Navigating Business Success: Direct Factory vs. Trading Company in 2023 - Making the Right Choice for Your Growth
Direct factory or trading company? Who can serve your business better in 2023 ?
Looking for suppliers, is it better to work directly with factories than with traders or purchasing agents?
Many buyers want to work directly with factories, thinking that factories are the source of the supply chain and must have better prices, which directly determines profit and competitiveness. Bypassing all middlemen and directly benefiting sellers is also a marketing slogan put forward by a number of factories. In cross-border trade, finding the source factory is the ultimate dream of all purchasing.
Is this really the case? Is it the right sourcing strategy for buyers to work with direct factories?
When you ask whether a supplier is a direct factory, first of all, do you really know and understand what a direct factory is? A factory can be a super factory of the whole industry chain, from the source material procurement to the terminal finished product manufacturing, the whole chain of self-management, which is a factory model. Super factories are usually spoiled, and must be in a leading position inside the industry. This kind of factory can directly control the whole production process, can better grasp the quality, has a perfect quality management system, easier to control the delivery date, at the same time the R & D supporting a more complete, determines that they come out of the new models is also very fast. However, due to the huge amount of capital required for a large factory, it requires multi-sectoral collaboration, like a large ship, which can be mass-produced, but it is luxurious and has a high threshold, which is not affordable to all buyers. The high MOQ(Minimum Order Quantity) will discourage most buyers, the management cost is high, and the unit price of the final product doesn't come down just because it's a factory.
Of course, the meaning of factory doesn't stop there, it exists in many more and richer forms. In general, most of the factories do not have the ability to produce the whole industrial chain, and do not have the corresponding capital capacity, management capacity and marketing ability. Most of the factories are engaged in one or more production processes, they also need their own suppliers to provide front-end synergies. For example, for an iron wall art decoration a factory may only do one of the processes, from the source material of the iron parts, to the mold-formed fittings, to the welding of the fittings, and then painting, sanding, hand-painting, assembling, packaging, the completion of a product may require 5-6 factories or even more. For a home decoration buyer, which factory does he need to contact? If he contacts a finished product seller, do you think this purchaser has found the source factory? If this finished product seller is only responsible for the final step of assembly and boxing and crating, do you think it is a manufacturer?
More than 95% of enterprises in China are small and medium-sized enterprises, which determines that the vast majority of the manufacturers you find are involved in a part of the supply chain production, they are in fact fact factories in a broad sense. Most factories have anywhere from a few hundred to a few thousand square feet of space, sourcing light industrial machinery and parts to their own processing sites for assembly, fitting, bundling, boxing, and crating. Only a small percentage of factories are engaged in more sourced processing and manufacturing, and they will invest in a large number of sites and large machinery, as well as multiple sets of capital investment in molds. So heavy machinery processing type of factories need to invest a large sum of money to start operations, especially the investment in molds is continuous not one-time, the more investment in molds, the more styles, but the factory in the flow of funds in the pressure of the decision, the factory independent research and development of new products will not be too frequent. At the same time, heavy machinery plus the class of factory production lines need to be kept busy every day, if there is no order leads to a certain one or more production line downtime, it will lead to losses. And machines run and keep production, standardized process actions will improve productivity, so standardized products will have low prices. The number of products ordered needs to be at least enough to ensure that the workers and machines can carry out a short-term standardized workflow in one or several work units of time, and the number of products produced in that time is often the minimum order quantity( MOQ) you need to accept.
And are traders really just a middleman? Are they a supplier that you want to avoid dropping altogether? Is it right to choose only factories and not middlemen?
The answer is not necessarily.
Traders or purchasing agents are categorized as service-oriented or product-specialized. Service-oriented traders or sourcing agents operate in multiple categories, help buyers to match with suitable manufacturers in the form of project system, and organize and recombine their own resources to finally achieve the customer's purchasing goals. This type of traders or purchasing agents for the product itself may not be too professional, they operate in a large number of categories, which is a buyer's supermarket, you can keep selecting, until you select the products you want. Trade service providers or purchasing agents to help you adapt to the manufacturer, control the production process, to ensure that there is no problem and then arrange for shipment to your designated place. Product-specialized purchasing agents or traders, is the operation of a specific category of products, for the supply chain is relatively more in-depth, more familiar with the production process, to serve a specific category of buyers.
But no matter which type of trader or purchasing agent, they are good friends of small and medium-sized sellers, and very often can help your business more than factories. The reason is that traders or purchasing agents have more experience in operating small orders, and they also have numerous small and medium-sized seller customers, so they can combine your order with other similar customer orders to place orders, so that they have a relatively large number of orders to meet the factory's required minimum order quantity, and at the same time, they can also get a better price. Another reason is that buyers and traders have better service, they can understand and meet your personalized requirements better than most of the factories that are busy with production, such as customization of private label products, customization of packaging, customization of gift items, bundling and kitting group sets, etc. It is more cost-effective to work with them in this condition.
So by simply asking a supplier if they are a manufacturer, or a trader when looking for suppliers for your business, you may highly likely get an answer that is not informative and does not make a lot of sense for your business model.
The most important thing is to understand your own business model, know where you are, know which kind of supplier is more compatible with your own business model and more helpful on your business growth. At this point, whether it is a factory, a trader, or a purchasing agent, they can be your supplier, which one to choose does not matter. For example, RND Sourcing is a sourcing company that helps Clients to purchase cargos, but they also help clients to customize packing and bundle private label kits, they produce packing materials and organize packing processing, they are a manufacturer in this condition as well. So please feel free to contact us if you have ideas of customize your packing for your private label products, or kitting your gift category, we are more than happy to help.
