Integrating suppliers with your online store

Transcription

1 Integrating suppliers with your online store You've figured out your market, planned on how you'll build and run your store and what your business model is. You've registered your business and you are ready to go. Or are you? Well hold on there, you still need to have those products you're selling. That means you need to source your merchandise from suppliers. Generally speaking, suppliers are those businesses or individuals that are willing to supply you with products priced below end consumer value. Still a bit unclear? Well say you will be selling plain t-shirts. You know you can buy those t-shirts for $20 at the closest store. If you do buy t-shirts in that store, you will be buying them at end consumer value. You are the end consumer. Because you cannot price them at a higher level you are basically stuck with them hence the "end" in end consumer. What you need to do is go find yourself some suppliers that are willing to sell you those t-shirts for less than $20. Why would they do that, you say? Remember the whole B2B business model? Some companies just work this way. They manufacture the products or sell them in bulk and let other companies sell directly to the end consumer. 34

2 When dealing with suppliers you have to be ready to make a commitment before they agree to do business with you. This commitment can come in many forms but usually it's one of the following: buy products in bulk: say you are willing to buy 50 of those plain t-shirts. You can negotiate your purchase price down to $15. Willing to buy another 50? Maybe the price can go even lower, to $10 and so on. The thing you have to remember here is that although bulk buying can be a potentially great deal in terms of price discounts, you also have to sell those products. If you get stuck with $500 worth of t-shirts that you are not able to sell, you have just wasted your money. It doesn't matter how much you saved purchasing said products. What matters is making a profit and making your customers happy. commit to a target: maybe you are not willing to buy 50 plain t-shirts, because you don't know what your potential customers are willing to buy. You are, however, confident they are willing to buy something. So you commit to a monthly, quarterly or yearly sales target. The supplier will than give you a startup discount for purchased products. This discount can increase as you sell more and more merchandise. You can list the products on your online store, stock as little inventory as possible and ship and restock when orders arrive. Once you've made a deal with one or more suppliers you will be selling your products right on your store. When the orders start pouring in, you have to make sure customers receive the products they've paid for. This part is called "fulfillment" as in fulfilling your promise to send the product to the customer in exchange for the payment you have received. Fulfillment means any task done inside or outside the company that assures the right products are shipped to the customer. Usually this means: 1. order management: checking order information (customer info, address, number of products etc) and forwarding order details to the right fulfillment center to be completed. If you are a startup this may mean you will be checking the customer details, maybe confirming the order and then planning on where to get the products from. 2. pick and pack: this is the usual term for picking products from the warehouse shelf and packing them to make sure they are ready for shipment 3. shipping the products: once products are picked, packed and ready to go, they have to leave your warehouse. When this happens you will either bring them yourself to your customer's address (highly unlikely) or commission a company specialized in shipping (such as FedEx or UPS) to do so. 35

3 We will talk a lot more about fulfillment later on in this guide but for now I just wanted to give you an overview on the usual processes in handling orders and shipping products to the end consumer. Fulfillment can be done either within your company, by the supplier or as a mix between the two. Let's have a look at these scenarios: 1. fulfill orders within the company: this is the way most medium to large companies fulfill their orders. They build inventory for most of the products they're selling (especially popular items), stock them in warehouses and when orders arrive, employees in the warehouses fulfill these orders. This process implies a rather large inventory and it can be an ineffective way to handle orders for startups. That's why most ecommerce startups require another form of collaboration with suppliers: 2. fulfillment is externalized as suppliers "drop ship" orders: this means you can just showcase products on your store and orders are shipped by your supply partner. Rather than stock on products, you can just forward orders to your product supplier and that company will take care of the shipment. The individual product is then shipped to the end consumer and you are invoiced for said product. You profit from the difference between the retail price (the price you posted on your website) and the price you're paying to the supplier. Usually, most online retailers (such as yourself) choose a combination between the two and maybe some other processes. 36

4 For example, let's say you partnered with two suppliers (see figure above). Supplier A will provide you with plain t-shirts. Supplier B brings in sneakers. After you start your store you receive two orders. Customer X is asking for 2 plain t-shirts. Customer Y is asking for a plain t-shirt and a pair of sneakers. You will have to treat these orders differently. Order number one, the one where customer X paid for 2 plain t-shirts is forwarded to Supplier A and he will drop ship these items and then invoice you for the products. Order number two is a bit more complicated. You will have to ask supplier A to send you one plain t-shirt (if you don't already have it on your inventory) and Supplier B will send you a pair of sneakers. You will be invoiced on those products and once you have them in your warehouse you can pack and ship them to the customer. You can also choose to work with external fulfillment services, such as Fulfillment by Amazon*. They relieve you of the burden of picking, packing and shipping your orders. For a cost. By building and interlinking separate operations such as those mentioned above, you are building what is called a supply chain. The supply chain is the total of any interlinked process that enables you to move products from the manufacturers or wholesalers to the consumer. The supply chain is not a static structure. It can and it will change as your online store evolves. As you add new suppliers to your supply chain, your ability to distribute products to consumers will increase and so will your revenue. But speaking of adding suppliers to the supply chain Finding suppliers Yeah, how DO you find suppliers for the online store? Now that you've got a sense of why you need suppliers, how to negotiate and deal with them, let's have a look at how to actually find them. When you're looking for merchandise suppliers you'll see that you have two big options when choosing, each with its pros and cons. These two options are domestic suppliers and overseas suppliers. Assuming you are in the US, using domestic suppliers will be a very viable option but you should also consider the second. Overseas suppliers can be a great addition to your supply chain. They can be used when in need of additional product options or lower prices. Let's have a look at the pros and cons of using these two types of suppliers. *

5 Domestic Suppliers Pros: (usually) higher manufacturing standards improved shipping time intellectual property protection (might be really important if you design your own products) no cultural or communication barriers no import taxes safer business relationship easier to check references for reputable manufacturers or wholesalers lower minimum level ordered quantities Cons: higher prices less products to choose from (not few, just less) 38

6 Overseas suppliers The most important thing you need to remember when dealing with overseas suppliers is that you have to be very careful. If you are inexperienced, you should ask for professional advice on how to get the best deals and protect yourself from fraud. Also if you do find yourself in need of doing business with overseas suppliers, choose to contact those that provide a local sales office or agent or order using established marketplaces that provide escrow payment options. Pros: (usually) lower prices ability to deliver unique items to your customers a wide array of suppliers you can choose from established online marketplaces provide an one-stop shop for retailers Cons: you will have to deal with customs, local taxes and special conditions when importing low or zero ability to dropship to your customers must buy larger quantities to actually get said lower prices inability to change or customize orders inability to reorder popular items usually stocks ran out and without a preexistent order, the supplier will probably not sell the goods you've purchased last time. cultural and communication problems longer shipping time harder to check for supplier references If you decided you need to go ahead and work with overseas suppliers, you will need to find them. On the next page you ll find the three most popular marketplaces connecting you to overseas suppliers. 39

7 Although the services mentioned above are a great way to find the right suppliers, you can also do your own digging and search for independent manufacturers or wholesalers. There is no standard way of doing this but some tips may help you get closer to your ideal suppliers: 1. Contact the manufacturer directly: saw some product you'd like to have? Probably your customers would also. Have a look at the label and contact the manufacturer. They must at least have a name and using that, you can use Google to find out more about them. 2. Speaking of Google: try going deeper in your search results. B2B traders and manufacturers are not really great at marketing (that is the retailer's job) so their websites scream "so 90's" and they are not usually too well optimized for search engines. That's why you should click further than you're usually used to in order to find a hidden gem. 3. Trade fairs: yeah, people still do that. Especially in the B2B trading world. You can find a list that might interest you here* and here**. * **

8 So hopefully you now know a thing or two about finding suppliers and you're going to get the best deal possible. Great! What's next? Oh, yeah, prices: How do I set the Price for My Online Store's Products? When it comes to pricing, you have two rather simple concepts to always keep in mind: 1. Cost of goods sold (COGS): this is the cost you have paid for the goods plus any costs associated to getting the goods in your inventory and ready for sale. This includes, but is not limited to: shipping, handling or customs taxes. 2. Operating expenses: this is the total cost associated with running your business. This includes rent, utilities, wages, marketing costs and others. Basically, the prices of sold products have to cover the sum of these expenses. The bottom line is always the same: Profit = Revenue Costs. Your company will report a gross revenue by selling products. Profits come when you are selling enough merchandise, at the right price, to cover your costs. Of course, it's a bit more complicated than this but enough to get you started. You have to price your sold products where you can be profitable. However, prices need to stay competitive to the market. This means that there's a balance you have to keep. Prices should be big enough to keep you in business but small enough to be competitive with other online retailers. Pricing strategies 1. Markup on cost means you add a certain percentage to the cost associated with the product. It is usually a standard percentage somewhere between 15% and 40%, enough to keep you profitable and your prices competitive. The formula works like this: Item cost + (Item cost x Markup Percentage) = Price Say for example we are selling plain t-shirts, with a cost of $20. We've set the markup at 30%. The the price would be: $20 (Item cost) + ($20 x 30%) = $26 41

9 2. Manufacturer suggested retail price (MSRP) is another way small businesses can set their prices in such a way that they are profitable but not too expensive. MSRP is the price the manufacturer recommends to resellers so they don't start price wars that can benefit no one. This type of price setting leaves out a lot of options for the online store owner and should not be a general rule in the long run. Above are just two of the simpler ways prices can be set to attract the consumers. We will get into a lot more details in the "Marketing your store" part of this guide so stay tuned. For now, this concludes chapter two of the "How to Start an Online Store" Guide. The next chapter will focus on building your fulfillment operation (picking, packing, shipping and returns), probably the most important part in running your store effectively. 42

10 The guide to Starting and Running your Online Store Ecommerce Fulfillment When solving problems, dig at the roots instead of just hacking at the leaves. Anthony J. D'Angelo 43