How to minimize online sourcing risk

An Expert's View about Sourcing in China

Last updated: 8 Mar 2011

Experts stress the importance of due diligence following Alibaba's disclosure of supplier fraud.


Sourcing experts are strongly emphasizing the need for even the most experienced buyers to ensure effective evaluation measures when selecting suppliers in China—particularly when sourcing online.


This follows the abrupt departure of Alibaba's top two executives after their disclosure that the company's sales staff "intentionally or negligently" allowed fraudsters to set up more than 2,300 verified storefronts.


"With the information coming out about the resignation of the CEO and COO of Alibaba, the online sourcing world should have just become a little better informed," said David Dayton of Silk Road International, a China-based international procurement agency that specializes in helping buyers find the right suppliers and coordinate production.


"Let's face it, we are all still going to be looking online for new suppliers. So what can you do to protect yourself if you cannot fly to China to investigate every potential supplier that you come in contact with?"


According to Dayton, the bare-bones online sourcing experience should look something like this:


• Search only for suppliers that have been verified by a third party outside of the website that hosts their information.
• Pay for background information and document confirmation for any potential supplier before you make any commitments or pay a deposit.
• Include in contracts with your supplier mandatory 3PQC visits during production and before the balance of payment is made at the completion of the project.
• Have a third-party testing company test your products to confirm quality and components.
• Confirm and verify container loading information to see that what you have ordered, tested and checked is indeed what you are being shipped.


He points out that while all of this might sound like a lot of time and money to be spending on relatively seamless online ordering, it is less than the cost of losing a 30 percent deposit, and takes less time than finding a completely new supplier and starting all over again.


So how do you know if you should really be paying for these additional services? Here is Dayton's list of clues to help gauge a supplier's level of risk:


The supplier:

• Will not provide copies of licenses or documentation on request.
• Does not want you to visit its factory.
• Asks for cash and provides no guarantee, e.g. cash transfer via Western Union
• Is not easily or consistently available to talk with or meet outside of the online forum.
• Will not or cannot provide you with references or past client referrals.
• Provides an oddly large range of either products or services.
• Will not allow third-party QC.



"If your chosen supplier is not satisfactorily providing this information, search for alternatives or at least get reputable third parties involved in the process to help protect your investment," Dayton said.


"You can also pay for a background check for a supplier or individual, verifying tax history, legal history, corporate registration, ownership and board members."



Read the full report at Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.


Posted: 06 March 2011, last updated 8 March 2011

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