Let’s face it — the supply chain situation is a mess. One thing small e-tailers can do to alleviate stress is to work with trustworthy suppliers. 

Dependable, efficient suppliers have a significant impact on profit. It’s not difficult to find them, but you have to know where to look. Here’s a breakdown of various types of suppliers, their pros and cons, and how to choose the right ones for your business.

There are three major types of retail suppliers: wholesale suppliers, dropship suppliers and manufacturers. 

Wholesalers

A wholesaler typically buys goods from a manufacturer and resells them to a retailer. For the wholesaler to profit, it must provide expertise and services not available to the manufacturer or retail buyer.

Typical wholesalers operate one or more storage facilities where they hold goods purchased from manufacturers. As retail customers need to replenish inventories, the wholesaler ships them either to the retailer's warehouse or directly to stores. They offer several more advantages:

• Bulk quantity pricing. Buying in bulk can cut costs because you are only paying one middleman rather than going directly to each manufacturer for purchasing.
• Product variety. Another benefit of using wholesale suppliers is that you can receive a wide range of products from just one source. Locating multiple products from one supplier is helpful when you’re searching for specific products and don't want to go through several manufacturers.

There are downsides to working with wholesalers, too. Price of entry is the primary disadvantage. You may need to purchase thousands or tens of thousands of products at a time. Another disadvantage is the storage costs. You’ll need to pay for warehouse space, insurance and frequent inventory management to keep your products organized. 

Dropshippers

Dropship suppliers are similar to wholesale companies in how they operate. But instead of having the middleman role, you list their products on an e-commerce platform like Amazon.com, and they ship directly from their own storage facility. You don’t have to manage the inventory, which is a perk. Other advantages include:

• No storage cost. Dropship suppliers do not require you to spend any of your budget on storage or warehousing costs. You simply receive orders online, and your supplier ships directly from their warehouse to your customers. Not paying storage and warehousing costs can be a great advantage for small businesses that don't have the resources to store large inventory quantities.
• No inventory on hand. Another advantage of dropship suppliers is that you don't have to keep any inventory on hand. Not needing inventory space can be a great way to reduce your costs but also save you from the logistical nightmare of shipping.
• Product variety. Since you sell products that the supplier has on hand, you have access to many products and can source them from several suppliers. You never have to put a deposit on a box of items and sell them individually.

There are a few negatives of using dropship suppliers. Mainly, the process involves an intermediary and you have no control over out-of-stock merchandise. In general, you have no control over out-of-stock merchandise. Additionally, dropship suppliers typically charge more for each product than if you were to buy in bulk.

Manufacturers

Manufacturing companies sell products directly to retailers or other resellers, who then distribute those products in store or online. They generally work with established brands over individual sellers, and provide a more personalized customer service experience.

Although buying directly from a manufacturer is probably the most expensive option, there are several reasons why working with one is a wise decision:

• Bulk pricing. The advantage to working with manufacturers is that they give you the lowest prices on bulk quantities of products because there are no middlemen involved. Thus, you can save money to meet the high initial order fulfillment quantity.
• Customized products. Manufacturers can provide customized or personalized products. Knowing a supplier that can build customized products is excellent for businesses that focus on unique selling propositions.

Manufacturers are incredibly selective about who they sell to and don’t work with new buyers often. They have large scale order requirements and want large brands who can buy in bulk. Additionally, you will have to invest more money upfront before your business starts making sales. 

Four Criteria for Sourcing 

To start, you will want to dialog with your supplier before purchasing to ensure that you’re working with a trustworthy source.

• Seek flexibility. You will want to work with suppliers who are able and willing to source new items when needed, so you'll always have a large variety of products to choose from.

The supplier should quickly source new items so your business can grow and have the right inventory at the right time — especially when selling on a fast-moving platform like Amazon.

• Minimize cost of goods sold. The supplier should give you great prices for bulk quantities of goods. By locating a supplier with fair prices, your business can grow without spending more money on inventory than necessary.

Your goal is to create a profitable retail business at the end of the day. Therefore, your cost of goods should remain low so that you have the opportunity to make more profit.

• Evaluate quality. Next, you need to vet the supplier and make sure they have a good reputation within their industry.

Ask how long they've been in business and how many orders they typically fulfill on an annual basis. More established suppliers will handle larger order quantities.

• Stay local. In the current crisis, it’s becoming crucial to find domestic suppliers that can scale with your company as it grows.

Five Questions to Ask

• How fast are shipments?

Some distributors can take up to two weeks or even a month to ship your product. Long delivery times are not ideal if you are selling on Amazon and need a continuous inventory flow. Make sure that the distributor offers quick shipment times.

• What’s your shipping process?

Ensure that their packaging system can protect your products during transit and pass through all customs checkpoints without any issues. Also, the tracking number should be available for every shipment so that you can track its journey.

• How do you handle missing inventory?

In addition to costs, lost packages affect the speed of delivery to your customers. Some distributors only allow for one free loss per order, while others may charge you or may not have any insurance at all. Make sure you are fully aware of the distributor’s policies before signing up with them.

• What’s your return policy?

Return policy is also important to consider when choosing a distributor. Returns can be a headache if the return policy is less than fair. Ensure that you can get your money back for returned products within 30 to 60 days maximum and that you do not have to pay any additional charges or restocking fees.

• Can you provide references?

Finally, always ask for references from past customers. Ask them about product quality, speed of delivery and the quality of their customer service team. Having this information will give you a much better idea about distributor reliability.

If you take the time to vet each supplier and ask them the right questions, the selection process will be much more manageable. By following these tips, you'll be on your way to finding quality and trustworthy suppliers for your e-commerce business.

Othmane Sghir is co-founder and CEO of DataHawk.