs – to properly educate your agency.
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There is no set standard for what exactly a China-based Procurement and Purchasing Agency should offer. Some offer more of a ‘one-stop shop’ solution while others are strictly specialized, only performing specific functions. We will get back to the latter later, but first, let’s dig deeper into what various Procurement and Purchasing Agencies actually offer:
& Price Research
Supplier sourcing is the foundation of any Procurement and Purchasing Agency unless they are working with an existing supplier network. However, the methods used to select suppliers vary greatly. While some agents base their selection entirely on relationships, kickbacks, and low prices, others have sophisticated methods of identifying suppliers.
Some agents act as commodity traders, while others are specialized in developing custom-designed products. Each one of these has their places, and shall not be handed projects for which they aren’t qualified.
Some Purchasing Agencies have in-house Quality Inspectors, while others subcontract this to a specialized Quality Assurance agency. In most cases, it makes sense to find your own QC partner, as this is not only more cost-efficient but also more secure. Specialized Quality Inspection firms tend to operate according to international evaluation protocols, for example, AQL. In addition, they also have local offices all over China, thereby reducing travel expenses and speeding up the process.
Product Compliance & Testing
This one ties in directly to Product Expertise, so read the following closely: There is not a single individual, or even company, in this world, that possesses the expertise and experience needed to ensure compliance with all regulations, in all markets, for all products. At best, a Procurement Agency may have relevant experience in their field, but most may not even have the basic knowledge. Product Compliance is such a complex area in itself that you shouldn’t even expect your agency to know what is required. You’ll need to find a specialized, probably local, partner for this.
Shipping & Logistics
Purchasing Agencies normally have partnerships with freight forwarders, which can help you to manage shipping from point A to B. You also may use a local partner that is what you prefer.
Customs Procedures, Import Taxes & VAT
The customs clearance and import tax declaration are normally not managed by the procurement agent. Instead, this is within the service scope of most Freight Forwarders. However, some Purchasing Agencies have subsidiaries in their target markets, helping their clients to manage this part of their business.
Finding a supplier isn’t hard. You can just go on Alibaba.com or Globalsources.com and you’ll have millions of options right in front of you. However, identifying industry-leading, and in relative terms, reliable, suppliers is a whole different thing. Let’s make a broad comparison between different types of Procurement Agencies:
Relationship-Based Supplier Selection
This is the sort of agency you don’t want to work with. Instead of selecting a supplier based on their product expertise and compliance and manufacturing capabilities, this type of agent chooses suppliers based on recommendations from relatives, friends, or the size of the kickback they can get. This sort of agency rarely has any operational protocols whatsoever. Stay away.
Method Based Supplier Selection
A proper supplier selection shall be based on customers’ specific needs. This requires that the agent understands the product’s technical specifications, and how a supplier’s ability to manufacture the product can be assessed. This requires a supplier assessment protocol that takes various data points into consideration. For example, the following:
– Product Compliance & Test Reports
– Company Data: Location, Registered Capital, Registered Business Scope
– Quality Management System: QMS Certificates and on-site inspections
– CSR & Social Compliance
The agency shall be able to explain how they make this assessment and provide documents outlining the details.
Established Supplier Network
Many organizations don’t offer supplier sourcing and vetting as a service but prefer to work within their existing network of suppliers. This has many benefits, but only works if your product is covered. However, for good reasons, these agencies may be reluctant to share information about their suppliers.
d. Revenue Model
There’s more than one way for a Procurement and Purchasing Agency to make money. While many importers assume that all agencies make their way by charging commissions based on the order value, that is not the case. Below follows an overview:
Lower costs before the product start. Maybe.
Gives the agent an incentive to focus on large volume orders of products that require little to no development, prior to production. Not suitable for OEM products.
Suitable for customized products that take time to develop before they are ready for mass production. As you pay a fixed service fee, the agent has no incentive to cut corners to speed up the process or convince you to place large initial orders.
Higher costs upfront
For you, none.
The agent selects a supplier willing to pay the biggest kickback, or bribe if you will. That’s all there is to say.
Some purchasing agents combine two or more revenue models. For example, they may charge a commission based on the order value, while charging you for additional services, such as Quality Inspections and Supplier Sourcing.
Many also receive kickbacks from the suppliers, as an alternative side income. This may, however, come down to individual employees of the agency, rather than kickbacks as a company policy.
I don’t recommend attempting to find a ‘one-stop shop’ managing all procedures involved in buying from China. This is regardless of your industry. You must works ‘hands on’ with the supply chain, and ultimately maintain control. The alternative, to let a consultancy set up a functional supply chain, is simply too expensive for most SMEs. This is how I would do it:
1. Supplier & Price Research
Use a specialized Sourcing Agency or manage the process yourself. You must know which suppliers you’re going to work with, and on what merits they are selected. Vetting ten to twenty suppliers at once is a lot of work, so you better have a specialized partner for this.
2. Prototype Development
You are the product expert. Submit specifications and communicate your quality requirements directly with the manufacturer. Otherwise, important details may be lost in translation. In addition, having a middleman between you and the supplier is not only risky, but it’s also inefficient.
3. Product Compliance, Certification, and Testing
a. Find a local, or China-based, Compliance Consultant that can help you assess which regulations and labeling requirements apply to your products, in your market.
b. Submit reference samples to a China-based testing company, for example, QIMA or Intertek.
4. Quality Assurance, Quality Control, and Factory Inspections
Use a local Freight Forwarder, with a presence in China. It’s critical that they know local customs procedures and tax regulations.
How do I find reliable purchasing agents in China?
You can quickly find hundreds of purchasing and procurement agents in China through a quick Google search. Some present themselves as sourcing agents, but it’s ultimately the same thing.
How can I determine if the purchasing agent is trustworthy?
They should be able to clearly explain their supplier sourcing methodology and quality assurance procedure. As mentioned, don’t expect that they can manage absolutely everything – but they need to be clear about what they can and cannot handle.
If they are strictly limited to sourcing and order management, but lack expertise in product development and compliance – then that can be fine as long as they are good at their core service area.
How can we hire a full-time purchasing agent in China?
You need a Chinese company, and office before you can hire full-time employees in Mainland China. Further, using a recruitment agency is not really a thing in the country.
Can I find freelance purchasing agents in China?
You can find individual freelancers on Upwork.com and various other websites. That said, you should be prepared to offer them very clear guidelines and standard operating procedures. Don’t expect sourcing freelancers to have
What should I ask a purchasing agent?
Here are some questions you should raise:
1. Do you have previous experience with our product category?
2. What is your supplier sourcing methodology?
Criteria based sourcing
3. What is your revenue model?
4. Can you share your methodology or SOP documentation?
5. Which parts of the process do you help manage?
What is the difference between a sourcing agent and a purchasing agent?
Traditionally, a purchasing agent focus on the administration of placing orders, managing to follow-ups, and overseeing shipping. Sourcing agents, on the other hand, identify new suppliers on behalf of their clients. Some sourcing agents may also manage product development, quality control, and logistics.
That said, there is no real distinction between sourcing agents and procurement agents in Asia.
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Co-founder of Asiaimportal (HK) Limited and based in Hong Kong. He has been quoted in and contributed to Bloomberg, SCMP, Alibaba Insights, Globalsources.com, China Chief Executive, Quartz Magazine and more.
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