Expert Interview: Well-sourced is half the battle – How to prepare yourself during a crisis!
In many regions, the world came to a standstill: In Germany, only essential businesses such as supermarkets or gas stations remained open, while Italy even froze all non-essential production, and Spain closed such businesses that were not considered essential.
E-commerce benefited in some sectors from increased demand and lockdowns – but also experienced losses in other areas, just like brick-and-mortar retail. However, many online retailers faced a completely different problem: when production halts, they will run out of goods in the long term. This can mean for Amazon sellers the loss of the Buy Box, the hard-earned ranking, or even account suspension.
But how can you, as an Amazon seller, avoid supply shortages, what does it mean to be dependent on a single supplier, and what advantages do supply sources within the EU offer? We spoke with experts Martina Schimmel and Carsten Brandt about crisis-resistant sourcing.
But how can you, as an Amazon seller, avoid supply shortages, what does it mean to be dependent on a single supplier, and what advantages do supply sources within the EU offer? We discussed crisis-resistant sourcing with experts Martina Schimmel and Carsten Brandt.
The experts
This blog post was first published in spring 2020.
The interview
SELLERLOGIC: Hello Ms. Schimmel, hello Mr. Brandt! What you would certainly have told everyone even before the Corona pandemic is something many sellers are now painfully experiencing: In the event of a collapse of the value chain, it is extremely disadvantageous to be dependent on a single sourcing source. What are other disadvantages that such dependence can bring?
Martina Schimmel: “In general, it is always disadvantageous to rely on a single sourcing source – unless, of course, you are only selling one product, in which case it usually cannot be avoided. But I will assume the normal case where a seller distributes multiple products, often even from different segments. Then it is not sensible to source everything from a single supplier – whether in China, Europe, or elsewhere. There are several reasons for this: First, a manufacturer who is good at developing and producing kitchen accessories is not necessarily the expert for porcelain. Especially in China, these are very different skills that are usually produced in different factories. Second, the supplier also realizes after a while that they are the only supplier for this seller – and they leverage this power regarding prices and quality.”
Carsten Brandt: “Exactly. When I rely on just one supplier as a company, I unwittingly place myself in a massive dependency. This not only concerns potential supply shortages, which can unpredictably occur in the current situation and have devastating consequences. Even in normal times, relying on just one sourcing source unnecessarily ties me to delivery timelines and capacities, as well as quality and price. On the other hand, there is often a long-standing and close customer-supplier relationship that is also important for business success. Therefore, this can and should be built with more than one provider.”
SELLERLOGIC: Suppose I am currently dependent on a single sourcing source, such as from China or Italy, and I realize that I will soon run out of stock – what can I do about it?
Brandt: “It doesn’t matter which sourcing source you are currently dependent on. No one can say in the current situation whether the long-time supplier with whom you have built a good business relationship will still be able to deliver tomorrow. Therefore, it is important to reassess your sourcing relationships and develop a plan B, where you look for additional or alternative suppliers. B2B platforms like Europages or Wer liefert was can help in finding the right provider.
“No one can say in the current situation whether the long-time supplier will still be able to deliver tomorrow.”
Wer liefert was has also just launched a new service called wlw Connect, which significantly simplifies sourcing. The seeker submits a request with the key details and can sit back. We then search for the suitable providers who currently have the capabilities and actual capacity to handle this request and return this list of companies to the seeker. From this longlist, the requester selects the two or three companies they find suitable, contacts them, and can directly enter into negotiations for offers.
SELLERLOGIC: Private label sellers are currently facing particularly tough challenges. Are there specific approaches for this segment to minimize economic damage as much as possible?
Schimmel: “I think it’s important to first distinguish between genuine private label sellers and products and pseudo-private labels. The former sell a product that has been specifically developed, designed, and produced for them. The latter sell a standard product in its standard version and have the manufacturer place their logo on it so that they can have their own listing on Amazon.”
The former indeed have a tough time if their product cannot currently be supplied by the supplier. Finding an alternative source and developing a successor product is time-consuming – and by then, the regular supplier will most likely be able to deliver again.
Pseudo-private label sellers have it significantly easier in this situation, as the standard product they purchase, for example, in China is usually also available from a European importer. Then, they only need to consider whether and how to apply their own logo. In many cases, it is not even necessary to print this on the products themselves; the seller simply needs to relabel the EAN codes – of course, with the consent of the new supplier.
SELLERLOGIC: What actions should online retailers take in the long term if they want to reduce their dependence on China?
Brandt: “Here too, it is important to generally avoid dependencies. Whether these exist with China or with a supplier from another part of the world. It is advisable not to rely on just one supplier, but to build a trusting business relationship with multiple sourcing sources. Especially in times like these, a close business relationship is particularly important. With business partners you have worked with for a long time and are frequently in contact with, you can openly and, most importantly, early discuss potential supply shortages and then approach suppliers B or C to ramp up capacities if needed.”
Schimmel: “In general, I recommend that sellers categorize their supplier selection and evaluation into core assortment and supplementary assortment. When looking for a supplier for a product from my core assortment, it is important that, first, I get as close to the direct source as possible, second, I maintain direct contact with the supplier, and third, the supplier is a true professional in this segment. Only then will I get a good price and a good product.
On the other hand, if I am looking for a supplier for one or more products from my supplementary assortment (regardless of whether this changes frequently or is permanent), it is better to work with someone who can offer a wide range of products at generally good purchasing prices. It makes little sense to search for a new supplier for each new supplementary product, brief them, and so on. For this purpose, a sourcing platform like Zentrada is ideal. In the past, this role was fulfilled by traditional wholesalers, but they are hardly around today.
SELLERLOGIC: And what should beginners definitely keep in mind when it comes to sourcing?
Schimmel: “Especially when starting out, one should first purchase commercial goods from the EU. At the beginning, an Amazon seller has to deal with so many other important topics (self-employment, how Amazon works, what requirements customers have, and so on). If someone then wants to dive directly into the adventure of sourcing products from China, importing products, and dealing with all the certificates and regulations, I see that as a form of self-sabotage.”
“If someone wants to embark on the adventure of importing products, I see that as a form of self-sabotage.”
Because it should be noted that sellers who sell goods from third countries become the manufacturer themselves and bear full responsibility for compliance with all regulations for these types of products: keyword conformity declaration. If the seller purchases the same product from a European importer, the importer is the manufacturer. This has the nice side effect that the seller can first check which standards are indicated on the product or the box. And if there are problems later, the seller can hold the importer liable. If they purchased the product in China, the seller is the last link in the liability chain.
SELLERLOGIC: How long will it take for production to return to normal, and what impact can this have on the business with summer goods?
Schimmel: “Hah … no one can say for sure today … It also depends heavily on the region where production is taking place in China or, for example, Italy or Spain. If the production is located in a heavily affected area – or if the supplier relies on goods from these regions – it will certainly take longer for everything to return to normal. However, I also know many Asian regions where production is already back to normal or only slightly reduced in capacity. There, the delay is only four to six weeks due to the extended Chinese New Year. And by now, the production of face masks and respirators is running at full speed in China. New shipments are arriving in Europe every week, which are distributed to retailers and medical facilities.”
Brandt: “I also think that how long the restrictions will last and when economic life will fully resume cannot be reliably predicted at this time. However, I am sure that the Corona pandemic will have significant effects on the summer business across all industries. Current figures estimate a decrease in gross domestic product of 2.8 percent for 2020.”
SELLERLOGIC: Are there other reasons why online retailers should source from places other than just China?
Schimmel: “In addition to the advantages of purchasing in the EU mentioned above, the short-term availability and the ability to source smaller quantities and reorder on short notice are particularly compelling reasons for sourcing in the EU. Not to mention that there are products for which sourcing from China is inherently prohibited: for example, genuine branded products or licensed items. These must always be purchased from the official manufacturer, one of their distribution partners, or a licensee.”
Brandt: “Due to the described dependencies, it is always worthwhile to look into the surrounding markets. Providers from Europe, for example, have the advantage of shorter delivery routes, the movement of goods within the EU is duty-free, and there is a single currency – to name just a few advantages.”
SELLERLOGIC: Thank you!
Image credits in the order of the images: © aerial-drone – stock.adobe.com
