These days, it seems relatively easy to be able to setup, manage, and achieve success with an e-commerce business based on selling products to consumers.
There are many “platforms” that allow you to establish an online “storefront” with very little upfront investment, and there are also multiple online wholesale “marketplaces” where you can find many “OEM” factory suppliers who offer ready-made products that you can put your brand name on and then sell them as your own through your online storefront. If you wish, many of the OEM suppliers will also allow you to somewhat “customize” the products to make them more uniquely “yours”.
If you have a product design of your own, you can also find many “ODM” suppliers on these wholesale marketplaces that offer to convert your designs into “mass production ready” products that they will then manufacture for you.
However, nothing is ever as easy as it seems. There are many factors on both the “sales side” and the “supply side” that will affect your ability to become successful in your e-commerce venture.
While all of these factors need to be considered and addressed, I believe that the supply side factors are ultimately the most important things to address – especially when you are first starting your business.
I say this because the quality and performance of the products themselves will primarily determine how your business is perceived and rated by those customers, and whether, or not, they will return to buy from you again in the future.
All of the online sales platforms provide opportunities for customers to provide their ratings of the products they buy on the platform as well as their ratings of the storefronts that they bought those products from. It is a known fact that the higher the ratings are, especially for your products, the higher new and repeat sales will be. Conversely, if you receive lots of negative ratings – especially for the products themselves – your future sales will be reduced significantly. Nobody wants to buy products with low ratings for quality and/or for performance.
Given the above, it is critical that you perform the appropriate “due diligence” before you select the OEM / ODM suppliers to provide the products that will have your company’s logo on them and for whom you are going to be dependent on, in very large measure, for your corporate reputation. The more geographically distant and the more culturally and linguistically different the supplier is, the more important the due diligence activities become.
It is very unwise to simply select a supplier from an online marketplace, exchange a few emails with them, and then place an order for products with your logo on it. There are multiple steps that you need to take to “qualify” the suppliers that you think you would like to work with, and there are multiple factors to address to ensure that the products you receive from those suppliers will consistently meet all of your and your customers’ requirements for quality and for performance. All of these things need to be dealt with BEFORE you place your first production order with the supplier.
If you don’t have the capabilities internally to perform the appropriate “due diligence” for your prospective OEM / ODM suppliers, then you would be very wise to connect with a professional sourcing and supply chain management company such as Victure Industrial Co. who can perform those activities on your behalf.
Let’s look at a real-life example to illustrate all of my points above. Here is the background:
- My Victure client, the “Buyer”, is located in Germany, and they established a storefront on Amazon to sell a single product to prospective customers in Germany and elsewhere in Europe.
- The product that the Buyer is selling is made in a factory in China that is owned by a small OEM supplier.
- The product design is owned by the OEM supplier, but they are placing the logo of the Buyer on the product, so the Buyer can sell it as “their” product.
- The product does NOT have “CE” Certification – which is a requirement for selling in Europe.
- The Buyer found the product and the OEM supplier through the Alibaba marketplace.
- Prior to placing its first order with the OEM supplier, the Buyer had limited electronic communication with the OEM supplier, and they did NOT make a site visit to the OEM supplier’s factory.
- The Buyer also did NOT define its requirements / expectations for product quality (cosmetic / functional), nor did they establish any kind of outbound inspection process for the product before it shipped from China to Germany.
- Further, the Buyer did not establish any terms with the OEM supplier with regard to control and acceptable use of the Buyer’s logo.
- The initial batch of product from the OEM supplier was favorably received by the Buyer’s customers, but then subsequent batches of product started to exhibit significant quality inconsistencies for cosmetic issues (mostly) as well as some functional issues.
- These product quality issues caused the Buyer’s customers to become very unhappy, and they expressed their unhappiness by posting very poor reviews of the product on Amazon.
- As the number of bad product reviews increased, the Buyer saw significant decreases in its sales revenue. The negative trend in product reviews and sales revenue became a major concern for the Buyer.
- The Buyer was NOT able on its own to find a way to resolve the problems with the OEM supplier, and that is when Victure became involved to work on behalf of the Buyer to resolve the problems with the OEM supplier.
The first action that we at Victure took after being engaged by the Buyer, and after we understood the background to the problem, was to make a visit to the OEM supplier’s factory and to meet with its management team. This was an interesting and concerning experience as we discovered that the OEM supplier is small and that their management team really has no understanding of what it takes to be successful with customers outside of China. This lack of understanding was demonstrated in a significant way when the OEM supplier initially pushed back very hard on our position regarding the “cosmetic” quality concerns that were causing so many headaches for the Buyer and its customers. In the OEM supplier’s opinion, there was no problem to be concerned with, and they considered us to be much too strict with regard to the cosmetic requirements we had communicated to them.
We also discovered working on this case that product with the Buyer’s logo on it was being sold on an e-commerce site in China. This product had to have come from the OEM supplier’s factory. This situation was brought to the attention of the OEM supplier’s management, and they were told very clearly that it was an unacceptable situation and that no further product with the Buyer’s logo should be sent anywhere other than to the Buyer unless they had the Buyer’s explicit permission to send it elsewhere.
Based on the OEM supplier owning the design of the product, and the Buyer’s desire to continue to offer that product to its customers, Victure is working with the OEM supplier and the Buyer to establish a Quality Control protocol & process – including outbound shipment inspection – to ensure that the Buyer consistently receives product of acceptable quality with as close to zero defects as practical. We have also established a contract with the OEM supplier to protect the logo, brand, and related intellectual property of the Buyer.
The situation with the OEM supplier is still evolving, but things have been moving forward in a positive manner and we are seeing good results from the work that we have done so far.
Unfortunately for the Buyer, they had to suffer a significant setback in their business to realize that it was necessary to establish formal quality controls for the product and to actively manage the supplier.
Hopefully, others can learn from the Buyer’s mistakes and avoid having similar problems.
China Sourcing- https://www.linkedin.com/groups/4462099/
India Sourcing- https://www.linkedin.com/groups/8454669/
Vietnam Sourcing- https://www.linkedin.com/groups/8815822/
Asia Sourcing- https://www.linkedin.com/groups/8909383/
Gifts and Premiums- https://www.linkedin.com/groups/4421652/
Circular Economy- https://www.linkedin.com/groups/13908783/