EP #344] [ENG] - How AI is changing the game when it comes to sourcing - Ricky Ho

EP #344] [ENG] - How AI is changing the game when it comes to sourcing - Ricky Ho Unknown Speaker: Welcome to The Ecommerce Lab By Ecomcy. This is the place for everything related to Amazon private label and e-commerce. Learn exactly what you need to start or scale your business. Get insights from the top industry experts who will discuss the latest trends and best practices in the world of Amazon. From choosing products and sourcing from a supplier to setting up your Amazon account and marketing your business, you will hear it here. Let's get started. Here is your host, Vincenzo Toscano. Speaker 2: Hello guys. Welcome to another episode of The Ecommerce Lab By Ecomcy, the place to edit related to Amazon FBA, Private Label and Ecommerce. My name is Vincenzo Toscano, founder and CEO of Ecomcy and today we're bringing our special guest. His name is Ricky Ho and he's the founder I'm CEO of SourceReady, which I would say is one of the top solutions out there right now when it comes to really supporting your journey into sourcing. We're seeing how AI has been very disrupting in general across ecommerce and sourcing is one of those pillars as well. And today with Ricky, we're just going to be discussing things around, you know, what is happening in the sourcing space, how things are moving globally, specifically with China after Tariff, for example, and then also exploring how AI can also help you navigate the whole panorama to make sure you find the right suppliers and also learn how to really bring to the market a product that is different and you can disrupt your specific niche. So Ricky, welcome to the show. How are you doing? Speaker 1: I'm doing well. Speaker 2: Thank you, Vincenzo. Speaker 1: Really great to be on the show. And it's great to meet everyone. Speaker 2: Thank you. And so I guess before we dive into the topic, just give us, you know, a brief intro about yourself so we know who you are and then we can get started. Yeah. Awesome. Speaker 1: Yeah, so I've been kind of working in the supply chain industry ever since I was a kid. My family were also a manufacturer. We have factories in Vietnam and China. So, you know, growing up, I've kind of seen both sides of how a factory thinks and how a retailer thinks. And then I ended up studying industrial engineering at UC Berkeley. I dropped out my second year to start my first company. Which is also a supply chain ERP company. We help major retailers in the U.S. basically digitize their supply chain with the factories in China. You can think about traditionally a lot of these ERP systems like SAP, Oracle, or even these systems, these SaaS systems that people use are very much internal facing. But supply chain fundamentally is very collaborative. So my first company called TreeLab, we basically created a collaborative system where a retailer can onboard all of their suppliers And we're here to help you grow and collaborate on the platform. We raised over 22 million from Sequoia, Tencent, GGV, all the top VCs. I sold my company last year and then started a new venture called SourceReady last year. And SourceReady, kind of what our vision is, we want to create the AI alternative to Alibaba. I'm sure everyone knows Alibaba, right? If today you want to start an Amazon store, a lot of times the first thing you go to is go to Alibaba, try to look for products, try to look for suppliers. But anyone that's ever used Alibaba, I'm sure you guys have the experience. It's not that easy to use. A lot of the factories there are very low quality and they're actually not even factories. A lot of times you're talking to a trading company, disguising themselves as a factory. And with everything happening right now with US and China, I'm sure everyone is very worried about sourcing everything from one place. So our goal at SourceReady is basically create the world's most comprehensive supplier database, right? We aggregate data from customs data, from crawling Alibaba, from getting data from governments. And then ultimately, create the world's most comprehensive supplier database. And then using this data, we then help you match you with the best supplier for the particular product you want to make. We calculate tariffs for you. We help you reach out to the supplier. And ultimately, I think sourcing today is just, it's not changed for 20 years. Alibaba has been around since 2002. And it's like a, it's like a supplier directory, right? Like anyone that's used it, you can, you can tell it's not the most user-friendly kind of process. And yeah, and I think AI is at the perfect timing where this problem can actually be solved to a large extent with AI. Speaker 2: Awesome, awesome. I think, I mean, I'm very actually excited to have this conversation because, as I mentioned, AI is something that every single time I have conversations with people, it's in everybody's mouth. So I'm sure you're going to have a lot of insights that you can share with us today. But you mentioned something there that I would like to use as a starting point to this conversation, which is, you know, in the whole kind of sourcing landscape is being kind of affected significantly this year. There's been a lot of movement combining things with the tariffs, AI, And many other things, of course, are shifting the game in terms of even people looking now to source outside of China, for example. So tell us, given that you work with so many manufacturers and so many people are sourcing overseas, what are you seeing that's happening and what do you think people should be aware of? Speaker 1: Yeah, that's a good question. So I think obviously the Trump tariffs is what's bringing this attention to everyone. But the China plus one kind of strategy has been around since 2018, right? People have been talking about not sourcing out of China from a long time. But the challenge, it's very challenging to actually source outside of China. Um, especially for small e-commerce brands, because China is just this behemoth manufacturing country. It can make everything. The MOQ is low. The suppliers are also quite good. Oftentimes they can basically make everything from just an image you send them. Whereas if you go to a country like Vietnam or you go to Cambodia or Mexico, a lot of these factories don't have the ability like these Chinese factories and the MOQ is obviously much higher. So if you don't have the volume, you can't go there also. So I think there's all, People have always wanted to leave China, but the challenge has been, it's been very difficult for especially small businesses to do so. So that's number one. And then I think number two is also from a data perspective. So I think Alibaba has done a great service to China, right? It's put a lot of these factories on the radar for these Western retailers and brands. But let's look at a country like Vietnam, which has great factories, But I will tell you that the majority of factories in Vietnam, you can't find them online. There is no Alibaba of Vietnam. So a lot of times, even if you want to find a factory in Vietnam, how would you find it? You just don't have information to look for it. I do think that kind of as the industry is moving forward, especially with COVID-19 and these tariffs, I think this shift away from China is going to be a very, very important sourcing strategy for every retailer and brand. And diversification, I mean, it depends on the category, right? It doesn't mean you go to Vietnam, like you might go to Mexico, you might go to Brazil, you might go to some other country. But I think this shift is important. Speaker 2: Awesome, awesome. And now when it comes to, I mean, I will say you mentioned MLQs and I think that's something we're seeing also internally. We're seeing that now, essentially the barrier of entry is higher because I feel like with everything going on, you know, with the tariffs and also the fact that a lot of these, a lot of the small suppliers that would work with smaller sellers also went out of business when all this happened. So now only the big suppliers are left and they're only used to working with kind of big sellers. By seeing that, do you also feel like, especially for those getting started sourcing, would you say without the usage of things such as AI is getting more difficult? Do you feel it's getting like there's a bigger gap? Are you also experiencing that with your clients? Speaker 1: Yeah, 100%. I think it is getting more difficult. The bar is higher on both ends. I do feel like it's oftentimes a probability game. What I mean by that is if you talk to 20 suppliers, you know, some suppliers you might like but they might not want to work with you or their MOQs don't meet your requirement. It's kind of like finding a needle in the haystack, right? You have five requirements that you have on your end. The factory, on their mind, also has a list of requirements they want from the buyer and retailer. And it's just like, you've got to find the right match. And today, this matchmaking process is very inefficient, right? Like going to Alibaba, every factory looks the same. It's very hard to tell which factories actually meet your requirement. It's very hard to tell which factories actually want to work with you. And I think this is why AI is in the perfect timing because AI can basically reach out to 200 suppliers for you. It can talk to every factory without you spending the time and then find you that best match. So I think that's one opportunity. And then I think the second thing I often like to tell a lot of small businesses is that A lot of times people are too transactional. So when you talk to a factory and just send them an image and say, Hey, can you make this? And then if you, if you speak in a transactional way, the factory is also going to treat you transactionally, right? If you're, but what I think is important is a lot of these established factories, contrary to popular belief, people think that, Oh, you know, they're not going to work with small sellers and you know, they only work with big brands. That's not true. Um, for, I'll give you an example. My family business were a supplier for Calvin Klein, Tommy Hoviger. We do over 200 million a year. You know, in most cases, you would think that, oh, we would never work with small businesses. But that's not true. We've worked with startup brands that literally just started working 200 pieces, 500 pieces. And the reason why we're willing to do so is because basically, we're investing in that brand, that brand, they did a pitch to us, they told us how they're going to be different, what their marketing strategy is. And they built a relationship. So I think for a lot of ecom owners, you want to think about actually sometimes approaching these more established suppliers from a perspective of building a relationship and actually selling your brand instead of just sending them an image and just treating them like a factory and say, hey, can you make this? Then, of course, they're not going to be interested. So I think for a lot of these large factories, their challenge right now is that All of their orders are also overly concentrated on just a few brands. So if this brand goes out of business, their capacity is also going to be the issue. So they want to diversify as well. And they want to find the next big brand, right? They want to find a brand that is just starting now, but in three years, it's going to do over, you know, 20 million in business or 30 million business. But how do you convince the factory that you're going to be that company that will be doing 15 million and 20 million? And I think that's the part where you kind of have to sell yourself a little. And I think that's really important when you're doing sourcing. Speaker 2: Yeah, I think you mentioned there's something which happens a lot. I think that's a big mistake, especially for people getting started. They try to, you know, focus on volume and they start sending the same kind of copy-paste, very generic question, kind of images to a bunch of suppliers. And I think that has also created a kind of burnout on suppliers. I feel like even when I go to China, I speak to suppliers and they feel like the space is being invaded from People that only want to do a side hustle or want to make an extra hundred bucks per month and they know these people that's not going to be serious when it comes to manufacturing. I guess like really creating your unique kind of approach in terms of showing them that this is going to be a real business is definitely going to help you significantly close the deal. Now, you mentioned Vietnam and I also want to bring quickly this to the table because I'm a huge believer that especially with what is happening with China, people have to start diversifying when it comes to sources. Vietnam is growing significantly. Indonesia is one of them as well. We have India as well. We have Poland. We have, you know, many areas that manufacturing started to boom because, you know, people are starting to look outside of China, given that China to some extent is also not as attractive anymore. So what is your take on that? Should people also be focusing on that as an option or not? Speaker 1: I think the China plus one term, it makes the most sense to me. So what I mean by that is China is still very strong in a lot of categories. They have very consistent quality. Most suppliers are very well, you know, they can speak English. They're very well educated. They understand the process. But I think as you get enough volume, I think what happens is My advice would be actually trying to look for suppliers with multiple COs or multiple country of origin. So if you look at Vietnam, 80% of all manufacturers in Vietnam are foreignly owned, which means that these are Chinese factories going to Vietnam opening up a new facility. These are Taiwanese, Japanese factories opening up as well. So a lot of times what a lot of retailers do is they'll work with a factory in China And just make sure that this factory in China either currently has an additional factory in Cambodia or Vietnam or in the future has it planned. Because the benefit of doing so is that you don't need to be talking to four different factories. You can have one line of contact but get the benefit of the diversification. And this is exactly what big brands do. If you look at a Ralph Lauren, a Calvin Klein, a Tommy Hilfiger, a Lululemon, they'll work with large vendors with multiple factories. They'll have factories in Vietnam, Cambodia, and China. So when I'm doing a product development, let's say I send them this style and I say, I want to make a polyester shirt, 3,000 pieces. The factory will say, OK, for this kind of product, I think it makes more sense to make in Vietnam from a tariff perspective, from a capability perspective. But for this other thing you gave me, I think China is better. Let the factory do the work for you of deciding where it makes the most sense because they're in the trenches every day. They know what regions have the pros and cons, has the best pricing, etc. Obviously, if you can't find this multiple country of origin kind of vendor, then you can obviously go look for it yourself. And that's fine as well. But I think that's just another kind of half that you could do where it's like, you can still look to that Chinese factory, but when you look for them, make sure they have multiple CEOs. Speaker 2: Yeah, I think the other day, this is something that not only is going to help you navigate the whole task, but I feel even from my experience, you could even reduce your cost of goods because I think sometimes being fixed in China so much because that's what we got used to. We forget that some other countries, depending on the raw material, you could be even more efficient with your cards and that's a direct impact on your P&L, right? Speaker 1: It's 100% and also the timing perspective. Like if you need it faster, like if you source in Mexico and you're selling in the US, you know, shipping will take three days instead of 14 days on a ship. Speaker 2: Yeah, yeah. Now, I think with all this, because I know that there's so many moving parts here. There's the moving part of finding the right manufacturer, because at the end of the day, it takes time to create a pitch, an appropriate pitch, as we mentioned. The second thing is the location. The third thing is making sure that they can, in the first place, manufacture something that is unique. So, which brings me to AI, because I think trying to do all this in-house or trying to do this by yourself, it takes a lot of time. It takes a significant amount of workload. That's why most people end up settling with the first response they get on Alibaba. They get like a cost of goods that most of the time is 3x what they should be paying and their business fail and then that's essentially what ends up happening. So what is your take on AI? Like what are some of the things you're seeing people using AI to fast track their operations when it comes to sourcing? Speaker 1: Yeah, I think the first thing is obviously search. So what I mean by search is Alibaba's search logic is much like a directory, right? I search for some keywords. They show me the top five factories. Those factories are typically the ones that pay the most money to Alibaba to rank on the first page. And that's why it's such an inefficient process. In AI, the way it works is I can just describe, I want suppliers that can make yoga pants that work with high quality brands like Lululemon. Like you can describe a long chain of requirements you have. AI will look at tens of thousands of suppliers. We look at each supplier to see if they match against your requirement and then build you the top 50 suppliers that match your requirements. Once you build that into a list, then you can create a tailored outreach message and then have AI reach out to each supplier, gauging their interests, and then qualifying those suppliers. This entire process would take hundreds of hours, if not more, if you did not have any tool to do so. And the most difficult thing I would say is that a lot of these good factors you can't even find. There's just no information online about these suppliers. And I think in the age of AI, at least what we're trying to do is basically aggregate data that traditionally would be hard to find. So we buy data from trade shows. So if some factory attended some trade show four years ago, we'll have their data. We get data from customs. So if a factory ships to a brand that you know, we'll also have their data. So I think that's partly what AI is really good at. It's about aggregating this big data And then doing customization, right? So I can describe a requirement, have AI do all the searching and qualifying so that I only have to spend time on the strategic parts. And I would say this is what a lot of sourcing agencies do. So a lot of brands today, they work with middlemen, right? Agents. Agents will either make money from pricing you the difference or they'll charge like a 5% or 10% commission. I think that model, I'm not saying that all agents will die, but I think in the age of AI, a lot of agents are unnecessary, especially if your volume is low. If you're making like 500 pieces, you don't need an agent. You should just look for yourself. Speaker 2: I think the agents that are going to survive are just agents that have very, very exclusive connections. Even AI cannot get you. It cannot open the door. But other than that, yeah, it's going to become a commodity. Speaker 1: Yes. And I can tell you right now, like a lot of our customers are actually sourcing agencies using our tool to automate their work. Right. So if you get the tool yourself, like you can actually in many, many ways just kind of cut out the agent in the middle. Speaker 2: Cool. Now, when it comes to this, at the same time, it creates the question, which is, if everybody started using AI, and if I start becoming so efficient or finding the best kind of suppliers, I know that there is going to be also a matter of who is the best one at prompting and who is the best one at actually engaging with these AI models, right? Because otherwise, everybody's going to end up with the same results. So how you're seeing that also shaping the efficiency in terms of what AI can bring to your business? Speaker 1: Yeah, I think just like how, you know, different people use ChatGPT, I think AI is not going to replace the human part. Like you still need to be very clear about your requirements, your differentiation, what you want. AI is only helping you automate and accelerate what your existing strategy is. So I think that is something that's very important. It's being very clear about your requirements. I think what I see a lot of times people do is like, they're very generic. They'll be like, help me find a t-shirt supplier that can make 50 pieces. Like, that's not enough information. There's going to be thousands of factories that can make that, right? You should be more specific and say, okay, I want, what kind of material do you want? What kind of customers do you want the supplier to have worked with? What are your priorities in terms of like, do you have sustainability requirements? Do you have, you know, do you want the supplier to be able to do, you know, ODM, for example? So being very, very specific upfront about what your requirements are, I think will make this entire process much better than talking to the wrong factory, wasting 20 hours doing back and forth communication and realizing 10 hours later that this is not the right factory. So that I think is what's going to be needed in the age of AI, being very clear about your requirements. And then second is I think AI is never going to replace the human intuition part and the relationship building part. So just because you have an AI tool doesn't mean that you don't need to foster a relationship with the supplier. You don't need to, you know, you should still jump on a call or even visit the factory in person. I think the only thing that changes is that it allows you to find that right supplier faster. And then from there, you can kind of build a relationship from there. Speaker 2: Yeah, yeah. And time is money. We know that. Speaker 1: Exactly. Speaker 2: And now something I would like to bring here is, of course, a lot of the AI, especially in the sourcing world, has to do with finding the right manufacturer and filtering down here and there. But I feel a lot of the conversation sometimes is not also shifted into how this can help you also Let's personalize and fully find a solution into a niche that has never thought before in terms of, oh, maybe let's explore more material or let's put a different shape, let's put a different presentation. Like how you're, so for example, using that usage impacting the way some of your brands are sourcing as well. Speaker 1: Yeah, I think product research is definitely a very, very important process. Understanding what are the trends in the market. And there's two ways to look at trend. There's one way of just looking at your competitors. What are they sourcing? What products are selling well for them? So, for example, our tool, we actually help you scrape your competitors' products and find out what products of theirs are selling well and have good reviews. And then you can basically extract their product specs. Like maybe they have a product that has this particular fabric that sells very, very well, right? Maybe that's inspiration for you to say, hey, we should develop something similar. The first source of inspiration is actually from suppliers. So a lot of suppliers, they work with your competitors and other brands as well. And you can actually ask them to recommend what things they see are actually innovative or unique that are doing well in the market, right? And this is one way to kind of be ahead of the curve. Because if you look at what is already selling well, that could be something that's already, that's like two months ago, three months ago. If you do it now, it could already be too late. You're already past the trend. So if you want to stay ahead of the trend, I would say that one hack that you can do is just work with suppliers that work with a myriad of brands and see what are they pushing to their customers and ask them to say, hey, can you recommend me some popular fabrics or popular materials or popular styles? And that could be inspiration for you to kind of jumpstart other products. So that's one thing. I would say another thing that AI can really help with is actually just asking AI to make a lot of new suggestions and trends. Because AI is this thing where, as a human, a lot of times you make the final call, but AI can give you a hundred ideas. Going from the 100 ideas to that last five, I think it's something that as a human, it would be very hard for you to brainstorm that many combinations of things, right? So I think using AI to generate new product concepts could be something that also, you know, a lot of brands and retailers leverage. Speaker 2: Cool. Now, I guess another thing when it comes to AI, and maybe this could also be connected to some extent to sourcing. I feel that with everything happening, and I'm going to pinpoint specifically USA because I know you are in the USA, like I feel sometimes a lot of people also ask themselves or even try to even do some sourcing locally, like for example, even within the United States. So if you're in Europe within a specific country, because I think, especially with AI, it should be much easier now to find some of these suppliers. And you can navigate a very difficult kind of friction, which usually has to do with the finances of sourcing locally. So what is your thought on that as well? 100%. Speaker 1: So actually, I spoke with a couple of sellers, and they were telling me, like, they wanted to source in the USA. But they said, even though they're in the US, it's harder to find a supplier in the US than it is in China. And yeah, like, I think for us, like, we're trying to make that information more available. And I would say that it depends on the category and product, honestly. Like, for example, US is very strong in, let's say you want to make supplements, you want to make like, you know, dietary supplements, and this is very strict regulation, because it goes in your mouth, right? You need FDA approval. And there's a lot of good, you know, factories in the U.S. that can make supplements at scale in the U.S. domestically. I would say even from a pricing perspective, it's not going to be crazy much. It's not going to be much higher than China because it's a very automated kind of production. It's not like clothing where you have sewing workers like supplements. Chemical components going in, right? So it's like really the sourcing strategy very much depends on the type of product you're sourcing, you know, what are your timeline requirements, what are your pricing requirements, but you also have to understand like there's a few branding thing to sourcing in non-Chinese regions, right? Like saying your product is made in USA actually allows you to price higher, more premiumly, do better marketing. Same as Europe, right? If you, let's say you were doing a perfume brand, saying your perfume is made in France, made in Italy, It's a completely different premium positioning than if you were to say the same thing is made in China. So there's also a benefit of not just from a proximity perspective, but depending on the type of product you're selling, the country of origin actually changes the branding of your product. And one hack you can do is like, You don't have to make 100% of the product in that region. So even the luxury brands like Hermes and LV, you know, they still have many parts made in China. But so long as a large proponent of the final assembly still happens in Europe, you can still brand it as made in China. You know, Italy and France. So that's one thing you can do where it's like you can source a lot of the parts still in these cheaper countries and then just do some assembly in these smaller workshops in these, you know, Europe or U.S. and then in the end slap on a made in U.S. or made in Italy and that will allow you to be a more premium position kind of differentiated product in the market. Speaker 2: And that's something that AI will definitely help you because imagine having you to figure out five, seven countries that intertwine between each other now. With AI you say, source the materials from all these countries and create a blueprint, which is something that. Speaker 1: Exactly. Speaker 2: Cool. So I guess to start concluding, Ricky, what are advice or maybe things you want to share out of your solution? Because I know your solution is all about that, you know, it's all about using AI to really empower entrepreneurs to really facilitate the whole sourcing journey. Is there anything else you want to share with us so we can come to a closure? Speaker 1: Yeah, you know, I've been in the industry for a long time and part of the reason why I made the tool free to sign up and use is because I really do believe that this is something that will change the entire industry. I think Alibaba has been around for so long and has not changed in 20 years and everyone I talk to that uses Alibaba complain about it, right? Speaker 2: It's the same screen, the same dashboard, the same everything. Speaker 1: For 20 years. And I'll tell you the reason. It's because Alibaba makes 90% of the revenue from suppliers. You are not their customer. The factories pay a lot of money to rank on those websites. So I would say like my advice is try it out. Really leverage AI. I would say that any seller that does not leverage AI is going to fall behind because, you know, basically the company that uses AI is going to be able to have an advantage, a competitive advantage to the seller that doesn't because they're able to find the factory that you can't find. They're able to get a more competitive quote because they got more quotations and had better negotiation than if you were to do it manually. And yeah, I really think that AI is going to change the entire industry. Speaker 2: Awesome. So Ricky, it's been a pleasure and I'm going to leave your information down below because I'm sure people are going to find it super insightful to, you know, play with the tool. And if people want to reach out directly to you, how can I find you in case they want to ask more questions about the tool or sourcing or any insights there? Speaker 1: Yeah, I can have my Catlin Lee link sent. If anyone wants to book a meeting with me, they can do that. Speaker 2: Awesome. Unknown Speaker: I'm going to put it in the chat. Speaker 2: Awesome, Ricky. So other than that, it's been a pleasure. Thank you so much for your insights and I'm really looking forward to keep playing with the tool. You know, we in-house at Ecomcy do a lot of sourcing as well, so I'm sure we can reduce a lot of hours. Speaker 1: Awesome. All right. Thank you so much, Vincenzo. Speaker 2: It's been a pleasure. Thank you. Have a good one. Speaker 1: Thank you. Unknown Speaker: Thanks for listening to The Ecommerce Lab By Ecomcy. Be sure to subscribe so you don't miss an episode. While you are at it, we would appreciate it if you could leave an honest rating and review on Apple Podcasts, Spotify, or wherever you listen. That will make it easier for others to find out about the show and benefit from it. Want more? 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