Sourcing products is oftentimes the largest and most difficult expense for new businesses. In today’s market, it’s important to acknowledge that there’s likely a more affordable opportunity for you to create a more cost-effective, high quality product.
It’s not expected of you to get manufacturing done right on the first try, but take note of all trial runs and assess what works. We can confidently say that 90% of production runs have improved in quality and profit by opting to work directly with manufacturers overseas.
Keeping track of all expenses is critical for any business, especially during the production stage. It’s nearly impossible to assess growth and future ideas without a firm grasp of your budget and where your money is going. The unfortunate reality of many manufacturers is their uncanny method of taking advantage of clients or failing new businesses.
Many businesses jump at the first opportunity to source their goods – most commonly trading companies – and stick with the same process for the lifespan of the company. This approach might have been effective 20 years ago, but as products continue to evolve and the standard for quality rises, we can be more critical than ever when choosing qualified manufacturers.
Take Spikeball for example, one of the fastest growing outdoor games that felt the immediate effects of manufacturing delays when their single port supply chain went on strike in 2014. These workers ceased production without hesitation or compassion for their clients and it nearly cost Spikeball their company.
There are countless miscalculations and flaws that can occur when manufacturing your products. These errors can be costly and often unclear in nature. From developing prototypes to finalizing your packaging, working with like-minded professionals straight from the source can save money, inventory and your entire company.
We’ve compiled a checklist below for you and your team to review before your next manufacturing run. The future of ecommerce depends on this notion of acquainting determined companies with reliable factories overseas.
1. Establish Budgets & Get Quotes
Experienced manufacturers will be happy to provide quotes to all serious production inquiries. An ideal supplier would have a work history with notable clients and even produced products similar to yours. After contacting multiple manufacturers, compare prices, quality, minimum order quantities and overall compatibility before entirely committing.
Prior to seeking a manufacturer, you must have a definitive budget for the process. Knowing precisely how much overhead you have for manufacturing will help you stay organized and prepared for any additional expenses, mishaps or flatout overpricing.
It can be difficult to measure just how severely you’re being overpriced until the numbers are clearly written out. Additional expenses add up quickly over long periods of unfit manufacturing, and can oftentimes be forgotten or underestimated until thoroughly reviewed.
Prior to switching up your supply chain process entirely, follow the steps below for a detailed financial analysis.
- Keeping Records – If you’re going to run a business without a dedicated finance department, keeping financial records organized should be a top priority. You can always call in help when needed, but without the proper paperwork it’s nearly impossible for anyone to make sense of your situation.
- Self-Assessment – Does your business plan make sense? Where are you losing money and can you cut costs? Many companies discover that in addition to losing money to manufacturing flaws, they’re also overproducing the wrong products. A common discovery for new businesses is the 80/20 rule – meaning 80 percent of profit comes from only 20 percent of your products.
- Simplify – With your newfound financial awareness and product vision, it’s time to reevaluate the weaker aspects of your business and move forward with a simplified model. After some trial runs with questionable products, you can easily agree that the more you have, the more you have to worry about.
Refining your supply chain means having a solid understanding of all aspects of your business before moving in a new direction. By maintaining a simplified and polished vision, you’ll ultimately save money by making the sourcing process more seamless for your company.
2. Maintain Inventory
A true test of entrepreneurial grit is upholding a thriving ecommerce business while in a transitional period. Keeping your inventory stocked even if you’re planning to change manufacturers requires strategic marketing. Oftentimes offering certain items at discounted process while overproducing others is the most sensible option even though it seems financially incorrect at the time. Your new manufacturer will quickly make up for all revenue lost.
Running out of inventory means unhappy customers and a sudden cease in revenue. The most successful companies manage to remain cool and collected in the public eye while dealing with taking care of all production disturbances behind-the-scenes.
Supply chain issues come in all shapes and sizes, and the only way to truly deal with them is to prevent them entirely. Issues can be due to your product design, poor manufacturing or delayed orders. Diligently testing your prototypes before committing to a full-size order is one of the most financially responsible actions you can take as an ecommerce business.
As for issues on the production end, the majority of these flaws occur from working with wholesalers or trading companies. By dealing with these third-party suppliers, you’re allowing a bigger margin for error, overspending and miscommunication in your business plan.
3. Cut Out Additional Expenses
Most start-ups are unaware of their manufacturing potential, and may not realize they’re sourcing products through a trading company. The most notable reason being the access to sites like Alibaba, one of the world’s largest databases of manufacturing companies. Though many people use Alibaba, few know that an average of 80% of the companies on there are trading companies or feeder factories, meaning they aren’t actually the ones producing your product.
Trading companies can appear to be a good fit for any company because they deal with such a wide range of product categories. The downfall here is that they add a significant margin of 10-30% on top of the true product cost so they can profit significantly as the middleman. Sourcing overseas can be difficult as oftentimes unclear as to what type of business you’re dealing with and how they plan to profit off your order.
Look for the words “industry” or “technology” in the business name and small print of your prospected manufacturer. These are common traits of trading companies and they can even have “trading company” right in the title.
For companies currently sourcing through wholesalers, trading companies and sourcing agents, it can be reassuring to know that you have multiple people on your side in the event of a manufacturing issue. As your business becomes more sustainable and you recognize the true cost of having middlemen in your manufacturing process, you’ll realize the value of working directly with factories.
4. Sourcing Directly From Factories
The ultimate goal for the most cost-effective manufacturing is to cut out all middlemen and work directly with factories overseas. Typical agents have created so many additional steps, services and loopholes to capitalize on when in reality you could go straight to the source.
Services like Sourcify connect small businesses with high quality, affordable Chinese manufacturers.
Assuming you’re interested in this more direct route, one of the most important traits to look for in potential factories is similar past work. If their work reflects your product vision, or if the factory has molds from previous projects that you can use, the final product will certainly be more impressive and you’ll save on production costs significantly.
Working directly with factories provides a much higher profit margin for you and your business. Saving that 10-30% can make a world of differences in your pocket while having more to spend on and future product designs.
Additionally, sourcing directly from manufacturers allows for a sense of creative freedom you’ll likely never experience with a trading company. This authentic hands-on experience instills a new respect for your product, and being able to discuss details with the factory workers themselves is a luxury many are never granted.
Companies who approach factories in the right manner oftentimes find themselves with more lenient order quantity minimums, prototypes policies and tailored packaging options.
5. Build Relationships
The foundation of your factory-direct manufacturing process lies within a positive relationship. While you’re undeniably saving thousands of dollars on manufacturing costs, you’ll be required to put in a little more legwork yourself. This could mean packing up for a visit to China and meeting with the factory themselves to ensure a strong relationship.
Communication is also more important than ever when sourcing directly from a factory. Consistent and concise conversation from both parties is recommended for the most seamless process. Considering the sales reps, whom you’re likely contacting most, speaks very little English, keep messages brief and easy to reply to with only a few words.
In addition to the language barrier is the time zone difference. Be courteous of one another and find common hours that work for both China and North America. While email is likely the most prominent mode of communication, keep your options open in the event of an emergency by having their Skype and WeChat information as well. WeChat is becoming increasingly popular among Chinese manufacturers. Through this single app you can message, video chat and send/receive payments.
Respect the Manufacturing Process
For those yet to witness it first-hand, the manufacturing process is truly something to behold. The labor and technology put into your products is no small feat, and being respectful to those responsible will go a long way in this industry.
Being prepared with your products, budget and overall business model will resonate positively with factories, and you’re likely to see a quicker turnaround if you do your homework beforehand. The easier you are to work with, the more help you’ll receive and the better your product will turn out.
Respect the process and take your time developing your brand before spending money on manufacturing. Consider these tips for the most fruitful process imaginable for you and your company.