Working factory direct sounds like a good idea, right? Well, not necessarily. There are a few considerations to make before deciding if that is the best option, especially when there are existing relationships in place. In this article, we’ll walk you through four major points to consider before going factory direct.
Consideration #1: How many different suppliers are engaged by the agent to produce your products?
Agents often work with several factories. While they may use one main manufacturer to produce your orders, there may be other factories involved that you don’t know about. Processes like the manufacturing of packaging materials or accessory products are almost always outsourced to sub-factories, and this may be organised by your agent. You may get a better unit price on your core item by dealing with the main manufacturer directly. At the same time, going factory direct could adversely disrupt other key parts of the supply chain. However, if you or the main manufacturer is handling the other elements to the supply chain directly, this will not be an issue.
Consideration #2: How much volume does your agent order from the factory?
If you are purchasing non-customised or generic goods, chances are your agent is ordering the same items from the factory to supply to other importers. In this case, it is possible that the agent has a lower unit price due to the high volumes they order. By going factory direct, you may not get such a good price as you would be a new customer with lower volume and no order history. However, maybe the product is of your own design, or you are the main client of the factory. In these cases, it is likely that volume would not be such an issue should you deal with the factory directly.
Consideration #3: What is the communication level of the factory?
The benefit of the agents is the ability to deal with foreign clients due to superior communication skills. Generally, the communication level of Chinese factory representatives has improved in recent years. But many factories still do not have sales staff with foreign language skills adequate to handle international clients directly. On the other hand, there may be sales staff employed by the factory that are capable of communicating at a level with which you feel comfortable. You may benefit from cutting out the extra layer of communication – the agent – and talking directly with the factory rep.
Consideration #4: How close is the relationship between the agent and the factory?
As everyone that trades with China ought to know, personal relationships are key to doing successful business. If your agent is very close with the factory, it will be virtually impossible to go factory direct without hurting your relationship with both. In this case, you might need to find an entirely new supply base which could take many months to implement. On the other hand, you yourself may have appointed the agent to the factory, or you may have a long-established and close relationship with the factory. Then, it may be possible to bypass the agent without dealing a blow your supply chain.
You’ll want to consider all of the above before going factory direct. Many buyers find that their supply chain would be adversely affected by discontinuing the agency relationship. If the same is true for you, it may be better to continue paying the premium to have your agent involved. Specific points to consider before going factory direct include:
- Coordination of any sub-suppliers
- Economies of scale
- Buyer-supplier communication; and
- Buyer-supplier relationship
If your agent is not providing any added value, it is time to look at options as to how you can begin to work directly with the factory. In many cases, enlisting a third-party quality control firm to conduct product inspections can add a layer of transparency. This transparency will help you make the decision of whether or not to retain your agent.
Cutting out the middle man isn't always the best move. So ask yourself these questions before going factory direct!