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Our Value For Your Business: The Real Cases
Take my company as a practical example: when I started my business in 2015, the company’s main business was “International Trade Purchasing Agency”. Search, business negotiation, order follow-up and other affairs, the main profit comes from the purchase service fee paid by customers.
You may wonder, isn’t it said that in the Internet age, information is very smooth, and overseas customers can easily find Chinese suppliers, and Chinese suppliers can also easily find overseas customers? Why do such companies still exist? Even some candidates who come to the company for interviews will say frankly: the demise of information asymmetry is gradually squeezing the living space of trade middlemen, why are you still alive?
Why can customers accept the purchasing agent as a middleman? To answer this question, let me share with you a real case. We have a big customer who has been buying products in the local market before, but due to cost reasons, he started to do business with factories in China.
When he communicated with the Chinese factory at the beginning, he was out of various concerns (such as worrying that after the supplier knew who he was and what his channel was, he would skip him and communicate directly with offline customers), so He refused to say anything about the information about his company, and kept pretending to be a small customer with no money. And because the Chinese factory didn’t know much about him, they really thought that he was a small customer who “just do it and leave”, so naturally they didn’t care much about him, so the service came as sloppy as possible. Then, problems start happening:
1. The factory told the customer that China is about to have the Spring Festival holiday, and the delivery time will be delayed. Since the client had never dealt with Chinese people before, he thought that our Spring Festival holiday was only a 7-day event, and it was no big deal. As a result, the delivery period of this batch of goods was pushed to one month. At this time, the customer began to have a knot in his heart, and began to have a feeling of distrust towards the factory, thinking that the other party was looking for excuses to deceive him. How could any holiday affect the one-month delivery date?
2. The factory told the customer that due to the rising cost of raw materials, the price needs to increase by 25% from the next order. At this time, the customer was completely blown up, thinking that this supplier was too unreliable and had to be replaced immediately.
At this time, we just got in touch with the client. The client wanted to test our strength with this case, so he said: Please help me find another supplier.
Ladies and gentlemen, if you encountered such a situation, what do you think the purchasing agent who cooperates with you should do?
I believe that most people’s approach is to find another supplier directly according to the customer’s requirements. After all, in China, how difficult can it be to find another supplier?
But in fact, does the customer really need a new supplier? Can changing a supplier really solve his problem?
Instead of going directly to find a new supplier as directed by our client, we:
1. First do a detailed market and supplier survey to determine whether the increase in raw materials is true and what is the average price increase in the industry. Finally got the news that the cost of raw materials has indeed risen, but the increase is only 10%.
2. Contacted the supplier of the customer, and had a nearly 60-minute telephone conversation with the other party’s boss to understand the whole process of the other party’s cooperation with the customer, and why the cost of raw materials increased by 25% when the cost of raw materials increased by 10%.
After the communication, the result was surprising.
In fact, this factory is not the junk company that the customer imagined at all. The annual sales volume of the other party is about 70 million RMB, and it has made a lot of orders from similar channels as the customer. The business attributes are actually quite compatible with the customer. The reason why there were so many problems before is that the boss of the factory thinks that the customer is a customer who makes an order and runs away, and he has no shortage of such customers at all, so the service is naturally sloppy, and the price needs to be raised. Naturally, the higher the increase, the better, thinking that even if the customer can’t accept it, there is no loss if they run away.
After understanding these situations, we understand that although suppliers have problems, customers may not have problems. Although the matter of changing suppliers is beneficial to us, it may not be beneficial to customers, because such powerful and matching suppliers are actually rare in the market. After much deliberation, we decided to go on a business trip to meet the supplier to see if we could solve the problem between the customer and the supplier after face-to-face communication.
The result was very ideal. When we reversed the perception of the factory owner and let the other party know that the customer is not a small customer, but a company whose size and matching degree are very suitable for him, everything that followed was very smooth. smoothly. In the end, the factory only increased the customer’s cost by 10% according to the industry’s average cost increase. In addition to directly saving the customer by 15%, we also helped him retain a high-quality supplier.
After talking about this case, let’s answer the questions left before:
1. Why are we still alive as a purchasing agent? Because B2B and B2C are different, you can buy a product with a price of 100 RMB in B2C for 100 RMB. However, in the B2B field, a product with a price tag of 100 RMB will cause a lot of transaction costs due to various factors. You may have to spend 150 RMB to buy this 100 RMB product. And our existence is to allow you to buy things at a price as close to 100 RMB as possible.
2. Why are our commission charges high? The reason is simple. First, we have created higher value for you; second, the value we have created for you is quantifiable, just like in the above case, we saved 15% for our customers. Once the customer settles the accounts, he will naturally know how much he paid us is still worthwhile.
So in fact, after our company has gone through the initial difficult procurement agency stage, what we have been working on is to create value for customers in the field of “total supply chain cost”. The more we can help the other party reduce the total supply chain cost The more, the greater the value to customers, and the higher the price customers are willing to pay us.
What is the total cost of the supply chain?
First, please think about a question: What does the word “cost” mean to you?
Many times we always think that the product price is the cost, but it is not. For real customers, the real cost must include:
1. Purchase cost, that is, the price of the product.
2. Chain cost, that is, the cost incurred when the product flows on the chain, such as logistics cost.
3. Transaction cost, that is, the cost you need to pay to facilitate this transaction.
From the perspective of creating value for customers, what we have to do is nothing more than:
1. Reduce the purchase cost of customers.
As a purchasing agent, whenever a supplier had a price problem in the past, we always relied on negotiation to solve the problem, such as using various rhetoric and techniques to get the supplier to give us a profit.
But later we discovered that negotiation can only solve 10% of the cost problem at most, the other 20% of the cost problem comes from the process, and 70% of the cost problem is actually doomed during product design. For example, if we need to go to a certain destination, no matter how discounted the price of air tickets is, it is impossible to be cheaper than taking a bus, because the cost of the plane is put there.
So when we need to work hard in the field of reducing procurement costs, we must pass VA (Value Analysis, Value Analysis), VE (Value Engineering, Value Engineering), optimize the process and the most important “sub-supplier management” means to solve it.
What is a so-called sub-supplier? For example, when we go to McDonald’s for consumption, McDonald’s is our first-tier supplier, and Coke is our second-tier supplier.
In the real business world, due to the limitation of resources and energy, we can only manage first-tier suppliers in many cases, and put more responsibility for managing sub-suppliers to first-tier suppliers. For example, in the field of LED lighting, lamps are generally composed of housing, light source, power supply and lens. As a middleman, we often do not have the ability to purchase spare parts from each manufacturer and assemble them by ourselves, so we usually specify a The supplier said: This business is handed over to you. You are responsible for purchasing other parts and assembling the finished products before selling them to me. At this time, this supplier is called a first-tier supplier, while other spare parts suppliers are called sub-suppliers.
But many times, many first-tier suppliers do not actually have the ability to manage sub-tier suppliers.
Let’s take an actual case: X is our first-tier supplier, and Y is a component supplier we met at the exhibition. Because the other party’s technical level is excellent, we introduced him to X as our secondary supplier. business. One day X suddenly sent us an email saying that the price would be raised. When we asked, it turned out that X didn’t contact Y when he first quoted the price of the finished product to us, and calculated it directly according to the market price. As a result, when the order was about to be placed, I contacted Y. I was dumbfounded and found that the price of the other party was higher than the market price, so I could only increase the price for us.
In a situation like this, originally we could only accept the new price, but after thinking about it, we still called Y’s boss to communicate, only to find out that the problem was with X. X’s purchase is a small purchase that only knows how to ask for the price. After asking Y for the price once, he feeds back the price to his company like a porter. He doesn’t know how to “sell” himself at all, and describe the project’s prospects to the other party. When it was found that the price was higher than the market price, no active measures were taken to try to lower the price.
No way, we can only go out and talk to Y by ourselves, explain our company’s strength and project prospects to Y, and confirm with him “Do you really want to sacrifice the continuous orders in the future for this short-term price increase”, and finally The price of Y has been brought up to the normal market level, and X does not need to increase the price for us. Everyone is happy.
Everyone, imagine, as an overseas customer, is it possible for you to solve it yourself? You don’t have access to sub-suppliers at all.
Really help you reduce the purchase cost of products, this is the first value we create for you.
2. Reduce chain cost.
When a product flows in the chain, whether it is moving from the parts factory to the assembly factory, or from the factory to the customer warehouse and then to the offline customer, it is always accompanied by costs, whether it is operating costs, Shipping fee, customs clearance fee, storage fee and so on.
In the past, people didn’t care much about these costs, because the existence of external benefits can cover up these cost problems. It’s like when we have money, we can order a bowl of fresh shrimp wonton, and then a bowl of fresh meat wonton. Throw it away if you don’t finish it, it doesn’t matter, we have money anyway.
But if we do the calculations carefully, we will find that the money wasted due to rough management over the years is absolutely so much that it makes us tremble. Especially when business is no longer as easy as before, when we can no longer seek benefits from the market, saving money is equivalent to making money.
For example, once we helped a client sort out historical data, we found a lot of expenses that could have been avoided:
1) Customers spent a lot of money on molds, and as a result, more than half of the molds did not produce large products at all.
2) The customer did not plan the cash flow well. As a result, nearly 40% of the containers could not be picked up quickly after arriving at the port, resulting in a large amount of demurrage charges.
3) The customer did not plan to place the order, and as a result, some goods could not be transported by sea with the container, but could only be transported by air in a hurry.
4) The customer did not do a good job in the coordination between different suppliers. As a result, some orders were placed in the supplier’s warehouse for several months before delivery, and the deposit was backlogged in vain.
How much do these cost? When I finally figured it out, I was shocked, and it was a full 500,000 RMB.
What is the concept of 500,000 RMB? In the case of a net profit of 10%, the customer has to sell 5 million yuan of goods to earn back the money, but now he is throwing away the money in vain.
Let me ask, if I can help you save the 500,000, can you pay me 300,000?
3. Reduce transaction costs.
What exactly are transaction costs?
1) The cost of searching for information. For example, in order to find a suitable supplier, you need to spend time searching on the Internet, or spend time and money on a trip to China.
2) The cost of negotiation and decision-making. In order to close a deal, the cost of negotiating, negotiating and making a decision with the supplier, and because of the mutual mistrust between the two parties, the cost of this part is often very large
3) Contract costs. The cost of drawing up and negotiating a contract with your supplier shortly before closing the deal.
4) Monitoring costs. After the contract is concluded, the costs you incur to ensure that the supplier fulfills the contract content, such as inspection, such as assigning someone to follow up on a supplier’s order.
5) The cost of breach of contract. After the contract is concluded, if the supplier violates the contract, such as increasing the price after placing an order, the costs you incur to force the other party to perform the contract, such as attorney fees and legal fees.
6) Switching cost. After the transaction between the two parties is completed, you find that the supplier’s product quality has serious problems, so you have to change the supplier. The cost incurred at this time is the switching cost.
These costs are all hidden costs, so not many people paid attention to this in the past, but it actually happened in every transaction. And what we do is to uncover it and tell you that I can help you reduce the cost.
To give a few simple examples:
Originally, you had to fly to China twice a year, how much is the air ticket, how much is the hotel? Now that we are here, how much money can you save?
You set up a special post to connect with Chinese suppliers. How much is the salary? Now that we are here, how much do you only need to pay?
Based on the above, this is why our company’s supply chain management business can exist and develop, because we can help customers set a specific and quantifiable goal, and then achieve it through our methods, not just “our The product quality is good, the service level is high”, etc., which makes people feel fake.
And this is the value we create for you by reducing customer costs, which determines how much our price can achieve.
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