Have you ever wondered how much your product costs when you bought a product that breaks in a very short time? That is because you don't actually paid for what you get. There are too much middlemen in supply chain from creating idea, producing goods, getting back to the brand, giving discount to agent & distributor and distributing them to stores for you.
Imagine if you are the brand that placed right in the middle of scheme above. You have an idea about creating a product and started to do a little research and development about your idea. Finally, after a long market research, questionnaires, prototypes (if you are lucky to be able to build one) field testing and else, you came up with a final concept and ready to be produced model. However, it will be very costly, exhausting and slow to build if you want to produce your product in small batches or even large batches. In addition, you could not find some suppliers to supply a specific materials and you could not also find a trusted manufacturing partner. That is where you need a sourcing company.
The sourcing company will be a representative of you for time being. He/she will gather information as well as factories to help you produce your products. This is where the first middleman come in your business supply chain. It also could be an alternative if you do not have a person or team that could handle supply chain and know things inside out. Nevertheless, this adds an extra cost in your supply chain. Let's say you have your goods produced and now you have all the products shipped back to your warehouse and you have buyers.
For a very short time you were okay with the number of sales and revenue and soon it depleted to where you still have stocks and there are no more customers. So, agents and distributors come to you and propose a huge discount on buying it in bulk to be distributed to other retail stores and consignment stores. This is where you add two more middlemen in your supply chain to deliver your products to your customers. Which in a nutshell, your real cost of making each of your product (which is from the factory) has gained 1,2,3 times to accommodate the discounts for delivering your products to your customers. As for your customers, the multiplier may have reached to 12 times from the real cost of making it.