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2015-01-13 00:00:00Starting a New BusinessEnglishWhen you are sourcing merchandise or seeking out a manufacturer, where do you start?https://quickbooks.intuit.com/au/resources/au_qrc/uploads/2017/01/sourcing.jpghttps://quickbooks.intuit.com/au/resources/starting-a-new-business/sourcing-merchandise-manufacturers/Sourcing merchandise and manufacturers - QuickBooks

Sourcing merchandise and manufacturers

3 min read

When you are sourcing merchandise or seeking out a manufacturer, where do you start?

One of the most costly mistakes a small to medium business can make when it first sets out to develop a new product is in seeking out a manufacturer.

Here is how the Australian Tax Office (ATO) website summarises your record-keeping responsibilities. “Under tax law, you must keep records that specify and explain all transactions,” it says. “This includes any documents that are relevant for the purpose of working out your tax liabilities. You should make records of transactions as soon as they occur or as soon as possible afterwards.”

Why can this seemingly obvious first step be a trap? Because the search can be expensive, resource intensive and, as passionate as you might be, you don’t yet know whether the market is even interested in your new offering.

Test and learn

“Imagine we’re talking about T-shirts,” says Anthony Turner, Business Development Manager at the Small Business Mentoring Serviceand a mentor since 2006. “You have a new design idea and you’re excited and passionate about it.

“But before you commit to the expense of seeking out a manufacturer to make for you the plain white T-shirts onto which your design will be printed, and before you pay for the shipping of those shirts, go to a local department store, buy a set of plain white T-shirts and use them to test the market. As you build volume, you can then explore different avenues.”

You may then develop a relationship with a sports clothing or corporate clothing specialist that can customise your design in smaller batches.

As your business grows, these specialists might be able to introduce you to wholesalers and manufacturers.

In return for their advice they may earn a referral commission from the manufacturer your business goes to, says Turner, who is also a director of the Small Business Institute.

Turner’s message is to take things slowly and learn your way around the industry, while at the same time testing and refining your product in the market.

Local v offshore manufacture?

In Australia, the manufacturing industry is geared towards high-end products. Offshore it is possible to find cheaper options, but don’t forget added costs such as shipping and time delays.

Turner also advises business owners to consider that many offshore factories are geared up to supply major markets such as the USA. “If they are doing a run of 10,000 T-shirts for a major retailer, are they going to interrupt that run to manufacture 100 for you?” Turner asks.

Supplier pros and cons

So what are the pros and cons of the many options when it comes to supply or manufacture of various types of merchandise?

Local manufacturers are likely to offer higher quality and greater reliability thanks to the fact that the factory can be visited and must operate under Australian business regulations.

Their location also means stock will arrive at your door more quickly and at a lower shipping cost. But quality, efficiency and reliability all come at a price.

Offshore manufacturers could cost less for the product itself, but will be more difficult to police in terms of quality and will take longer and cost more to ship.

Importers or distributors could offer a wider range of product and will likely deal with multiple manufacturers. Depending on the size and type of your business, this could be a good option. They will be more expensive than offshore manufacturers, but could save you money and resources in other ways.

Identifying your best supplier solution

“Look at what larger companies are doing and learn from them,” Turner says. “Research them and even approach them for advice. But at the same time the most important thing for you to do is to become familiar with the unique properties of what it is that you’re looking to sell.

“Take the pressure off yourself by moving slowly and looking for new supply opportunities as you grow. Understand what your potential customers really want, not what you want to sell to them.

“These days people look for recommendations from their peers, so typical advertising doesn’t do the job that it used to. You really have to get it right.”

Expert advice

You can seek assistance from such bodies as INNOVIC, a not-for-profit organisation based in Victoria that assists over 1,800 innovators every year.

Look also to Austrade, a Federal Government body that regularly connects businesses with manufacturers.

Of course, there are also online resources such as alibaba.com, which links businesses and individuals with manufacturers and suppliers of thousands of product lines worldwide.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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