For some industries and types of buyers, going “factory direct” doesn’t necessarily make sense.

In a recent post, I shared on some various meanings of “factory direct.”

On the flip side, there’s another form of product sourcing from China.

In fact, the more efficient way for a large swarth of companies is to go via intermediaries.

“Jacob are you serious? I thought factory direct was the golden goose?

How can you say go via an intermediary?”

Value of an intermediary:

These intermediaries, for certain industries, know what they’re doing.

The know the nuances of the industry.

They manage quality requirements and also other EXPECTATIONS.

They understand the ‘unseen factors’ more than the actual production facility.

Let’s use the promotional products industry as an example:

When I say the promotional products industry; these are distributors that sell branded merchandise to companies.

In short, distributors are marketing companies that deal in physical, branded or custom merchandise.

Stuff for events, launches, businesses, whatever way companies and brands want to advertise in product form.

Wide range of dollar value in orders

There can be a humungous range of order sizes in the promotional products industry.

It could be a distributor selling 200 unit ball pens to a local real estate office. The distributor buys these pens from a domestic supplier. The domestic supplier prints and delivers the pens in a matter of days.

Obviously this type of order doesn’t go direct to China, so we’ll scratch the smaller projects out of this equation.

But then there’s the larger distributors and the larger deals.

Let’s say a national brand wants to do a custom pet toy bin with various custom doggie toys. The entire set goes into a large retail chain as a gift-with-purchase around the holiday.

Ultimately there’s more than 1 production facility involved.

Now we’re not talking a local promotion (ie real estate office and pens) but a NATIONAL CAMPAIGN.

The order value is easily in the 6-figure range and may be 100’s of thousands of units.

The national brand shops this RFQ to distributors.

As the distributor quotes the brand, they have 1 of 2 source options; buy from a domestic importer or go offshore.

Many times the end brand isn’t even clear on what they want.

The distributor works with the brand on designs and concepts.
This may look like working directly with the importer or a company in China (see below) to determine feasibility of ideas.
The distributor’s responsibility is guiding the end-brand into production possibilities.
If the distributor is inexperienced on overseas production, the’ll have unrealistic expectations on pricing and timing possibilities.
This results in the distributor not being able to steer the end brand into a proper direction….but this is a different blog post… 🙂

The distributor puts everything together and bids on the project

The quotation from the distributer includes the product, the delivery and sometimes the distribution.

As the distributor quotes the brand, they have 1 of 2 source options; buy from a domestic importer or go offshore.

Buy from a domestic importer.

This domestic importer is largely more expensive than their overseas counterpart.

They offer favorable payment terms that the distributor doesn’t receive from offshore suppliers.

The domestic supplier handles the entire process from product development to delivery.

They ownership of the goods from the factory to delivery.

In this case, the distributor doesn’t worry about logistics and customs clearance.

There’s more security for the distributor because the importer is onshore.

Naturally, there’s more oversight.

The distributor has someone under the same laws to hold accountable. Not to mention, there’s another onshore company they can discuss the project with in realtime.

But also can be another layer of ineffectiveness…

Generally, lead times are longer with domestic importers.

A downside of working with the domestic importer; there’s no real-time order control.

The domestic importers don’t always have overseas offices.

They domestically control the order via late night emails and early morning Skype calls. This lacks in realtime problem solving.

The onshore importer doesn’t always go directly to factories.

Frequently there’s in-between padding of more intermediaries.

Or the distributor goes offshore.

When they go offshore, the distributor decides if they want to attempt to go ‘factory direct’.

Or, they decide to work with an overseas intermediary company (sometimes called sourcing agents).

Questions the distributor has to ask themselves:

  • Pay this supplier to handle my production or be more adventurous and try to go ‘factory direct’ and save on margin?”
  • If the distributor goes factory direct, that takes a certain time investment. Is the extra margin from the intermediary company worth the time they’ll save?
  • Does this additional margin cover the advantages of order management and controlling the unknowns?

An overseas company that the distributor trusts greatly eases the mind…

Tune in to the next post.

I’ll open up more reasons why the distributor isn’t necessarily eager to work factory direct.