Sourcing is the most difficult challenge in recommerce, and it’s only likely to get tougher to get quality used devices to refurbish. Most recommerce or refurbishment companies cannot rely on in-house buyback and trade-in programs if the eventual goal is a scalable business (unless you’re Apple or Amazon).
So you’ll have to rely on wholesale suppliers. Easier said than done. You have to identify used device vendors, vet them, trial them, and track them to ensure consistent supply and quality.
The scarcity in available devices has resulted in a seller's market. There's way more demand than supply, and you're more than likely to be outbidding competitors than choosing the vendors you like. Even more reason to optimize profits from the devices you do source.
The sourcing pipeline should complement your sales pipeline. Buying batches of devices costs a lot of money upfront, strangling your cash flow. Any delay in converting this investment into sales is additional pressure on the company’s finances.
It’s important to streamline buying, so that you can move devices through the process faster. With this in mind, here are a few recurring problems to watch for when sourcing used devices.
Trial Order is Great, Quality Falls Over Time
It’s not unreasonable to ask for a trial order from used devices wholesalers. But this is clearly part of their sales pitch. This batch is more than likely to meet requirements.
Watch out for the bait and switch though, especially if they push you into a longer-term contract. You’ve got to be on top of your reporting to realize if there’s a drop in standards.
Are you seeing more returns from a supplier? Are more devices failing diagnostics tests? Is there a frequent mismatch in grading standards — some good batches and some really bad ones?
Random quality assessments can work, but there’s nothing to beat complete and accurate reports per supplier and per batch. The data gives you great leverage every time you walk into a procurement meeting.
Difficulty Meeting Quantities
The only reason you’re using wholesale vendors is because you need large batches of devices. You lose this benefit if only a percentage of what you procure is usable or if available quantities fluctuate.
This was most evident during the COVID lockdown days and the logistics nightmare that followed.
But there’s still a visible supply crisis for refurbishers of consumer devices like smartphones and laptops. Suppliers give favorable offers but then struggle with the purchase orders.
There’s no easy solution. Diversify your vendor pool and find a variety of wholesalers. This includes businesses that are wholesale traders of used devices, but also companies that work with liquidation and return stock from companies like Amazon, OEMs like Apple, or retailers like BestBuy.
Plus, check where they get their stock. You can diversify on where in the world your stock comes from as well.
Volatile Pricing
The bait and switch applies here as well. You forecast revenues, profits, and business expansion based on cost.
Your suppliers can quickly add layers of margins and add to cost in a volatile market like the secondary device market.
Having a diversified pool of suppliers helps in this regard, so that you’re not reliant on a small group. It can be difficult to negotiate and work with multiple large suppliers, but it could pay off in the long run.
Try to find companies that work directly with OEMs and major retailers.
Of course, keep track of cost, earnings, and returns for each vendor and each batch of devices. You’ll be more equipped to renegotiate hidden costs.
Lack of Standardization
Lack of standardization occurs on two fronts — device grading and data compliance.
Data compliance is the easier of the two to solve. Refurb businesses have to legally ensure that devices are cleaned of any personal data. There are specialty software like Blancco and PhoneCheck that do this.
While your suppliers are responsible for data compliance, their failures might impact you as well.
A breach of GDPR (General Data Protection Regulation) in the EU, for instance, can result in a fine of either 4% of your turnover or €20 million. This doesn’t cover the impact it could have on your brand and how customers perceive your business.
Grading, on the other hand, is an industry issue. There isn’t one definition for the most commonly used grades in the used devices industry. Grades usually range from A, the best, to D. Others might have more levels of grading or less.
A loosely related issue is the use of counterfeit parts. It’s counterfeit only if your supplier claims it’s a manufacturer-original when it’s not. Otherwise, use of quality third-party suppliers makes it easier to repair or refurbish a device.
What You Should Implement as Part of Your Sourcing Process
It’s not just multi-billion dollar companies that need a well defined sourcing strategy. Buying and selling used devices is a cash-intensive business that relies heavily on a smooth process from sourcing to sales. There’s very little room for error — a few missed deliveries or substantial drop in quality will impact liquidity, leaving limited time and capital to source replacements.
Sales Needs & Forecasting
Create a list of potential suppliers and their capabilities: Always expand your pool of suppliers, even if it means buying a few test batches. Plus, it’s an opportunity to diversify your logistics chain — there’s risk involved in having a supplier pool that’s only based in one zip code or only selling iPhones.
Understand Grading Standards
Each supplier or vendor has a self-defined grading system. There might be an overlap with your process, but there is no set industry standard. So understanding your supplier’s grading practice is among the first steps when you’re dealing with a new vendor.
Comparing your system to theirs is one way to get an initial forecast on sales and profit. This puts you in a better position to negotiate.
Assess Pricing & Quality of Each Supplier
This is a long-term strategy. You get better results the longer you track quality and profit for each individual supplier. Comparisons and averages equip you with the information you need to realistically assess the pricing to quality benefit for each supplier.
Plus, your forecasts and financial models improve as you gather more data on suppliers in general. This in turn helps you get better pricing from the get-go.
The benefits might not seem obvious initially.
Imagine if you could estimate the percentage of phones with non-OEM (Original Equipment Manufacturer) parts if they’re sourced from a particular market. Or the probability of phones that have a “Carrier Lock” and so need to be returned.
How about the profits you’re likely to earn from bidding for Amazon or BestBuy return pallets? This is an especially risky strategy, but one with the potential for significant profit.
In the real world, not all devices that are "sourced from Amazon" are directly sourced. There's a probability that there are one or more vendors between you and a major retailer or manufacturer. One good indicator is the price a vendor can offer and the quantities they can meet. Having direct access to the likes of Apple, Samsung, Amazon, or BestBuy gives vendors the ability to earn enough margin without having to price stock too high. And they usually have the biggest batches for sale.
Finally, and the most important thing to remember, have your quality needs presented during the procurement process. It might not always be possible to enforce, but it can be the basis for RMA (Return Merchandise Authorization) and refunds.
Set Timeline for Completing Sourcing Process
Delays cost recommerce businesses just as much as any retail business. Imagine waiting for stock weeks or months after you’ve paid an advance (or more) on it. Any sales forecasts you have developed will have to be reworked.
Have a framework for how you expect the sourcing process to be completed. Set milestones and deadlines, and incentivize payments for meeting deadlines.
Own Your Data, Sourcing to Sales
You’ll have to rely on your vendor’s data if you don’t track and own it yourself, which comes with significant risk of bias and questions of accuracy. Using a software tool that enables you to track and own sales data and how each supplier contributes to your bottomline, is paramount to running a profitable refurb operation in today’s world.
It might seem complicated when you talk about data analytics. Only if you’re not using the right tool. A dashboard that’s custom-built for refurb business and recommerce will have these capabilities built in.
And, as domain experts, this data will enable you to predict trends and make corrective actions to stay ahead of the market. There’s no better way to reduce costs and increase profits than knowing what contributes the most to your business.
Don’t Ignore Risks, Have a Contingency Plan
There is no perfect business plan. You have to be prepared for worst case scenarios. Say, a major supplier goes out of business. Your account with a large ecommerce platform is banned. How fast can you react?
Unless you’re prepared with a plan, you’ll pay in lost time and profits. Have a plan. Research alternatives for all key business partners. How fast can you onboard a new supplier (without ignoring your process)? How fast can you scale new sales channels?
Where You Buy Used Devices Wholesale
Online Marketplaces: Marketplaces such as WeSellCellular, SecondLife Phone, and Phoenix Cellular are probably the easiest way to get started if you’re relatively new to the market.
There’s usually built-in mechanisms that offer buyer protection, you can evaluate sellers based on reviews, and open discussions with multiple vendors at the same time. It’s also probably more expensive than dealing directly with a company.
Online Wholesale Suppliers: This is pretty easy to do, but is also the riskiest. Google for it, trawl Facebook groups, track LinkedIn company pages. You never know what you’re going to find though, so tread carefully. However, you have to start somewhere.
Plus, identifying a handful of reliable vendors can result in more recognition for your business, and soon you’ll have suppliers reaching out to you.
Trade-In Programs & Refurbishing Companies: This is not scalable long-term. But you can consider partnering with retail businesses to bolster your inventory.
Auctions: Auctions are a way to buy “surplus inventory” from OEMs and retailers, including returned or overstocked phones and laptops. These auctions are value for money, but there’s also higher chances of finding devices that need a lot more work to sell. You can use platforms like BStock and Foxway to learn more about how it works.
Lack of Software Support
Much of what you need to do to reduce risk and improve quality of sourcing is based on great reporting. You can build these reports, though doing it manually often takes frustratingly long and is less reliable than automating it.
Unfortunately, refurb businesses and the recommerce sector in general, suffer from the lack of purpose-built software.
Our experience has shown that refurb or recommerce businesses have a few common software challenges:
- Lack of reporting on margins, turnaround times, etc — making it difficult to track profitability in real time
- Identifying devices that disappear during the refurb process
- Measuring technician performance and identifying bottlenecks in the workflow
This is a problem we’re solving at Fixably. Fixably Refurb is a plug-and-play software solution that will enable refurb businesses to streamline performance, improve process efficiency, and get visibility of the sales pipeline.
