Our Collaborative Private Label Launch Session #4: Negotiating With Suppliers

We have made significant forward progress in the launch of our private label bamboo marshmallow sticks (we can even start calling these “Jungle Stix”)! After sessions gathering private label product ideas, choosing the product based on actual Amazon sales data, and then finding manufacturers and suppliers on Alibaba we are now at the final stages of negotiating with suppliers and making our final decisions! These are the best practices for supplier negotiations.

If you want to join the next webinar, please go here and register for free, exact details for the date and time of the next webinar will be sent shortly.  We will have a special guest host that will have great insights to share, so you won’t want to miss it.

And here is the video recap of our most recent webinar where Greg details how he negotiates with suppliers, ships the product, and makes final preparations before the manufacturing actually begins:

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From the samples (below) received from six suppliers identified on Alibaba, four suppliers show promise based on quoted pricing, communication skills, and ease of communication.

Based on the quality of the bamboo stick and packaging, Factory 3 (the third sample from the left) showed the most potential….until we learn what they are charging us! $12,000 for 1000 units landed cost (ie the cost of the product and shipping to Amazon warehouses). That is about twice the amount that other suppliers were quoting, and as they were not willing to budge on price at all, we had to move on to other suppliers.

With a lot of back and forth between bamboo manufacturers, there’s a fair amount of info to keep track of to assess the potential of each factory as a supplier and partner. Here is a snapshot of the doc that Greg was working off of to keep notes on his interaction with each supplier:

You can view this doc and use it for your own interactions with suppliers and download/edit as necessary.

Factory 2 has quickly emerged as the leading candidate as our manufacturing partner: quick response time, good communication and English skills, good pricing, and thorough answers (with photos) to any questions that may arise. A picture is indeed worth a thousand words, here are some of the replies they sent to various questions:

Have they ever made sticks as long as 36” (like ours will be)?

What is the size of the sticker and packaging? What will the label look like? How will the bags be sealed? How much space will we have to create a label and branding?

 

And how will the packages would be sealed shut?

The written responses were equally thorough, but these photos and responsiveness were indicative of what a good partnership is built on. And with reasonable pricing and fast manufacturing time (10-15 days as opposed to the 3 weeks or more quoted by other suppliers), Factory 2 is who we will proceed with.

 

Shipping

The initial quoted price with Factory 2 was $3.50 for a package of 110 bamboo sticks. After a bit of negotiation and communicating the value of building a long-term sustaining business relationship, the price was negotiated down to $2.64 per unit. Though slightly more expensive than some of the other suppliers, it is a worthwhile premium to pay for a high quality product and responsive and thorough sales rep.

The shipping of these sticks is not an insignificant cost. The cost of shipping is in fact going to be 2-3x the cost of the product itself. Keep in mind that these are the length of a yard stick, and weigh several pounds per package.

There are two delivery options that we are considering with “air shipping”:

1. “Air Express”, ie UPS, DHL, or FedEx will take 3-4 days to arrive in the United States from the factory in China. We will not have to deal with a customs broker or freight forwarder, as that is all included in the “air express” cost. Consider it the white-glove service—we place our order, pay the premium pricing of Air Express, and our shipment of bamboo sticks arrives at our desired location in the states.
2. The alternative “air shipping” is called “Air Cargo”. This option will take 10-15 days, and will be cheaper, with pricing in the range of $5,000 total shipping vs. $$8000-$9000 of Air Express. However, this Air Cargo option dos not include door-to-door delivery, meaning that we would have to pick up the shipment at the airport. Additionally, various fees will have to be added on, like customs fees, freight forwarding, and delivery from the airport to our US home.

Which option is better and which are we doing? We will actually be doing both Air Express and Air Cargo. The plan is that each carton contain 10 units of 110 sticks each. Of the 100 cartons (1000 total units) that we order, 10 cartons will be delivered Air Express and 90 cartons will be delivered Air Cargo. With speed as a main priority, getting a small shipment a few days after the product has been manufactured is a worthwhile investment as it will allow us to take product photos, get product to Amazon and get an active listing on Amazon. The remaining products will arrive a few days later.

These products will be shipped to us first in the US for a quick product inspection before sending it along to Amazon’s warehouses (using Amazon’s cheap ground shipping rates).

 

Our Purchase Agreement Contract

It’s been said that Communication and Trust are the two main ingredients to build a strong relationship. To that end, Greg has started to make a habit of establishing mutual expectations, in writing, in a Purchase Agreement contract before any money ever exchanges hands. This document sets clear expectations for the product quality, but also serves the purpose of showing attention to detail, thoroughness, and valuing the business relationship between supplier and buyer as a serious one where every detail matters.

The contract addresses the minute details of what the product will be. This includes a thorough description of the bamboo quality, packaging, shipment, cost, and more. Here is a copy of the contract sent to the supplier (which was quickly agreed upon and signed by the supplier upon sending it):

 

Purchase Order Contract

Jungle Creations, known as “First Party”, agrees to enter into this Purchasing Contract with {FACTORY NAME HERE} known as “Second Party”.

This agreement is based on the following provisions:

Production:

The Second Party agrees to produce the following goods:

• 1000 Packs of Bamboo Sticks
• 110 pieces per Pack
• each piece should be a total length of 90cm and a diameter of 5mm
• the ends of each stick should be semi-pointed as shown in figure 1
• 110 pieces should be packaged in a 0.1mm Polyethylene (PE) plastic bag, sealed on both ends
• each bag should have a 11cm x 10cm color (up to 3 colors) printed label applied to it
• 10 pieces per master carton
• Total of 100 cartons (10pieces/ carton, 1000 pieces total)

The Second Party agrees to the costs of $2640.00

If production time exceeds the agreed upon production time (10 days) – the First Party requires advanced notification of at least 3 days in order to respond appropriately.  If production is delayed by more than 7 days without agreed upon conditions, the First Party reserves the right to enforce a 5% discount on the order for every 7 days that production is delayed.

If there are any flaws discovered during production that do not meet the agreed upon specifications, the Second Party agrees to discount products, fix flaws, or replace the units.  The course of action if flaws arise is to be determined at the sole discretion of the First Party.  The First Party will make every effort to find an agreeable solution to maintain a quality relationship with the Second Party and expects the same in good faith.

 

Inspection:

The first party reserves the right to a 3rd party inspection.  The Second Party agrees to an Internal Inspection required by the First Party.  The points of Inspection required are:

1. Picture of raw bamboo materials
2. Pictures of bamboo sticks as they’re being manufactured
3. Picture of the semi-pointed tips
4. Picture of the first printed label, before application to PE bags
5. Picture of the first Master Carton loaded with units – with box lid open and a picture from each side
6. Picture of the full shipment with all Master Cartons

 

Shipping:

As agreed upon previously, it is expected that the Second party deliver the items to {INSERT ADDRESS HERE].  The Second Party agrees to provide the first party with tracking information as soon as it becomes available.  The second party agrees to cover all fees and duties associated with both shipments.  The items are being shipped door-to-door, 10 cartons via express and 90 cartons via air cargo.  The prices shall not exceed the following

• 10 cartons, express (2-4 days) –  $812.00
• 90 cartons, air cargo (20 days) – $4,567.50

The Second Party also agrees to print Master Carton Labeling in accordance with the list below:

• 5mm x 90cm pointed bamboo stick
• Case Quantity: 10
• Made in China
• Gross Weight: (please use actual weight in Kg)
• Box Dimensions: (please use actual dimensions in cm

 

Confidential Information:

By doing business with the First Party, the Second Party agrees to keep any and all information related to their business relationship confidential from other potential customers.  The Second Party is not allowed to use any artwork, design, or images from work done with the First Party to market similar products to other potential customers.  This includes use on Alibaba.com, private conversations through email, Skype, or other messaging applications, Globalsourcing.com, Amazon.com, and any other method of communication.  The Second Party agrees not to disclose any agreed upon pricing related to our agreement with other potential customers in any form.

 

Payment:

30% ($792) due immediately, 70% ($1848) due at shipment.  Shipping fee’s ($5379.50)will be paid with final payment, after the goods are ready at shipment

{FACTORY NAME AND ADDRESS HERE]

BENEFICIARY’S Payment Information:  {BANK ACCOUNT OR PAYPAL EMAIL ADDRESS HERE}

 

This agreement is entered into on November 12th, 2015 by Jungle Creations and

 

_____________________________                                                                   ________________________

(Gen Furukawa, CEO, Jungle Creations) (Date)

 

_____________________________                                                                   ________________________

(Authorized Signee, Role within Company, Company Name)   (Date)

 

Appendix:

Semi Pointed Tip

Figure 1

 

There is obviously very little room for interpretation here: there are specific measurements, quantities, time parameters, and dollar amounts in the document.

In the agreement, there is also a requirement that the supplier send photos at various stages of production, including photos of raw materials, the shaped bamboo sticks, the sharpened bamboo sticks, the packaging, labels, and more. This will illuminate the manufacturing process for all of us in this case study, but also provides a set of checks and balances for quality assurance. We will not be employing any third party inspection agency, so capturing images at each step of production can help identify any potential mistakes along the way.

Feel free to use this above purchase agreement for your own negotiations with suppliers. The supplier signed and returned the contract within a few hours of receiving it, so good news that we are all on the same page and we are beginning the manufacturing process very soon!

 

Product Photography

Capturing high resolution product photos optimized for Amazon listings will be essential in creating an optimized listing and improving our conversion rate. We do not have a product photographer selected yet, but are currently researching to find one (ideally locally so that we can get a quick turnaround once we receive the initial Express Air packages from China). Finding and paying for high quality photos is not the place to cut corners and save money, as it is so pivotal in laying the foundation for a successful Amazon product listing. We are expecting to pay $200 or more for 5- high resolution (2000×2000 pixel) photos.

 

Branding

We are currently putting together a quick logo and the content/copy for the labels that will be placed at the top of the packages. Greg has come up with a special Jungle Stix S’mores recipe to create a point of brand differentiation and “value add”. Similar to the contract above, there is a significant amount of detail included, to set expectations and reduce any back and forth communication as much as possible. This is what we sent to our designer:

 

Can you design a label for the factory to apply on the packaging. The total size of the label is:  11cm x 10cm

These are the details:

Company name (maybe spend a few min designing a simple yet fun logo):  Jungle Stix
Contains:  110 – 36″ (90cm) x 3/16″ (5mm) Bamboo Sticks

Jungle S’more Recipe

Ingredients:
2 – Marshmallow
1 – Banana
1 – handful of chocolate chips

Instructions:
Leaving the peel on the banana, cut a canyon into the middle of the banana and remove the sliver.  Next, place the handful of chocolate chips into the canyon and set near the fire to warm the banana and melt the chocolate. Roast two marshmallows over the open flame until golden and gooey.  Lastly, place the two gooey marshmallows into the chocolate filled banana canyon and enjoy!

Suffocation Warning (minimum print size 14 point): “WARNING: To avoid danger of suffocation, keep this plastic bag away from babies and children. Do not use this bag in cribs, beds, carriages or play pens. This bag is not a toy.”

Place of origin:  Made in China

In addition, we’ll need to apply a barcode which I can supply to you tomorrow.  The size of the barcode needs to be 25mm x 67mm

After typing this all out, it may be too much to put on a sticker that is 11cm x 10cm.  If it gets too crammed, let me know.  We’ll probably just remove the sm’ores recipe.

Thanks!

 

FNSKU vs. UPC code

For us as private label sellers, it will not make much of a difference whether we use FNSKU or UPC codes on the packages. A UPC code (easily purchased on Speedy Barcodes for a few bucks) is the route to use if a seller plans to sell locally at retail outlets, as UPC codes are commonly used by stores like WalMart, Target and your local merchant. Alternatively, the FNKSU is a barcode specific to Amazon to identify specific sellers (important when multiple sellers sell the same product on the same product listing). We will have the FNSKU barcodes printed directly on our product stickers so we won’t need to apply additional labels to our product.

 

Next Steps

We are getting very close to the last few steps before our bamboo marshmallow sticks are live on Amazon! The remaining steps are:

• Finalize and sign Purchase Agreement
• Do final due diligence on the factory (Google searches, Alibaba research of the company’s website, previous transactions, certifications, etc)
• Send in Paypal deposit for 30% of total manufacturing cost by Thursday November 12^th
• Finalize negotiations and deposit payment by Friday November 13^th
• Begin manufacturing (estimated production time is 10-15 days, per supplier), Monday November 16^th
• Finalize production, ship 10 cases (100 pcs) to US via Air Express (3-5 day estimated time) by November 30^th
• Shipment arrives by December 4^th
• Quality Assurance Inspection and take product photos

So there you have it–we are going to be roasting some marshmallows on Jungle Stix within a month or so! Greg will be following up with updates on the manufacturing process and answering additional questions in the comments below or the Amazon FBA Competitive Edge Facebook Group.

 

If you want to join the next webinar, please go here and register for free, exact details for the date and time of the next webinar will be sent shortly!