Thanks to eCommerce, more businesses have been able to sell their products to global audiences. What makes this possible, beyond the online storefront itself, is good product sourcing. No business can expect to succeed without it.
Product sourcing has a direct influence on many aspects of an eCommerce business, from its inventory to the brand’s marketability. High-quality and diverse products enhance customer satisfaction, underscoring the need to get your product sourcing strategy right.
So, it’s worth breaking down the process to better understand how you can improve your product sourcing strategy.
What is Product Sourcing?
Product sourcing is businesses' process to find suppliers of stocks they intend to sell in their online stores. It involves carefully researching, assessing, and negotiating with suppliers to establish the best deal for the required products.
There’s a variety of suppliers eCommerce businesses like yours can source from, whether it’s local or international, or wholesale or DIY. When you understand how to do product sourcing well, you can build a network of suppliers that is robust and efficient in providing your business with what it needs.
How Does Product Sourcing Work?
Finding the right supplier is easier said than done. There are nuances to the product sourcing process than simply finding suppliers to rely on.
Here’s a breakdown of the different steps in the product sourcing process to guide you.
1. Research phase
Understanding the market is key to your product sourcing strategy, and you need to consider the potential return on investment in business. It may not matter how stellar your supplier is if there’s little to no customer demand for your products. Research is also crucial if you’re launching a new product since it doesn’t have a paying customer yet.
Research through social media, your customer feedback, and statistics on consumer behavior to validate your ideas and determine which products are worth finding a supplier for. Utilizing a white-label loyalty program can provide valuable customer insights during this phase and help you better understand and serve your audience.
2. Supplier identification
Suppliers vary in terms of specialization, reputation, product quality, location, and communication methods. Paring down your options becomes easier once you understand the kind of supplier you’re looking for.
Since the market for suppliers is huge, you can skim through the Department of Trade and Industry’s directories of local suppliers to create a shortlist of potential partners.
3. Product selection
What supplies do you need? Your suppliers should be able to help you produce the products that match your specific criteria. You can ask for samples from suppliers to help you decide which one is right for you.
Also, the availability of certain products and even the suppliers themselves can fluctuate depending on market conditions. For example, towards the end of the year, it’s often challenging to find suppliers for seasonal products since many might’ve already decided to work with other businesses.
Product selection is especially crucial to perfect if you’re considering starting a food eCommerce business. It’s often the quality of the ingredients you buy that determines how the final product tastes; working with suppliers who provide you with fresh ingredients regularly is key to your success.
4. Negotiation and order placement
Part of any good business and product sourcing strategy is how much value you receive in return from working with a supplier. You can reach an agreement on numerous factors - such as the product price, quality, and terms of delivery and payment - that can strengthen your strategy.
5. Logistics and fulfillment
A supplier who provides you with the stocks you require can quickly become an impractical option if they’re situated too far from you and your customers. Geographical distance can complicate transporting goods from their location to yours. Choosing the right supplier and shipping company are critical aspects of your product sourcing strategy.
If you’re starting a cloud kitchen, it can help you find suppliers nearby to retain the freshness of the ingredients.
The steps above form the foundation for all types of product sourcing.
5 Types of Product Sourcing
There isn’t a single best type of product sourcing to rely on, because businesses have unique needs; the product sourcing strategy that benefits you may not be as effective for another. Below are a few types of product sourcing and their associated pros and cons you should consider.
1. Domestic sourcing
Domestic sourcing involves working with local suppliers. What makes this type of product sourcing appealing is the proximity, saving both time and logistical headaches. Besides that, it supports the local economy, fueling your country’s growth.
However, the products you can source locally are often limited. You may have to look abroad for specialized products. The country’s borders can also restrict the materials local suppliers have access to, which impacts the quality and quantity of their offerings.
2. International sourcing
As the name suggests, international sourcing involves importing stocks from overseas, typically through online marketplaces. This strategy allows you to leverage the production qualities and standards of different countries to provide premium products in your home country.
International sourcing also allows you to sell products that aren’t available locally, which can often be a competitive advantage. According to recent Philippine eCommerce statistics, 89% of Filipinos purchase from foreign websites.
However, overseas shipping can often be unpredictable; shipping delays and damages during transport are supply chain challenges you’ll have to prepare for with international sourcing.
3. Dropshipping
Dropshipping allows your company to act as the intermediary between customer and supplier. You don’t have to hold any stock; instead, when you receive an order from a customer, it’s forwarded to the supplier for fulfillment.
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This is one of the more straightforward types of product sourcing, meaning it won’t cost you as much as other methods to succeed. However, it also means many other businesses can easily adopt this type of product sourcing strategy, intensifying the competition.
4. Single sourcing
Single sourcing involves working with one supplier. The benefit is that it simplifies your supply chain immensely by consolidating product sources.
But there’s a catch: single sourcing exposes you to the risk of overreliance. If something goes wrong with your supplier or they renegotiate their terms to your detriment, it could greatly impact your business.
5. Multi-sourcing
In contrast to single sourcing, multi-sourcing involves working with more than one supplier for your product needs. This allows you to spread the risk of your sourcing efforts.
The challenge of multi-sourcing, however, is ensuring a consistent quality among the products you receive. It also means managing multiple relationships with different suppliers, which can become overwhelming.
How to Choose the Right Products to Source: 6 Strategies
Regardless of the type of product sourcing you choose to do, you can’t expect success if you’re sourcing the wrong things. Not only that, but finding the right products to source makes inventory management much easier since you won’t waste space on stocks that don’t sell.
That said, there’s no single correct product to source since it differs per business. Consider the tips below to narrow your choices and find reliable partners that fit your budget.
1. Align products with your brand identity
As a foundational strategy, you must first understand that customers will eventually associate the products you source with your brand’s identity. Misalignment between the two can impact sales and harm your brand. For instance, companies that market vegan-friendly food but hide the fact that their supplier also provides meat is a recipe for a public relations disaster.
Establish your brand’s values and mission early to guide product sourcing.
2. Identify your target market
To whom exactly are you trying to sell your product? What are their habits, problems, and shopping behaviors? When you’re unclear about your target customers, it’s challenging to convince anyone to buy the products you’ve tirelessly sourced—especially when you’re trying to enter niche markets.
Here are a few ways for you to clarify your target market. Interviews are practical ways to solicit customer feedback, allowing them to uncover their wants and needs. A survey could help you measure how much demand certain products have over large groups of people.
The members of your online loyalty program, if you have one, are likely to be your most insightful sources of information when it comes to understanding what your customers want. Don’t overlook them when determining the right products to source.
3. Conduct a profitability analysis
Shipping, packaging, and marketing are just a few of the expenses that make product sourcing costly. Including a profitability analysis in your product sourcing strategy allows you to gauge whether a certain product or supplier will be financially viable for you.
In general, you’ll have to consider how much it costs to make the products themselves, also known as the cost of goods sold (COGS), and your eCommerce pricing strategies. If you earn less to cover expenses, then your eCommerce wouldn’t be sustainable.
4. Test batches of products
Requesting product samples from suppliers is an excellent way to inspect the quality they could potentially provide you. Vendors who don’t permit sample orders are often a red flag and not worth considering.
Sample orders tend to cost a little more since you won’t be buying in bulk, but it’s worth it to deliver incredible value to your customers. Without it, it would be similar to chefs serving meals without first tasting what they’ve made.
5. Assess what your competitors are selling
A competitor analysis identifies what similar businesses are offering, their target audience, and market trends.
Your competitors’ price points can also set the baseline for your pricing strategy. For instance, suppose you want to sell brownies you’ve sourced from a local bakery. If your competitors sell their products at PHP 100 per piece, you can either lower the price to appeal to price-conscious customers or raise it to reach customers with more sophisticated tastes.
6. Monitor the performance of your products
Markets can often change without any obvious signals, so regularly monitor the performance and the relevance of your sourced products.
Take an online marketplace, for instance. After a few months of sales, they discover that not many customers are buying a certain protein bar. While they may not yet want to phase it out, they might begin sourcing less of it to cut costs. Likewise, if an herbal supplement is selling well, the business may want to order more of the same product from the supplier to keep up with the demand.
FAQs about Product Sourcing
Since product sourcing can be confusing, here are answers to an eCommerce owners' most common questions about the process.
What is the difference between product sourcing and procurement?
Product sourcing involves assessing and selecting viable product suppliers domestically or overseas. Procurement, on the other hand, is the process of negotiating and purchasing goods. Product sourcing is part of the entire procurement process.
What is an example of sourcing goods?
Suppose you want to open a coffee shop. Since acquiring land to plant coffee beans would cost too much money and time, you can source them instead from local suppliers, such as Coffeellera and Plain Sight Coffee. This method streamlines the process and enables you to focus on brewing and selling coffee.
What is the process of sourcing?
The product sourcing process begins with assessing which products are worth sourcing based on market demand and customer research. Then, businesses must meet with different suppliers to find the one that can provide the ideal goods. They will then negotiate on the terms before entering into the partnership.
What is the purpose of sourcing?
Companies rely on product sourcing to acquire the materials they need to produce and sell products or provide services to customers. Product sourcing also forms the foundation of a company’s supply management efforts, allowing them to deliver quality products consistently.
What is a product sourcing strategy?
Product sourcing strategy involves choosing the right sourcing type and method to give businesses a competitive advantage in product delivery. Profitability analysis, competitive research, logistics, and negotiations are critical aspects of a strong product-sourcing strategy.
What are the sources of products for businesses?
Product sourcing can either be domestic or international. Domestic product sourcing has the benefit of being more convenient and typically faster. However, international product sourcing allows businesses to sell products that are not locally available, giving them a competitive advantage.
Aside from choosing between domestic and international sourcing, you must also consider single or multi-sourcing. Single sourcing relies on a sole supplier, while multi-sourcing involves engaging multiple suppliers for product procurement. Your choice will depend on factors such as product nature, supplier reliability, and risk tolerance.
The Source Code for Your eCommerce
Regardless of your industry, you wouldn’t have anything to sell without the right suppliers. That means finding suppliers who provide what you intend to sell and what your target market wants.
Market demands can change, and your product sourcing strategies need to be dynamic. As with all other aspects of your business, it’s an ongoing process of learning and refining approaches to adapt to changing customers and landscape better. A simple yet powerful eCommerce website builder allows you to respond to changes quickly.
RUSH provides eCommerce solutions packed with features that allow you to meet customer expectations consistently with the products you’ve carefully sourced. Book a demo with our dedicated sales teams to discover how much more effective your business can become with RUSH.
