Sajag Agarwal 6:28
Yeah, that’s a really good question. So for 1000 units, a level three might be 125 units, which might be a little bit high. But for 10,000 units, it’s not really that much more. So on smaller orders, the percentage is much higher than large. Okay, that testable model. So in the grand scheme of things, even on 1000 units, we’re only looking at about 12.5% of the units. So it’s not really a ton of units. So generally level two and level three, the entire ISO system is built for ongoing inspections. So actually, level three is kind of a minimum threshold that we recommend for Amazon sellers. If you’re doing consistent manufacturing with a supplier, you should be doing at least level two, level three inspections on every order. And on your first orders, we have a lower risk tolerance, and you want to do some more checks, it might even be worthwhile to go above the level three. So some customers go as high as 100%. Obviously, I don’t think that’s really required, honestly, because it’s just you know, you can get the similar results from doing a statistical sample size. But level three is really kind of a baseline for those higher risk orders. A lot of customers ought to go even beyond that. So they hate, you know, maybe want to do 200, or 250.
James Thomson 7:33
So you keep using this word risk, and I realize risk could play out in many different ways. What does risk look like to a private label seller? Are there certain types of products that are riskier than others? When you think about manufacturing? Yeah, that’s it. What do you think about risk?
Sajag Agarwal 7:47
Yes, I think about risk in terms of how expensive the product is to produce and what the margins are on the product. So say you have a $1 product, and you make a $5 product margin, you know, $5 per unit sold. If that product breaks, or something happens, it’s not that big of a deal, you can replace that product and still break even. So you know, maybe customer reviews are going to be an issue. But you know, replacements warranty claims returns, it may not be such a big of an issue. But if you’re selling a 20 or $30 product, and your margin is only $10 on that product. Now, one bad unit would take profit from three sales. So the returns and warranty claims are much more impactful to your bottom line. So in those cases, your risk tolerance has to be much lower. So that way, you can make sure that you’re breaking even at the very least, and making profit on your orders.
James Thomson 8:33
So you’re talking about product inspections, but there’s also factory audits and being on the factory floor and looking at what’s happening versus just looking at what’s coming off the line. What do you think about these different types of evaluations that a seller might do of his manufacturer? and other products that come off the line?
Sajag Agarwal 8:52
Yeah, that’s a good question. So factory audits are like in depth reports into the factories. So quality control inspections for product inspections, those are things you should be doing on every single order to maintain that, you know, there is a, you know, if there are any problems, you find it. So for example, actually, we did a calculation that if you find about $3,000 of defective products, that alone pays for 10 inspections. When you tip that factor in the freight cost you factor in returns, you factor in all these additional expenses. Yep, I can easily pay for your inspections for seven years if you do them quarterly just on one small bad order of $3,000. And you know, most sellers are ordering much, much more than that, right, right or pays itself off factory audits on the other hand, those are things that you do maybe periodically, say once a year, depending on how much volume you do with the supplier, or once before you start production with a certain supplier to actually make sure that they’re a partner that you can work with long term. So you can actually understand the factory, understand their processes, understand their systems and say, okay, hey, this is a factory that has good quality control processes, good manufacturing processes. This is a factory that I can work with for the Next 10 years, yep. And this factor here is maybe an owner just running out of his notebook. And maybe I don’t want to work with that factory too much.
James Thomson 10:08
So, when am I doing the product inspection? Am I doing it at the port? Am I doing it at the factory? Am I doing it once it arrives in the United States? What do you think about those? And how do you think about the trade offs of these different stages where you could do the inspections?
Sajag Agarwal 10:21
Definitely? That’s a really good question. So once it gets to the States, you’ve already paid to ship the products. And if there are any problems, you have to pay for them to be shipped back. And shipping back to China and other countries is actually much more expensive than shipping here. So at that point, you’ve kind of already lost her leverage, and you’ve increased a lot of your expenses. So it might make sense to still do a quality control inspection there. But it’s not the optimal point to do a quality control inspection. And same thing with the port. So what happens is most companies that do inspections at the port, other freight forwarding companies, and they’re not really inspection companies. And the difference between the factory and the port is that when you’re doing an inspection at the factory, you have access to the machinery at the factory, the quality control labs, the other machinery at the factory, you can also monitor the production, make sure the products are coming off good as they come off the production line. Yes. So you lose some of that ability when you’re doing it at the port. And most companies that do inspections of the port, their freight forwarding companies, and they also have a huge bias, which is to actually, you know, ship your products out because they don’t share products, they don’t make money.
James Thomson 11:22
So how do you get factory owners to agree to let a bunch of inspectors show up whenever to inspect products? How does that work?
Sajag Agarwal 11:30
That’s a really good question. So it’s actually a standard process for any major manufacturer, any major supplier to have third party inspections done. any major Fortune 500 company that does manufacturing, does inspections on all their orders. So it’s actually a fairly standard process. And most factories are okay with it from the get go.
James Thomson 11:49
Okay. But as you become a, as you become known for being a good Inspector, I mean, there may be some, some factories that are Oh, no, here comes Sajag and his team. Oh, but on the other hand, I mean, I suspect there can be a mutual respect that gets built over time that you’re making sure that everything stays appropriate. And it’s not that you’re trying to call out bad things. But bad things can happen, whether somebody’s actively doing it or whether the machine just breaks down.
Sajag Agarwal 12:19
Yeah, that’s a really good question. Actually, we’ve had a lot of factories give us pushback, and it’s usually after the first inspection. So you know, most factories are accustomed to the usual inspections, which is just, you know, go there visually, look at the products, even if you have something, you know, even just a shelf, maybe you want to do a weight test on the shelf to make the most simple products and test. And we like to do them on the entire sample size. So that makes a huge difference for the factories, we have actually had factories that would just stop us, maybe not give us enough space to actually do an inspection, not help us with some of the processes, and things like that and just not cooperate on the second inspection. But what we always like to do is when those kinds of things happen, we always like to convey that information to clients of expressible impacts and time of the inspection, which therefore impacts the cost. But also, it’s important for clients to know that, hey, you know, these are issues that you’re having with your factory, because if your factory is having a hard time, you know, we’re just checking the products according to your specifications. So they have a hard time with us, they’re really trying to give you a hard time at the end, right? So we always like to convey that information to clients, because that’s not a fact, work for the long term.
James Thomson 13:21
So I’m a private label seller, I’ve hired you to do the inspections, you do the inspections, and the inspection fails gloriously fails. What now, what do I do as a seller? What do you do as an inspector?
Sajag Agarwal 13:34
Yeah, this is a really good question. So when it comes down to working with the factories, the first thing we recommend doing is just talking with the factories and saying, Hey, you know, these are the problems we’re having, you know, what, where should we go from here, you know, we’re not as these products and kind of see what the supplier does. So there’s kind of two ways to handle it. So generally, sometimes suppliers will agree to fix the problems, especially if they don’t have a good relationship with you, they’ll fix the problems. And other times a day, if it’s too high of a cost or something like that, you can often split the cost. So some suppliers will agree to say, Hey, you know, the repair cost, let’s say for this $10,000 order is $1,000. How about we split it 5050, I’ll pay 500, you pay 500. And we’ll get the products repaired? That could also be an option.
James Thomson 14:17
Buy what why am I paying for anything that my supplier doesn’t manufacture properly?
Sajag Agarwal 14:20
That’s a really good question. So it really comes down to building a relationship with your supplier. So a lot of people have this mindset with their suppliers that it’s very transactional. Like, Hey, I’m paying you to do it, build an order. Yep, go ahead, get it over to me. The thing is that a lot of times bad quality comes from miscommunication. And it comes from the fact that they’re using low quality materials or whatnot, but it also comes down pretty heavily to miscommunication. Okay, so that’s what is really key. So when you’re working with a supplier and you want to build a partnership with the supplier, so it’s almost like a it’s kind of like an olive branch like hey, you know, I understand that, you know, maybe we miscommunicated maybe you miscommunicated but we’re willing to front some money You know, in Split the cost that way we can fix this problem. Obviously, that’s not ideal. But you know, that’s something that could be really helpful to protect the relationship with that supplier if they are a good supplier, and what for what could just be, you know, General misunderstanding.
James Thomson 15:13
So subject, what do you do in a situation where your manufacturer says that it does its own inspections, other situations where it makes sense for the manufacturer to do its own inspections? And you don’t need an external Inspector?
Sajag Agarwal 15:27
Yeah, that’s a really good question. So every manufacturer should be doing their own inspections on the production line, and actually doing multiple points of inspections, as well as randomly sampling units in the production after the production to make sure the products are properly, okay. And that’s not really a replacement for third party inspections, because that’s the factory’s internal quality control, to make sure that they have good third party inspections or more, so inspections that represent you. So they’re checking for your specifications, you’re making sure that hate the supplier did build your products properly. And their internal quality control systems are built up to the standard because the suppliers Actually, it’s a little bit of game theory, suppliers have an incentive to get you the cheapest product that they sell to you. Because then they make the most profit while you have the incentive to get the cheapest product of the highest quality. So you can sell it to your customers and protect your brand. Yep, so at the end of the day, that third party inspections protect you, whereas internal inspections should be done either way, and they’re protecting the supplier to make sure they’re not redoing the production process.
James Thomson 16:26
So as a as a seller, buying product as a brand buying product in China, I’m going to have contracts with my manufacturers, are there certain types of stipulations in the contract that I have with my Chinese manufacturer, that I should be making sure that I’ve got certain things written in to help me with some of this inspection that I’m going to need to do?
Sajag Agarwal 16:49
Yeah, it’s a really good question. I always recommend, first of all, not going completely transparent on the inspection specifications, because a lot of times inspections can be gamed, because you’re not really testing the root cause you’re testing the symptoms. So for example, the shelf, you’re putting a weight on it to test the weight limit, but you’re not actually testing the strength of wood itself. So they can put, you know, more layers of particle board to get to that same weight limit. So it really depends on what your specifications are, I always like to say, don’t be extremely transparent, but do tell the factory that hey, you know, we want to make sure the product meets all the specifications that we have agreed on. And the second part there is that when it comes to the overall factory specifications, you want to make sure that the factory is aware that you have access to all the products at any time. So you can go in during manufacturing, you can check duction lines, your products being produced, you can check your products after production, you’re not in any way held contractually to buying your products without examining and opening in reviewing everything you know, even if that means they have to repackage the products. So that’s very important to include on the contract. Because these are your goods and you have control to buy it. And you need to have that ability to see your products, inspect them, maybe you want to see them yourselves, maybe you want to hire an inspection company, whatever it might be, you want to have access to your products before you have to actually pay for them.
James Thomson 18:07
So you’ve talked about all sorts of things that can go wrong by not doing inspections at the right time, or doing them thoroughly enough. Let’s put those situations aside. I’m a well established brand, I source products out of China and have been doing it for years. What are some of the mistakes I may not realize I’m still doing when it comes to inspections?
Sajag Agarwal 18:28
Yeah, the biggest mistake that I’ve seen is just having a lack of proper checklist or quality control and inspections. So what happens is that in most cases, like even in my case, when I was running my Amazon brand, we were doing everything by the book, we were doing inspections every single order. And after two years of getting just past inspections, we continue to get past inspections, but then started having quality defects in our products, we were saying five to 10% of our products, broken on arrival, we were seeing other products breaking after a few months of use almost 100 on some skews. And this was all despite getting past inspections. And what we learned is that when it comes to inspections, all of these issues could have been prevented if we had a proper checklist in place. And the checklist was actually done on a statistical sample on a statistical sample size of the units. So what in most cases what happens with inspections is you’re just doing a visual inspection. So you want to make sure you’re actually testing the exact function of the product if you have a paper cup maybe you want to fill it up with water to make sure it doesn’t leak electronics maybe you want to plug it in if you have a lamp on a screw in a light bulb and make sure you know hey this lamp Yes, yeah, so these are all things that are really really important and that you should be doing on every single order. So what I always recommend doing because a lot of brands even the well established ones all the way down to the small brands, they may not know exactly how to come up with tests for the products they think their inspection company is doing all the tests for them. The truth of the matter is inspection companies. They inspect a wide variety of products you can have $1 storm calm you can also have a luxury comb, and those are still combs but you know fuzziness in one is not right, right. Breast flimsiness and the other one is fine. So inspection companies can never truly define what is the true quality specs of your product. And in allowing them to do that what ends up happening is they just, you know, go for it. And they just visually inspect your product and say, Hey, this looks good. They’re not actually doing any, you know, tests and function tests, things like that, to actually make sure your products are built well. So providing those information, talking with your suppliers, understanding what they do for quality control, talking with other suppliers, especially in the sales process. If you’re talking with other manufacturers, that’s a great time to understand, what are the specs? What are the tests that inspections can do, they do, so internal inspections that you can do, and then provide that to the inspection company and then do that on every inspection. And that is what makes one of the biggest impacts because if you’re plugging in three units, and to make sure it works, and you have a sample size of 1000 units, then you know, one unit works, that doesn’t mean anything, you know, you really need to be tested those 125 units and plugging in each one of those units to make sure works, because that’s going to tell you Okay, your product is built properly, your product does not exist. A visual inspection is just a it’s not really a catch. All right. So I would say that’s the biggest mistake that I’ve seen.
James Thomson 21:08
So you’re you’re talking for the last, you know, for the whole the whole discussion here, you’re talking about a lot of inspection things which if you go back five years ago, when you were a private label seller, and you were building products, and lo and behold, he discovered that there was a major set of product defects. How did you decide, I’m actually going to learn a whole industry and become an expert in this and I’m going to build a company and I’m going to do this, when in fact, that wasn’t my that wasn’t your initial calling, getting into this the space to take me through that journey. Because it’s a path that is unusual for someone to say what I want to do when I grow up is to set up an inspection company.
Sajag Agarwal 21:50
Yeah, that’s a really, really good question. So I started off with e-commerce, just flipping products on eBay. So I was actually out with my mom, and she takes hours to shop. So I was just kind of bored out of my mind. And I was on eBay. And I found out I could buy 100 units of a product that I was looking at, for like 100 bucks. And then each unit was selling individually for like six $7. Okay, so that’s when I actually got into e-commerce, I started buying bulk on eBay, and then selling individually on eBay. And then eventually I started building my own brand. And so five years ago, I started my own e-commerce brand on Amazon. I was like, Hey, I’m just buying and flipping all this junk, I could be doing a lot better. So five to six years ago, I started my Amazon brand, we grew super quickly. Our first year we did 40 K, second year, we did a million. And our third year, we were on track to do 2 million that year. But what ended up happening is we started facing huge quality control problems. Yes, that’s actually when I moved over to China. And I lived there for six months, I was basically doing my own inspections. And I actually watched my inspectors at one point show up five hours late to an eight hour inspection. And that basically just passed a defective batch of products that I had inspected myself, this was a pretty large multinational company. And at one point, I even actually hired my own in house team. And since then, we had our own office, and that team actually started taking bribes from the factory as well. And they got a little bit too close from the factory. So it was just an absolute mess. And what ended up happening is that we actually ended up having to shut that brand down on the third year just because of quality control problems. That’s actually something that’s really near and dear to my heart. Because after that experience, I went and talked with a lot of different sellers. And I was like, Hey, you know, inspections could fix my problems. You know, I was doing inspections and every wonder why were they not having these issues. And I started asking a lot of people and I was like, Do you trust your inspection company? And everybody I spoke to was like, No, you know, we don’t trust our inspections company, but it’s better than doing nothing. That was like, you know, it’s 2018. You know, we got Ilan musk here making neuro links. And we can even make sure that, you know, we have good inspections, you know, in a different country, we got FaceTime, we got all this kind of stuff. And that’s actually when I got into Mali, because I was like, okay, hey, we can make a huge impact in this industry. And, you know, there’s no reliance, no trust, no liability with inspection companies, because there’s no visibility, there’s no transparency. And all these issues can be fixed just by implementing, you know, tech implementing some better processes that I’ve seen myself when I was in China, and sort of learning more about the industry, understanding how it was built and how it was systematically built to pass your bad products. And that’s when I started working into Movley. So like with Movley, also, we’re working on like a tech platform that we’re looking to build out, which actually is going to streamline and pull data analytics on inspectors real time inspection data, we’re also trying to like splice up body camera footage, to be able to actually put it into the report. So that’s not something we do right now. But that’s something we’re working towards, that can really help increase the visibility to control and things like that of inspections. So I realized, you know, how much of an impact this can have and how many people were affected and especially as we started recruiting for initial employees, yes, sir. Please come from companies or former employees of companies that actually shut down because of similar issues that I had. And that’s when I realized, you know, this is like, this is not a small issue. This is a widespread problem that every brand has Whether they’re small business all the way down to enterprises, and it’s because of bad process fraud and bribery, and a lot of different issues when it comes to the inspection process, and that’s when I started modeling, because I really wanted to make an impact that people from going through the same issue that I went through, and having to go move to China and then have, you know, your employees get bribed by your suppliers, it was just absolutely ridiculous and very messy.
James Thomson 25:23
You’ve been an entrepreneur for much of your adult life, since you started being in business for yourself, what has changed in your perspective about taking risk and biting off bigger and bigger opportunities?
Sajag Agarwal 25:35
That’s a really good question. So I have previously been adamant about just like, okay, we can do anything, we can build anything, it’s, yeah, and actually, throughout my journey, what I’ve learned is that, you know, at the end of the day, it’s people. And that’s what it comes down to. And I think people are really interesting, because if you look at it from the perspective of people, whether it’s inspections, or there’s building a company, you can really see how a company is built. So for example, a lot of people are like, Hey, you know, I found one really good Amazon product, let me scale this to 20 other products, and I can just sell products and random different industries, and just, you know, sell the best products and make a lot of money. Yep, that could work. And it works really well, when you’re the one running it, and you’re driven by the profits. But when you have a team of people working, and you’re trying to build out multiple brands, you’re trying to build on multiple things. It’s not as transactional. And people need something to latch on to, people need something to work on, they need a holistic perspective, and they need something to build towards. And that’s what makes them run effectively. Because people that you hire and work with, they’re not going to have the same passion you have because they’re not driven by the same motivating factor, right. So when it comes to companies and entrepreneurship, to build something really big, you have to have a vehicle that encourages people to work toward something in that vehicle. So that’s actually my whole mindset in my mantra has changed very completely. So previously, when I started Amazon, I was like, Okay, I wanna sell all these different products, then I realized, you know, I can’t no matter even if I hire the best people, and bring them into the company, they’re not going to be able to work in this mindset, because they’re not motivated by money. They’re motivated by brand, they want to see their brand become big, so I can’t have them working on 20 different brands, and things like that. So looking at the things from the lens of people, that’s been my biggest change throughout my journey.
James Thomson 27:20
Let me ask you, with COVID, and the trade war, on all this delightful stuff that private label sellers have had to face in the last year and a half. What do you see as the future of manufacturing in China? Where do Amazon private label sellers? How is their interaction with China going to change?
Sajag Agarwal 27:38
Yeah, so I think it’s very similar to what we saw when China rose to manufacturing, you know, to a manufacturing power. So China started out originally as a land for the big companies, the enterprises, to build facilities, or contract out widespread manufacturing, which is simply not possible to do, unless you had really deep pockets, really deep volumes to get into that country. And now as it’s evolved as it’s grown, now, anybody can go in and manufacture in China, you know, even mom and pop shops. So I’m just kind of seeing my prediction that it’s going to be very similar to other countries, also, like India, Vietnam, Taiwan, it’s going to first be dominated by enterprises. So we’re seeing a lot of companies moving out of China for manufacturing, so they’re moving from China to India, they’re building more facilities, they’re creating more business opportunities there. And they’re able to do that, because these are really big enterprises that are moving over. So we’re gonna start seeing that happen more so in other countries, and then as those countries’ manufacturing bases develop, then it’ll start catering more towards small business sellers. So, I do think that in the future, we’re going to have a lot of more diversified manufacturing bases. But one thing nice about China, though, is they combined all the industries under one country, whereas with other countries like India, Vietnam, they specialize in different industries. Yes. Whereas in China, it’s just a different region for a different industry. Yes, it’s like multiple countries in one. So that’s one of the biggest things that I see. But I do see that there’s going to be a huge outflow of Amazon sellers of big companies, small companies like manufacturing and other countries over the next decade or so.
James Thomson 29:09
I want to wrap up by asking you a question around what are some of the up and coming brands and companies that you see that we should be paying attention to that are helping ecommerce companies private label sellers, do exciting things? Are there companies we should be keeping an eye on that many of us may not have heard of yet?
Sajag Agarwal 29:29
That’s a really good question. So I’m not too sure of any companies specifically that I want to call out that we may not know of. But one company that is really interesting in the space that you I’m sure you’ve heard of is Helium 10. So Helium 10, was actually acquired by a company called assembly just a few months ago, who had Assembly. If you look at the website, they’ve been out acquiring a lot of other companies in the e-commerce space and Helium 10 is also starting to expand operations to a lot of different areas. So I think helium 10 is on its way. Way to create some really awesome stuff for Amazon sellers. So that’s been really interesting. I’ve been actually reading more into that recently. That’s one company I pay attention to other companies I pay attention to. Not too sure. I think Teikametrics is also really interesting the way that they do things, but I’m not too particular to show up too, particularly sure on, you know, any other companies that maybe we’ve not heard of, but those are the two things that I’d pay attention to. And I think they’re fairly well known.
James Thomson 30:29
One last question, you’re in the business of basically, trying to find the cheats, trying to find the guys that are trying to shortchange your clients. How has your mentality changed? Being in the business of looking for bad guys, rather than looking for opportunities to grow a business without having to get into the interpersonal issues?
Sajag Agarwal 30:52
That’s a good question. So I don’t I don’t like to look at it from the perspective that we’re catching bad guys. I like to look at it from the perspective that we’re here to protect your customers and your brand on the ground. Okay, make sure your products are good. And that happens, whether you’re working with good suppliers, or bad suppliers, because you can work with the best suppliers, and they could have failed inspections, and then it’s more relationship, you know, hey, let’s improve this, let’s build this up. And, you know, let’s get this into a better position so we can work together more in the future. So I don’t think I wouldn’t like to criminalize or like to put a bad vibe towards manufacturing in China or anything like that. There’s a lot more good guys than there are bad guys. And when it comes down to it, it’s just really about catching those problems for your customers. And making sure that’s good because you can have that bad order on your first order. It could be your second order, it could be your 20th order. Yes, that’s just the natural flow of business, because the supplier wants to maximize their profits, you want to maximize your quality. And there’s just a little bit of a disconnect, you know, and kind of motivation is that people theory that I was talking about the factories branch where it’s more profits and lower costs, and you’re working towards better quality and brand. So it’s two different motivating driving factors. So that’s not necessarily a bad thing. But we kind of come in and we help you make sure that that’s happening, and your site is protected as you grow your brand. So that’s the way that I like to look at it.
James Thomson 32:08
Strong stuff. Sajag, I want to thank you for joining us today on the Buy Box Experts Podcast. For those of you interested in learning more about Movley, please see movley.com. Thanks again and join us again next time on the Buy Box Experts Podcast. And now to finish today’s podcast I’d like to share some final thoughts. For third party sellers to be successful on Amazon, a critical lever will be soliciting feedback from customers. We at Buy Box Experts are really big fans of the team at eComEngine and it’s tools that help Amazon sellers to simplify the process of messaging customers of Amazon orders. To learn more go to ecomengine.com. And with that, I want to thank you for listening today and I look forward to joining you next time on the Buy Box Experts Podcast.
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