Retaining customers is easy when you’re delivering quality products.
But sourcing product can be tricky. The market is full of suppliers, making it difficult to identify one that meets your business’s needs, including whether or not they can deliver enough product or do it on time.
Here are five ways to source product and some best practices to transform your approach to inventory management and deliver top-quality goods to customers.
What is product sourcing?
Product sourcing involves acquiring products to sell, deciding where to buy materials or goods, and choosing whether product manufacturing is done internally or by reputable suppliers who purchase products in bulk.
Learning how to source products prevents wasting time, money, and space. You won’t need to rush order inventory because you’re understocked or spend on goods you can’t sell.
4 ways to source products
Knowing where to source your products requires balancing several variables, including consumer demand, cost constraints, delivery timetables, and warehouse space. Here are some examples of sourcing types to consider.
1. Do-it-yourself (DIY)
If your business is small and the total order volume is low, making products in-house is a great option. You can produce goods as needed to avoid wasted stock and maintain strict quality control.
The biggest downside is struggling to meet demand during a spike in sales. But producing your own goods means you avoid large investments in merchandise to stay profitable.
Under the DIY model, you need to source raw materials, invest in tools, and rent a place to store your supplies and products. Note that this approach places the burden of order processing and shipping on your shoulders, which gets difficult to manage as your business grows. This may only work in the early stages or if you don’t intend to scale.
2. Wholesalers
Working with wholesalers is a good option if you sell an established product, such as electronics or home goods. Wholesalers sell products sourced from elsewhere at sizable discounts — but you need to buy in bulk to unlock those discounts, so make sure your consumer demand is high enough to justify such a large order.
Ordering too much inventory can tie up your cash for months and drive up carrying costs since you must pay to store the extra stock. Plus, if the goods you order become obsolete or unpopular, you could have thousands of dollars worth of merchandise that’s hard to sell.
3. Dropshipping
Many small business owners favor dropshipping because it’s a low-risk option for generating sales and getting products into consumers’ hands. Under the dropshipping model, you don’t handle the product. Instead, you pass orders to your dropshipper, who sends the product directly from their facility to the consumer.
Dropshipping has a few downsides, including a lack of control over inventory. You can’t control the quality if the product goes straight to the customer. Also, profit margins tend to be smaller since you aren’t benefiting from bulk order discounts.
4. Manufacturers
Working with manufacturers cuts out intermediaries like wholesalers or distributors, decreasing the per-unit cost of an order. You aren’t paying the markup they charge for sourcing the product and purchasing large quantities of stock. But manufacturers require large or bulk orders, so your initial investment can be quite high.
If you’ve developed a custom product and can no longer meet demand via DIY production, sourcing directly from a manufacturer is likely the only option. That’s because wholesalers and distributors won’t have an incentive to purchase something specific to your brand because they can’t sell it to anyone else without the rights to your design. However, working with manufacturers makes it easier to scale your unique product and grow your company, which pays off in the long run.
Product-sourcing best practices
Product sourcing isn’t as easy as finding a new item, making a bulk order, and adding it to your catalog. Confirm that it works for your business and appeals to existing customers. Here are some best practices for choosing the best product.
1. Research the product
Once you’ve identified an item that might be a good fit, conduct research to determine whether it’s trending in the market, how much it’s selling for, and which audience segments it performs well with.
If a product isn’t as popular, analyze whether it’s temporary, like a seasonal dip, or the item has simply reached its peak. You don’t want to overinvest in a product consumers have lost interest in, as that makes selling inventory difficult.
Another great way to do this is by visiting trade shows, which lets you connect with product suppliers, wholesalers, and manufacturers. Instead of contacting vendors individually, you can meet dozens of prospective partners at one event. Plus, demoing new products and testing samples helps you make informed decisions on the spot.
2. Contact prospective suppliers
Before contacting product-sourcing partners, identify what terms make sense for your business. Consider factors like per-unit pricing, minimum order quantities (MOQs), and supplier order fulfillment times.
Let’s say you contact two suppliers to inquire about ordering 7,500 units of a given product. One supplier’s per-unit price is $1.25, and another’s is $1.
However, the latter supplier has an MOQ of 10,000 units, and the more costly partner has an MOQ of 5,000 units. Both can fulfill your order in the same time frame.
In this scenario, you’d need to decide whether ordering 2,500 extra units would provide enough cost savings to justify the additional investment and storage expenses. If the numbers don’t make sense, working with the more expensive supplier offering a lower MOQ means saving in other areas.
It’s good to know how much is too much, what’s affordable, and how much you expect to sell before getting in touch with potential suppliers. This speeds up negotiations and ordering.
3. Order samples
The products you carry impact your reputation with consumers, so testing samples before placing a large order is important. After finding a supplier and ordering samples, show them to your team and gather feedback on the quality and condition of each item.
Look for consistency issues or other factors that might reflect poorly on your brand, and only engage in serious talks with the product-sourcing partner if you’re happy with the samples.
4. Run a trial order
Next, place a trial order so your consumer base can test the products. If you manage brick-and-mortar stores, consider showcasing the samples in a few locations to limit your risk profile. Don’t fill stores with stock that might not sell. If you run an e-commerce store, list the product as a promotion to encourage customers to buy a limited stock.
Identify key performance indicators (KPIs) to evaluate the trial, such as sales volume and consumer reviews. Use this data to determine whether to add the product to your permanent lineup or return to the first step and try again with another sample.
5. Evaluate the supplier (and keep your options open)
If the supplier and product perform well, establish an ongoing relationship with them and make the new item a long-term fixture in your offerings.
Don’t close the door on other product-sourcing partners, though. It’s always a good idea to have a plan B, so take note of who has the next-best product.
Benefits of having multiple product sources
Maintaining relationships with multiple sourcing suppliers ensures that if something goes wrong with your primary supplier, there are fallback options lined up to avoid shortages.
Having multiple product sources also provides other benefits, including:
- Better prices: Working with more than one trade partner could help you negotiate a better deal with a supplier.
- Improved resilience: If one partner struggles to meet your needs, you can pivot to another, preventing disruptions in your supply to customers.
- Quality control: Competition keeps suppliers honest, ensuring they maintain quality standards to retain business.
Working with multiple trading partners isn’t about forcing suppliers to compete or engage in price wars. It’s about keeping your options open so the success of your business isn’t at the mercy of a single entity.
Seamlessly manage your inventory from procurement to sale with Fishbowl
As the top inventory management software, Fishbowl provides the tools you need to simplify product sourcing, enhance control over stock, and facilitate QuickBooks inventory tracking. Our QuickBooks integration unifies your sourcing and financial data, providing better visibility into your operations and business performance.
Get a handle on your supply chain and finances with Fishbowl. Book a demo today to learn more.