So you got your first quote back – but what does it all mean?
In this article we are going to cover the top things you need to be aware of regarding supplier quotes.
Incoterms
This is basically the delivery destination included in the price of the product. It could be at the factory – or the factory may deliver all the way to Amazon’s warehouse and cover the duties (DDP). Though this is very rare.
The most common terms used are ex-works and FOB. Ex-Works simply means the factory quotes for products on its doorstep and you have to arrange pick up of the goods. You have to pay for the transport of the goods and all customs fees and duties to export and deliver to Amazon. You also need to have the right license in place to export from certain countries.
Always ask your suppliers to quote FOB the nearest port. This means they are responsible for all the export process and costs and that you take over once the goods are loaded onto your ship or plane.
Apple to Apple
Check the product the factory is quoting for is what you asked for. Sometimes there can be huge differences in the materials and specification between different suppliers quotes. Before comparing the price make sure everyone’s quoting for the same sizes, materials and finishes and that the incoterms match.
Quantity
MOQ means Minimum Order Quantity. Different suppliers will have different requirements for the minimum order they expect from you.
One might be quoting for 1000 units whereas another may expect you to order 5000 units. When comparing quotes make sure you clearly check the minimum quantities the price refers to. When you are first starting out it is better to order less units and test if the product sells before committing to a large order.
Validity
Usually the validity of the quote doesn’t really matter because the prices don’t change massively in a few weeks. But if the validity time of the quote has expired make sure you double check the latest pricing with your supplier.
Packaging
Is packaging included in the price? Some suppliers offer quotes with their standard gift box for a product. If you plan on getting your own gift box made it is better to get a quote for “bulk” products – and ask the factory to confirm that the price includes packing the goods into your packaging. Usually this is not an extra cost.
Price
When you first get your quote the price is pretty much irrelevant. Usually it is the first thing buyers look at. First you have to get all your factories quoting for the exact same specification. You also need to verify that the quality is good.
Even then, until you’ve negotiated with your top 3 to 5 potential suppliers the price is still irrelevant. I’ve seen quotes from Chinese factories for 100,000 units go from four dollars to less than a dollar. So the factory that was originally the most expensive became the cheapest.
You need to allow 7 to 10 days of negotiation before you rule out a supplier and select which one you will go with. It’s better to get the samples first, compare the quality and then negotiate.
Quality
Your final decision on which quote to go with should be based on which supplier you think will give you the best quality.
Arrange samples from the best 5 factories and review the quality and workmanship of the product. Once you have chosen the top 3 suppliers based on sample quality, give them another big push to try to get the quotes down.
Your goal is to get the supplier with the best overall product to bring their costs down as much as possible, without lowering the specification or material quality.
In the end I recommend you go for the factory with the best quality product as long as they are responsive and easy to communicate with – even if they are a little more expensive.