Difference between Procurement, Purchase Orders, and RequisitionsJune 15, 2018
Procurement, as a business operation, can be unpredictable — there are far too many variables involved, and not every part of the process can be monitored. Indeed, only in Procurement can expected outcomes fail to meet expectations. This is why procuring from low-cost markets can be even more risky. But, the risk can be mitigated if you know what you are getting into.
If you run an organization that has decided to source products from developing markets like China, you will inevitably find yourself dealing with either a sourcing agent or a distributor. The differences between the two are significant.
A distributor, as you would already know, purchases products wholesale, and will sell you the product at a marked-up price.
A sourcing agent, on the other hand, will reach out to a variety of suppliers and/or manufacturers, source the product you need, and make a commission out of the sale.
Here are the criteria you need to consider before you make a choice between the two:
Product Range On Offer
Distributors only provide a set range of ready-made inventory that is available for sale, whereas a sourcing agent has more connections in overseas markets. A sourcing agent can make available all sorts of products with the necessary specifications required by the buyer, and place an order to the appropriate supplier or manufacturer.
Customization of Products
When working with a distributor, organizations do not have the option of customization available to them, since the products offered by the distributor are already a part of their inventory. On the other hand, sourcing agents have wide networks of suppliers or manufactures who can tailor any product to the buyer’s requirements. The buyer also gets to approve the product and make final alterations if necessary.
Working with a sourcing agent is most cost-efficient for the simple reason that an agent gets only a percentage, as commission, on the order mentioned in the contract between the supplier and the buyer. The buyer also gets products at factory rates by using a sourcing specialist, whereas a distributor can add anything over and above the actual rate and not divulge the original pricing of the product in question.
Possibility of Prototyping
Dealing with a sourcing agent comes with the added benefit of being able to develop a prototype before deciding to place an order. Not only that, they can further assist to choose the perfect supplier or manufacturer to carry out the order, with quality control checks, and at appropriate prices. Distributors are not in a position to make prototypes available, since they only deal in finished goods.
Factoring in Time
If a buyer is looking for a small order to be produced and delivered urgently, and does not require much customization, then distributors are the way to go. This is because they save the buyer a lot of time involved in the procurement process, since their inventory is ready to go. Working with sourcing agents may take longer (for small orders), but offers greater control, customized products and desirable prices.
Working with a sourcing agent in China or other overseas locations can provide a buyer with the kind of control that is necessary for optimal results, from quality to cost. In addition, the products are built as per the specifications given, can be custom-branded and even undergo alteration if the need arises. Working with distributors can be quicker, but more expensive, and options are limited to their existing inventory.
In the end, making the right decision comes down to your requirements as a buyer and what you need from the procurement process, so define those and select an option that fits best.