The Ultimate Guide to Product Sourcing
This article is part of a larger series on Retail Management.
Whether you’re starting a retail business or just looking to add some new items to your shelves, product sourcing lays the foundation for your supply chain.
We’ll walk you through a step-by-step breakdown of how to source products by choosing the best items and receiving them most effectively—plus, how to find suppliers, maintain relationships with them, and identify growth opportunities.
Step 1: Determine the Products You Want To Sell
The first product sourcing step is to determine what products your store will sell. This decision ultimately comes down to your brand image and market indicators (which we’ll explore in detail below).
As a retailer, a large part of your brand impression will come down to what you sell. Any discrepancies between your brand and your products will leave customers confused and unsure of what to expect from your store. But, a consistent brand image can increase your sales by 33%.
Before you can set out choosing products for your shelves, you need to have a clear picture of your brand, which you can use as a guide while sourcing items and creating a cohesive storefront. You should then evaluate the market and research your competition to get insight into consumer demand and which items will perform well in your store.
Market research is the practice of gathering information about your target market’s habits, needs, and preferences. This will help you better understand your consumers and what products they want or already have. In turn, you will be able to spot holes in the market that you can profitably fill.
Target Market— The group of people to whom you want to market and sell your products or services.
Market research can be both qualitative and quantitative, and includes strategies such as:
- Interviews: Have one-on-one conversations with customers to ask about their buying habits and needs.
- Surveys: Send out questionnaires to your target market electronically to better understand their preferences and needs.
- Focus groups: This is when select people who represent your target market come together, and a moderator leads a conversation where they offer insights about their experience, specific products, or brand messaging. Focus groups are an especially helpful strategy if you are creating a new product.
Focus groups allow you to get candid feedback about your products from a select group of candidates.
(Source: IntoTheMinds)
- Observation: Observe customer buying behaviors in your store or at stores with similar products and customers.
- Social Media Analytics: Since social media platforms have become the go-to destination for people to share their thoughts, they’re a rich source for direct consumer insights.
- Test marketing or crowdsourcing: Test marketing and crowdsourcing both involve a group of people testing and providing feedback for your products before they are sold to the general public. This strategy will help you gain insights into consumer reactions to your products and should help you make tweaks and adjustments before rollout.
- Search Trends: People search for things that they’re interested in every day; you can get rich insights into what your target market is researching (and purchasing) by looking to search trends. Google Trends is a great tool to see what people are searching for and at what volume on the world’s most popular search engine.
Demand forecasting is the practice of researching and making predictions about your target market’s future buying habits and demands.
There are several types of forecasting you can use to predict your demand. By using these strategies together, you can get insights across multiple timelines and demand patterns, allowing you to gather a full picture of your upcoming demands:
- Qualitative forecasting: Rather than using numerical or quantitative sources to make demand predictions, qualitative forecasting uses descriptive data such as expert opinions, focus groups, competitive analysis, employee input, customer testimonials, and market research to make demand predictions.
- Trend analysis: A method of analyzing past sales and product data to spot trends in demand.
- Life-cycle model: This strategy looks at the life cycle of a product or how frequently it is repurchased to anticipate demand.
- Short-term forecasting: A demand forecasting strategy that looks at short periods—say, 6 to 12 months—to spot seasonal demand trends or short-term fluctuations.
- Long-term forecasting: This is when you look at trends over one to four years to predict demand, which allows you to see the big picture and make long-term strategic sourcing and purchasing decisions.
If you currently have a store, the best way to keep track and pull different reports on your business’s performance is to use a point-of-sale (POS) system like Lightspeed.
Lightspeed keeps track of all your sales and individual product performances, and will automatically create graphs and reports so you can make the most informed decisions about your business.
You can use your own sales and consumer data to perform the various demand forecasting strategies above—but if you don’t have any records to look back on you can also look to your competitors and additional outside resources for insights. These include:
- Google Trends: Google Trends allows you to see what people are searching for and how each term’s performance changes over time. Search volume for any product term is a good indicator of its popularity and potential demand spikes.
For example, a recent food trend born from the social platform TikTok is Kewpie mayo. If you look up Kewpie in Google Trends to see how the search term has performed across the last year, you will see it skyrocketed in popularity in September 2021.
Kewpie mayo’s search volume spiked when the product went viral.
(Source Google Trends)
If you were doing demand forecasting and Kewpie mayo fit your brand, this search trend would be a great indication that you should source and order Kewpie mayo for your store.
- Amazon Bestsellers: Use Amazon’s bestseller pages to see what products perform well within specific product and industry categories—like outdoor gear, tech, apparel, toiletries, and more.
- Study your competitors: While you can’t directly access the sales data of your competition, you can observe their main storefront and other sales channels to gain useful insight into their product choices. When keeping an eye on your competition, observe these key factors:
- Products they sell year-round versus seasonally
- What their product spread looks like at different times of the year
- What items are and aren’t successful
- How their products work with their brand
- How customers respond to and interact with their products (i.e., engagement on social media)
Step 2: Plan How You’ll Get Your Products
Once you’ve taken steps to understanding your target market and trends within your industry, it’s time to begin looking at the logistical side of product sourcing.
The first thing to consider is how you’re going to get your products. There are many types of retail suppliers you can choose from, and they don’t all operate the same way. Having a clear idea of how you want to get your products is key to selecting a supplier that will profitably work with your business.
Use the table and tabs below to determine your supplier criteria before sourcing items.
Shipping Speed | Customization | Provides Storage | Order Quantity Restrictions | Middleman Costs | Popular Resources | |
|---|---|---|---|---|---|---|
Manufacturer | 1–6 months | ✓ | ✕ | ✓ | ✕ | |
Wholesaler | 2 weeks–2 months | ✕ | ✕ | ✓ | ✓ | |
Independent | 1–6 months | ✓ | ✕ | ✓ | ✕ | |
Trade Show Rep | 3 weeks–6 months | Sometimes (depends on company) | ✕ | Sometimes (depends on company | Sometimes (depends on company) | |
Importer | 1–6 months | ✕ | ✕ | ✓ | ✓ | |
Dropshipper | 2 weeks–2 months | ✕ | ✓ | ✓ | Sometimes (depends on company) |
For more resources and info, read:
The first thing to consider is how quickly you need your products. This should be a consideration for both your initial purchase and any future repurchases.
If you’re ordering merchandise frequently and placing reorders often, you’ll likely need to work with suppliers that can offer you a fast turnaround time. On the other hand, if you don’t place frequent orders and operate with less merchandise, shipping speed will likely be less of a concern.
The shipping speeds you need might also be on a product-by-product basis, depending on individual sell-through rates and purchase frequency. For example, at my boutique, we had a list of bestsellers that we were constantly reordering. Because of how quickly our bestsellers sold and the consistency of demand, we worked with suppliers who offered fast shipping windows— like wholesalers and certain trade show representatives.
On the other hand, we also stocked bulk-order items that were much slower sellers (like denim), so we didn’t have to reorder often at all. Because our denim did not sell through quickly and we rarely reordered it, we didn’t have to rely on super speedy shipping times and could work with a supplier with longer shipping windows.
Working with suppliers with longer shipping windows is possible for any product as long as you leave yourself enough time. You can use a POS system to set low stock alerts at set stock levels, depending on the time you need to get a restock.
Another thing to consider when choosing suppliers is whether they’re international or domestic. International suppliers have longer shipping windows, and their transportation fees will be higher—often requiring larger bulk orders.
Depending on what products you decide to source for your business, you might need to work with a supplier to create something completely new or customize an existing product. In this case, you should be asking each potential supplier whether they can meet this kind of need.
Your best bet will be to reach out to manufacturers and independent suppliers as they are most likely to offer these services.
Learn more about how to find and sell private label products.
Storage is another factor to consider when choosing a supplier. Brick-and-mortar retailers—especially single-location stores—will likely house and store products on-site, while multi-location retailers may have a centralized warehouse. Growing ecommerce businesses will likely have a warehouse or storage as well (unless they use outsourced fulfillment methods).
A dropshipper is the only supplier option that will hold your stock for you, shipping the items you sell online directly from its factory or warehouse as customers place orders.
If you are going to store your merchandise yourself, you will need to think about organizing and keeping track of it. That’s where inventory management comes in. Read our guide to inventory management for best practices.
Storage will play a role in how much merchandise you can hold, the size of the orders you can place, and the types of inventory you can hold. Before placing orders, you should have a plan for how you are going to store products.
If your storage space is limited, you should avoid suppliers that have high minimum order quantities (MOQs), like importers and wholesalers. Conversely, if you have the space and want large order quantities, you should look for suppliers that can send large order volumes.
The amount of space you have for product storage will determine what size orders you can place and the type of suppliers you can work with.
(Source: MC Electronics)
Step 3: Vet & Select Suppliers
Once you’ve identified a number of suppliers that meet your criteria, it’s time to start narrowing them down and forming relationships.
As you’re doing your supplier research, it’s wise to settle on multiple suppliers for each of your products, including a primary source as well as backups. This helps ensure you always have an alternate source if needed. It will also allow you to shop around and work with the supplier that gives you the best deal.
Expand the tabs below for a run-down of the steps you should be taking to choose the best and most reliable suppliers:
Before you commit to a large, expensive order, it’s important to order product samples to inspect the merchandise. Most suppliers will have a built-in option for you to order samples, but you can also request one via a quick message if needed. If a vendor does not allow sample orders consider it a red flag and move onto other potential partners.
When requesting a sample order, be sure to include all the relevant information so they can process your order quickly and easily. You should include:
- The product you want to sample
- The number of samples you want
- Your shipping address
- Any customization requests and instructions
- A request for a price quote for the potential final order
One thing to note is that samples typically have a much higher unit price than when you buy the same product in bulk. You’ll probably also have to pay shipping and handling costs, but don’t let this be a deterrent—it’s much better to spend a little extra up front than it is to order in large quantities and receive an unsatisfactory product.
As we mentioned, you should be using this step to shop around and assess for the best supplier. That means ordering samples of the same products from multiple vendors so you can compare for quality and preference. During this process, you should be weighing logistics, quality, value, and supplier dynamics to select the best option.
Quality testing includes any experiments done to determine the performance potential and general quality of a product.
This is supposed to mimic how a customer would interact with your product to see how well the item holds up against regular use. It is a great way to ensure better customer satisfaction and catch faulty products before you put them on the shelves.
You should be performing quality tests on all of your samples, using them as customers would for at least several days to spot use problems. Spotting problems beforehand will allow you to either return to your supplier with feedback so they can tweak the product or work with a different resource.
Not all suppliers allow for customizations or product feedback; consult individual suppliers to determine customization abilities.
Here’s a brief list of quality testing methods you can use:
Method | Description |
|---|---|
ESS | Environmental Stress Screening (ESS) puts the product in environments it would reasonably be in to see how well it holds up under regular-use conditions. |
Accelerated Life Cycle Testing | This method places normal use-stress on a product to see how it performs as it moves through its life cycle. Accelerated Life Cycle Testing also helps you determine the expected life cycle of a product so you can write fair warranties and use terms. |
Mechanical Endurance Testing | This method puts your product under mechanical stresses (like heat, vibration, or pressure) to determine the limits of its reasonable use. |
HALT* | A Highly Accelerated Life Test (HALT) works to discover weaknesses that come from the design of a product. |
HASS* | Highly Accelerated Stress Screening (HASS) aims to uncover faults caused during production and manufacturing processes. HASS testing is typically performed after HALT testing. |
Vibration and Shock Testing* | This method tests a product’s performance against prolonged vibrations and sudden shocks. |
*These quality tests require advanced equipment and testing facilities, so smaller operations typically ask the supplier or manufacturer to perform them on their behalf. Reach out to your supplier to learn about their quality testing abilities.
The quality standards you set will depend on the products in question, your brand, and your general price point. Before setting out with sample and quality testing, you should define non-negotiable standards that put potential products and suppliers out of the running for your business.
Some of the top red flags to avoid are:
- Failed testing: You should define beforehand what you expect your product to be able to withstand in quality testing. Failure here should be an automatic disqualification.
- Quality matching: Does the product match what you ordered online? Is it damaged? Discrepancies between listings and the product you receive are a bad sign for the reliability of your supplier
- Logistical success: Did you receive your product in the guaranteed shipping window? Was it produced in the guaranteed timeline? Were there any transport damages? How did the item get to you? Was your order filled accurately? How long did it take to fill your order?
- Communication: Were you able to reach out to suppliers and get answers to your questions? Did they keep you informed of product progress? Was the supplier respectful and timely? Was there a language barrier? You should avoid suppliers that are difficult to reach, disrespectful, or not transparent.
- Legal requirements (if applicable): Does this product meet its legal requirements?
As you compare suppliers, another key factor to consider is the price. Simple math tells you that if you can get your products for cheaper (without sacrificing quality), you will have better margins and higher revenue.
So, get quotes from multiple suppliers—even ones you don’t plan to work with—and use those to find the best deals and negotiate better terms. If you can show a supplier you have a better offer, they’ll often be incentivized to negotiate and sweeten the deal.
Negotiating volume discounts will help you get the best deal.
Step 4: Nurture Relationships With Your Suppliers
Once you’ve narrowed down the best suppliers for your business, you’re ready to start ordering products and pursuing vendor relationships.
As a retailer, your relationship with your suppliers will likely not end after your initial purchase. Product sourcing takes time, energy, and resources—so it’s beneficial to keep working with your existing partners rather than looking elsewhere every time you need to reorder.
Plus, as your vendor relationships grow, you’ll be in a better position to negotiate discounts, customizations, and credit lines.
To maintain access to your suppliers and get the best deals, you have to nurture ongoing, respectful connections. Here are some tips for developing strong vendor relationships:
How To Know When You’ve Outgrown a Supplier
As your business grows, you may outgrow your suppliers. Your business’ needs will likely change in its formative years—which may result in the need for faster shipping times, larger order capabilities, or better product options. When this happens, it’s important to evaluate your fit for your acting suppliers.
As we covered earlier, part of choosing a supplier is to consider what order sizes they can provide. So if you need larger product orders as customer demand increases, you can turn to manufacturers, wholesalers, and importers—who may be able to better meet that need than independent suppliers (who typically work on a smaller scale).
Another scenario that could cause you to switch suppliers is the desire to manufacture or customize new products. If you’ve forged strong brand loyalty or identified a promising original product, the next step may be to make the shift from ready-to-order goods to custom-manufactured products—or even private label items.
Bottom Line
Product sourcing is a complex process that involves lots of trial and error. With the guidance above, you’re ready to start finding the best suppliers for your business and sourcing your items effectively.
