5 Common Issues Working with Chinese Purchasing Agents

Sourcing Nova is now into its second decade as a purchasing agent.  We started with products from the wholesale marketplace, then direct factories and now from carefully vetted manufacturers of top world-class OEM and ODM brands. Read our story.

We have worked with hundreds of clients across the globe. Our goal has been to develop our strategies for product sourcing from China, optimize supply chains and save money. We have seen all sorts of buyer-supplier relationships within the industry. This includes the best of the best to the failures and scammers.

There is always potential for issues with purchasing agents and clients. Sourcing Nova has the five most common you are likely to encounter. Before that, we have a question: Why bother working with a sourcing agent?

Why cooperate with a Chinese purchasing agent？

There is a Chinese proverb, “The man in the attic by the water will see the moon first.” A close English meaning: “The early bird gets the worm.”  The first person will get the best of what is available.

Most buyers working with Chinese sourcing agents are from outside of China. The better sourcing agents are close to the industry clusters that focus on exports for this reason. Export-ready industry clusters are in the eastern coastal provinces of China – Guangdong and Zhejiang.

How does this tie into the proverb?

Here is an example of what we mean.

There was once a large manufacturer that had problems with the capital chain because of investment failures.

Sourcing Nova learned this and immediately reduced product purchases from this company. We then began to seek out new manufacturers.

It was less than a year later the original manufacturer went bankrupt and closed its doors. All orders stopped, and any payments from customers were not returned.

Sourcing Nova was ready. Other purchasing companies and agents were not. We saw the moon first on that day.

This is a very simple example. It is highly unlikely this will happen. However, the damage to a buyer will be catastrophic if it does happen.

Sourcing Nova always has an ear out for internal information on supply chains. We have an upper hand over our competition in this way.

How?

Sourcing Nova uses traditional methods of getting information – newspapers , television and guanxi.

The differences between a purchasing agent in an industrial cluster and a purchasing agent not in an industrial cluster is significant.

1. Procurement agents in an industrial cluster know the ins and outs of a manufacturer before most other sourcing agents. Sourcing Nova may not have contact information, but we are aware of the manufacturer, their strengths and weaknesses. If necessary, our agents can reach out to the sales staff of the manufacturer.
2. Procurements agents outside of an industrial cluster are not privy to the same information as Sourcing Nova. These purchasing agents get the customer’s needs and desires and then check the Internet for manufacturers.
3. Many of these procurement agencies cannot access the manufacturer directly.  They lack the basic information of the manufacturer.

This is the difference between prepared and not prepared.

Sourcing Nova watches supply chains. We get up-to-date information on features, benefits and best practices. This is what we do on a daily basis and is a huge value for our treasured clients.

At the time this blog appeared on the website, there are thousands of purchasing agents in China. That number grows continuously.

Sourcing Nova could not find a complete list of all agents because there is no practical way to do so.

Most of these agents are trading companies.  Sourcing Nova reviews business licenses for certain clues to make this determination.

The number of sourcing agents to choose from means a wide variety of experience and expertise. The same can be said for the buyers.

Some procurement agents will claim themselves as “the best sourcing agents in China.”

Some agents may excel in customer service, supplier resources, shipping costs and such.

Some sourcing agents will feature top suppliers. Some will specialize in the cheapest products.

Some will have in-house employees for inspections. Some will use a third-party inspection service.

Some will source from wholesale markets. Some will source directly from manufacturers.

What does this mean for you?

Sourcing Nova has learned after our experience in the industry that issues will arise between you and your perfect sourcing agent.

Now that you have some understanding of why to work with a purchasing agent, we can turn to the focus of this blog.

The five most common problems between buyers and purchasing agents.

Purchasing agents may charge the buyer and supplier

For example, the factory’s cost to the buyer is $10,000.00.  The purchasing agent will charge both the buyer and supplier a $300.00 commission.

Why is this bad business?

Why does this happen?

There are two reasons for this.

1. The purchasing agent wants more money in their own pocket.
2. The purchasing agent does not recognize this as a bad business practice.

The second of the two reasons may not make sense to Western buyers.  However, it is a common Chinese business practice.

Here is a comparison: The buying agency and a home rental.

Chinese people looking for a home will normally use a rental agency. The agent will show the client select properties. Until a contract is signed, the agent gets no commission.

The agent is paid after the tenant signs a lease with a landlord. The commission is normally a month’s rent, split 50/50 with the tenant and landlord.

What can you do to keep purchasing agents from charging both sides?

There is no way to keep this from happening, sadly.  Sourcing Nova does have some ways to minimize the risk:

• Making the best choice of purchasing agent is the most important. Select a purchasing agent who will speak on the record they will not charge the buyer and supplier. Purchasing agents are less likely to do this after making a public statement.
• Be upfront and forward. Ask: Will you charge the supplier a commission? Do not worry about offending the purchasing agent.
• Research the values of the purchasing agent. Find one consistent with your own values.

Purchasing agents may not provide value

Sourcing Nova is serious about providing our customers real value.

Many sourcing agents lack the ability to reduce the total cost of procurement for the buyer. Using a sourcing agent who cannot optimize the supply chain and logistics in your favor  costs you more money. It is like hiring a middleman for your product sourcing needs.

Example: Sourcing Nova found a purchasing agency that used AI technology to help buyers match to suppliers.  Here is how the purchasing agent pulled it off:

1. Buyers provide a product keyword.
2. Python crawler goes to the main B2B platforms.
3. An algorithm searches the platform for the top X suppliers.
4. The agency collects the supplier contact information and compiles it into a report.

Sourcing Nova does see value in Python programs.  However, no computer program can replace the minute details of interpersonal, person to person direct contact.  This includes video conferencing.

How can you be sure a purchasing agent will bring you value?

It depends on your experience. Good buyers can judge a purchasing agent with a few simple questions.

Sourcing Nova has simple ways to make your determination:

1. Read, and review the content on the purchasing agent’s blog.Better sourcing agents have valuable information on their blogs. Those blogs address specific questions and offer sound advice.  Better purchasing agents will make complex ideas simple to understand.Mediocre sourcing agents will have a very sparse blog or a blog that is exceptionally long. Each blog does little or nothing to answer questions and concerns of the buyer. There is no constructive comments and sound advice. The mediocre purchasing agent will make simple ideas complex to understand.
2. Be direct, and ask how they optimize the supply chain.We have said before: The value of a purchasing agent lies in how well they understand the supply chain and whether or not the agent can optimize it.Ask the purchasing agent how they choose suppliers, and how they can help save money on purchasing costs.If the answers are satisfactory, the purchasing agents can bring you value. If not, find another purchasing agent.
3. Check their geographic location.Before anything else, find the industrial cluster for your specific products. This is very simple to do. Open Alibaba, find 10 suppliers in your niche and check where they are.

   

   If many suppliers are in the same province, the industrial cluster is likely in that province. This is not always the case, but it is easy for you to do.

Better purchasing agents need to be close to the industry cluster or have extensive experience with the industrial cluster.

Purchasing agents may disappear

Read the following as an example why to select a purchasing company over a single agent:

Jingsourcing is a very good purchasing agency in Yiwu. They have a talented founder and experienced purchasing agents.

However, it should be noted Jingsourcing’s reputation on platforms started with negative reviews.

Sourcing Nova is not sure what happened in this situation.

All buyers want the best deals when sourcing products from China.  What happened to the buyer makes sense in this case.

Here is a scenario:

A buyer and the purchasing agency have a solid business relationship.  There is monthly service fee of $2,000.00 USD.  The purchasing agency arranges a salesperson, Mary, for the buyer.  Mary will be solely responsible for the buyer.  Mary earns $800.00 a month in a salary.

The buyer and Mary establish a solid personal relationship but eventually agree to work outside of the company.  Mary resigns from her job.  She goes to work exclusively for the buyer at a salary of $1,000.00 a month.

Mary gets a raise, and the buyer saves money as well.  The company is the only loser in this scenario.

This is very common.  Most of these relationships continue for a long time and rarely fail.  However, failure is always a possibility, and you will have no recourse or opportunity to recoup any lost money or products.

This decision will pay off for you in the long run.

Going a step further, always be sure the purchasing agent uses a company and not a personal email address. Chinese purchasing agents do not create profiles for their clients. Client profiles are rare in many companies.

People will change jobs. If your personal purchasing agent leaves the company, another will take over. The new purchasing agent will have access to the previous emails between you and the former agent. This would not be possible with a private email account and will lead to serious problems for you and your business.

The billing method is not transparent

Most purchasing agents have tiered billing.  The commission rate depends on the cost of the order amount.  Here is a typical purchasing agent charging model:

What does this mean?

Here is an example:

The buyer order cost is $1,000.00. Sourcing Nova charges the buyer a service fee of $100.00 for a total of $1,100.00.

An unscrupulous purchasing agent will quote $1,200.00 on the products and a $120.00 service fee for a total of $1,320.00.

This is a very simple example.  Real situations are much more complicated.

100 percent transparency is a myth

There are times when we will have buyers requesting sensitive information concerning the manufacturers we partner with for quality products.  We try to remain diplomatic with these sorts of inquiries, but ultimately, there is information we simply cannot share with the buyers.  Many of the manufacturers have strict rules and Non Disclosure Agreements to protect the privacy of their customers.

Supply chain core competitive advantages are a real thing. Better purchasing agents have specific areas and skills they can leverage for the best possible deals.  These areas and skills form the basis of nondisclosure agreements.  Sharing these areas and skills could compromise the integrity of the purchasing agency.

Souring Nova will sever communication and business with buyers who harass and demand certain proprietary and protected information.

How do honest purchasing agents share supply chain information with buyers?

Sourcing Nova uses a supplier ID rather than the name of the specific supplier.  This is very easy, and most sourcing software will do this.

Here is an actual case from Sourcing Nova.

Sourcing Nova recently helped an Amazon seller collect three Nano Double Sided Tape samples from three different manufacturers in China.  Our purchasing softward generated ID numbers for each supplier: SNS1, SNS2 and SNS3.  SNS is the abbreviation for Sourcing Nova Supplier.

• SNS1 – A large manufacturing company in Yiwu, Zhejiang. They have the cheapest unit price. The product is the lightest of the specifications, meaning the manufacturer may have overstated the tape thickness.
• SNS2 – A top-selling factory on Alibaba. This manufacturer has the highest unit product price
• SNS3 – Sourcing Nova recommended this manufacturer, a foundry for the 3M corporation. The product weight is the same as SNS2 but has a cheaper unit price.
  We used stickers for the supplier numbers on each product sample. The buyer reviewed all three and, not suprisingly, selected SNS3.

This is how Sourcing Nova is able to optimize the supply chain and reduce costs of product procurement for our customers.  We met three goals with this customer and approach:

• The particular foundry provides OEM and ODM products to 3M, so the product quality is exceptional.
• The price is cheaper than Alibaba.
• Customers source products from top manufacturers, and we protect any confidential information.

Wrapping it up

A good purchasing agent and client partnership needs clear, honest and respectful communication at all times.  A promise to follow through is also necessary.

Every purchasing agent is different and will have different expectations.  Better sourcing agents clearly position themselves and articulate expectations from clients.  Any purchasing agent that will not share what they want from you is a red flag.

There will be problems.  Sourcing Nova will do what it takes to minimize them.

There is no such thing as a perfect purchasing agent.  The Internet is full of purchasing agents who claim perfection.

Mistakes are part of life.  It is important to admit mistakes, take responsibility and learn from them.  Sourcing Nova does its best to find the best manufacturers for the buyer.  We work hard to be a trustworthy purchasing agency in China.

Trust is the scarcest resource in the procurement industry.  It is also the reason for the high cost of procurement.

If trust is evident, problems within the purchasing agency industry cease to be problems.