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Productivity / Growth

Global product sourcing: due diligence

After deciding to undertake global product sourcing, one of the biggest challenges is to identify a suitable overseas supplier. Complete your due diligence.

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There are many places where you can seek suppliers so it’s not my intention to go down that path. What I would like to provide is some basics in establishing whether the intended supplier is going to be the right one.

We often hear the advice of making sure to complete due diligence when undertaking global product sourcing. But rarely is there any explanation of what “due diligence” actually means or how to do it effectively. Well, my definition of due diligence is:

Make damn sure you are confident the supplier is not going to rip you off! 

In other words, there is a need to complete the necessary checks to ensure the intended supplier is a legitimate business and not a supplier set up for the purpose of separating you from your money.

Two areas where due diligence is required

As far as I’m concerned there are two areas where due diligence is required.

1. Verifying the company you intend to deal with is legitimate

"Well, my definition of due diligence is: Make damn sure you are confident the supplier is not going to rip you off!"

2. Actively monitoring the progress of any order to make sure it proceeds as arranged, including that the quality meets the agreed standard. (Perhaps not strictly the definition of due diligence, but equally important).

With regard to verifying a supplier, it is virtually impossible to ever be 100 percent sure you will not run into problems, but there are certainly ways to minimise the risks.

How to minimise the risk of running into problems

1. If you are looking to buy well known international branded goods, forget China. You simply cannot buy that iPhone on the cheap from China. Period. End of story.

2. Check their company registration details and make sure their company information, contact details all match up when compared to any online sources like company portals, Google maps and so on.

3. Communicate with the company in writing as well as by phone if necessary.

4. If the company is listed on a Business to Business (B2B) portal such as Alibaba or Global Sources, and they are a verified member, then the B2B website would have done some work to verify the company is real. But never rely on this alone to make your decision.

5. Visit the factory or employ an agent or verification company to verify the supplier. But in this instance you also need to be comfortable that the agent is trustworthy.

6. Scammers seem to concentrate a lot more around certain products than they do others. For example, small quantity items being purchased for resale on sites like eBay (electronics, tablets) seem to attract a higher number of scammers than those of other products. This is where you see a lot of people getting ripped off when they think they are getting a good deal.

I would certainly never rely on just one method to confirm the legitimacy of a company. Please also bear in mind that the above methods are examples only and are by no means the only ways to verify a company is real.

Having said all that, for me personally, a far bigger issue has always been what happens after the order has commenced. i.e. actively following the progress of the order.

It can be difficult to know whether your new supplier is reliable until after having several dealings with them. Anyone who has used global product sourcing from places like China for any period of time will have had a problem at some point.

Part of reducing the potential problems is to be constantly monitoring progress. If for example an order may not be completed on time, it is far better to know a few weeks before the due date, than the day the goods are due to be finished. At least with forewarning you may be able to do something, or at least make contingency plans.

Investing time at the outset to identify the best and most appropriate supplier through a process of due diligence will pay for itself later when you have avoided possible problems.

What are your thoughts on global product sourcing and the due diligence required?

Brian Mallyon

assists small business by helping them to better understand the process of sourcing products from overseas.

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