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.

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?

The 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 QC visits during production and before the balance of payment is made at the completion of the project.

Have a lab test your products to confirm quality and components.

Confirm and verify container loading to see that what you have ordered, tested and checked are indeed what are being shipped.

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 a 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 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.

Factory visits or audits continue to be critical in the supplier verification process. Buyers can opt to go to the plant themselves or engage a third party to conduct supplier audits, which could include an assessment of manufacturing and QC processes and confirmation of compliance with various industry, safety and environmental standards.

Exaggerating the truth in terms of factory capabilities is one thing, but claiming to be a factory and disappearing with the buyer’s money is a whole different level of fraud. But that fraud has been happening for years in China—nothing new.

What makes the situation at Alibaba so shocking is that Alibaba markets itself as a safe place for buyers to find suppliers and provides a host of services to put them in touch with each other. But now we learn Alibaba staff cooperated with the thieves to scam the buyers.

Most of the scams happened to buyers who purchased $1,200 or less of high-demand electronics at low prices. This makes total sense for a number of reasons. Small buyers generally do not have the experience to know when they are getting scammed and fail to do their due diligence in advance.

Unfortunately, because they may be on a tight budget, many small buyers do not utilize third-party QC to check the quality of the goods before final payment is made.

In summary, pray for the best but plan for the worst. Do your due diligence when selecting a supplier and tie payments to delivery.


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