What is a sourcing agreement with a sourcing agent?

Forming a trustworthy relationship with your sourcing agent is extremely important. It is recommended to contact a lawyer who can make a legally binding agreement so as to avoid miscommunication, complicated conflicts in the future.

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Sourcing May 1st, 2021 views

What is a sourcing agreement with a sourcing agent?

Agency agreement

Forming a trustworthy relationship with your sourcing agent is extremely important. It is recommended to contact a lawyer who can make a legally binding agreement so as to avoid miscommunication, complicated conflicts in the future. This will help the agent to know their tasks.

Termination

When forming a contract with a sourcing agency it is important to mention a definite or indefinite time period before termination. Laws in Europe and UK mention that there should be a minimum of 1 month for the first year twice of that for the next year and three months for the remaining year if you failed to comply with the contract, your agent is to be paid 1 year worth of salary. If the agent fails to respect the contract then you have the freedom to terminate his services.

Possible problems faced during sourcing? Sourcing pitfalls

There is a chance that the received products do not meet your requirements. You consult a lawyer to get back your money. However, your first option should be to negotiate. You should reach out to your supplier via email and try to conduct negotiations. There can be two outcomes. First, you receive some of your money back. Second, you consult a lawyer who finds out your chances of winning a case should you choose to fight a lawsuit against your vendor.

Chances are that your supplier is ready with their defense: You need to pay more if you want the best quality goods. This line is often used by suppliers and this gives them an advantage. There is a possibility that right from the beginning your supplier was not on the same page as you but you believed that you were in a strong communicating relationship.

Here are some methods to avoid such pitfalls:

  • Verify suppliers:
    It is important that you identify and connect only with reliable and trustworthy
    suppliers who are in for the long run. If you are looking for capabilities like metal
    stamping, die casting or injection molding, then the above point is extremely
    important for you.

You have to ensure that you are connecting with a factory and not a middle person.
Next, ensure that your chosen manufacturer has the required expertise and capabilities for manufacturing the goods that you require. Include the following in your search: The name of the factory, where it is found, and the government sector under which it falls. Sourcing agents who deal with overseas trades and companies should make use of an English name so that it becomes easier to transfer money.

Know how to leap over the language barrier and cultural differences: When you need to trade with a foreign company, it is extremely important that you employ someone who knows the local rules, local language and is familiar with the culture of the country. In such a scenario, a sourcing agent would be the way to go as he supports your company from the beginning till the time your shipment is completed.

For eg. Vendors do not ask questions due to the fear of losing face. If the product quality is not what you require, the producer could state language miscommunication as the barrier and thus deceive you. In such a case a sourcing agent will be ready and help you out so that there are no such miscommunications. (Pro tip: When selecting suppliers lookout for suppliers who ask questions as there is a chance that they are clear about their working process and can thus avoid production issues. Another thing that happens is that suppliers hide the bad news, which creates an issue in the final stages. This again can be sorted out by hiring a sourcing agent who will keep a check on the factory and keep you in the loop.

Remember when you go low, they go low:

When you seek the cheapest price, there are always reverberations. You should conduct thorough market research which will let you know what the price floor is. When defining the price floor, it can be called a government/authority regulated price limit determining the cheapest price which can be paid while taking a product or service.

Manufacturers know the price floor that works in their market and for the type of product that you are looking to sell. Manufacturers who violate the determined price floor can be bad for your business. This is because they could be exploiting the required quality or use bad quality materials. There is also a chance that the owner is forcing the workers to work at very low vegas or under bad working conditions

Explicitly state how you want your product manufactured

Under the agreement you sign you should specify all the conditions regarding the quality that
you need.
One of the major risks that you face is that the received sample is exactly what you need but the received order is of bad quality. Just to be cautious, put it down in your contract that you would take the manufacturer based on the quality of products that he delivers. This will ensure that the vendor gives you the best quality products.
If you pay attention while forming this contract, it will be ensured that there are no price changes or additions when the manufacturing process is on the way. There are chances that it is not the manufacturer’s fault that the price increase has taken place in this case, it will be your responsibility.
Give a phone call to your supplier after sending him an important email to confirm that he has understood what you wanted to say. Employ one or two people to keep in contact with the supplier so that there are no confusions.

Conduct regular quality control inspections

Ensure that you conduct a thorough inspection of the factory that you are dealing with. Daily quality checks will help you catch the issue in the early stage of production. Quick changes can be made so as to prevent on-time delivery.
Ensure that your supplier conducts a thorough quality check before shipping the goods.

What to do if you receive bad quality products?

Think of what needs to be changed when you receive a shipment of goods that does not match your expectation.

  • Bad quality of raw materials
  • The final finishing is of bad quality
  • The products are not of good quality
  • The goods are misshapen or broken

Negotiating vs suing the suppliers

The two available options are litigation and arbitration. Consulting a lawyer takes time as well as money. There is also a chance of ruining your business relationship with your supplier over a small value mistake.

It is not easy to sue a business and it can disrupt your professional as well as personal affairs. Your case will not have a strong chance if you do not have these.

  • A written agreement which specifies the exact quality and quantity of materials/goods that you require.
  • A proof that you have paid the supplier and not a middle man.
  • There should be some valuable assets that your supplier owns and it should be mentioned in the contract.

Not only this, but you also have to think of the way a jury would see this. We need to check if a thorough inspection was conducted by the supplier.
If you file a lawsuit in a US court there will be no outcome as foreign courts don’t enforce judgments in other countries.

There is a high chance that if the company which you are dealing with, is well known, they will not like to be dragged to court as it can ruin their image. That is why people prefer to deal with these issues without consulting a lawyer. While making the contract, ensure that there is an arbitration clause included in it, so that you can work out these issues financially. Supposing that the contract wasn’t signed, you can make use of the arbitration to access other documents like emails as long as this dispute solving method is mentioned.

Another way to deal with this if you don’t want to participate in a lawsuit, is to reduce your loss and focus on growing. If you want to warn future buyers from using this supplier, you can leave a negative rating on social media. There is also a way to blacklist the company on a site called supplierblacklist.com. This is a free website that does not have any reason to support a supplier, unlike other directories that take a commission from producers.