Sourcing may be one of the most exciting pieces of the product development lifecycle. You’ve conceptualized a new design, created prototypes and now have your product ready for manufacturing.
However, as many product companies and creators can attest, sourcing and choosing a manufacturer can make or break your product’s success. Finding the balance between choosing a factory that will create a quality product and handling logistics, such as minimum order quantities, timelines and shipping is a challenge often faced when developing a new product. To further complicate things, even identifying several factories to choose from can be difficult in today’s global economy.
Below we’ve outlined the steps to take when sourcing suppliers and identifying manufacturers.
IDENTIFYING MANUFACTURERS TO WORK WITH
Begin by identifying a handful of factories to learn more about. Getting factory referrals is a great place to start. First contact the companies with products similar to your new product, and ask them who they use. This is a great way to learn more about them from the perspective of someone in your same position.
Generally, your goal at this point is to narrow down what you’re looking for, and identify a few manufacturers who fit this description. As you’re identifying factories to further investigate, consider the following questions:
1. Are you interested in overseas or domestic?
Ultimately, the answer to this question really varies; there are pros and cons to each, and it depends on what you’re looking to manufacture. As you’re deciding between foreign and domestic factories, keep in mind that you’ll likely need to balance cost, speed and quality. On top of this, keep in mind your needs; products with assembly will be cheaper overseas since labor rates are lower, but big parts that take up a lot of space in a shipping crate may be cheaper here. You also need to account for shipping and duties.
2. Do you want to work with a broker or agent that represents the factory in the US, or work with the factory directly?
Again, this can vary greatly depending on your needs. If you work with the factory, you may pay less, and you’ll likely be more involved. If you go through a broker or agent, you may be less involved, but you’ll be working through someone who already has an established relationship with the factory. Ultimately it depends on what fits your situation best.
3. Does the factory handle the type of manufacturing you need?
This may seem obvious, but get specific in this discovery and identification phase. For instance, just because a factory works with electronics, doesn’t mean they have the capability to manufacture your electronic product – there is a wide range of needs here, so make sure the manufacturers you are interested in meet your needs.
CONSIDER LOGISTICS BEFORE CHOOSING A MANUFACTURER
Once you’ve narrowed down a list of manufacturers you’re interested in, take a deeper look into the logistics side of things to find a factory that is a good fit. You’ll typically want to contact the manufacturers at this stage to get answers to logistical questions you have before sending a request for quotation (RFQ). As you’re emailing manufacturers for more information, consider asking the following questions:
4. What types of companies do you typically work with?
Generally, you’ll want to choose a manufacturer who works with companies similar to yours. For example, if you’re a large company specializing in household appliances, you’ll want a factory who tends to work with large companies specializing in household appliances. If you’re an entrepreneur creating a new tech product, you’ll prefer a factory that typically works with entrepreneurs who are creating a new tech product. Make sure it’s a good fit by looking at who the manufacturer has worked with in the past.
5. Will you sign an NDA?
Intellectual property theft is rampant overseas. If a factory isn’t willing to sign an NDA, remove them from your list. However, even with an NDA, your product may be leaked. Having a patent filed in your primary market will give you some leverage against domestic frauds.
6. Who is responsible for landing this finished product in the U.S.?
If a factory you are interested in doesn’t handle shipping a final product to the U.S., it shouldn’t necessarily be a deal breaker, but keep in mind that you’ll need to line up a shipping company. Consider asking the factory if they have shipping partners they recommend, or do a web search for logistics firms domestically. You may also way to call a port to get leads.
Note: This is where working with a sourcing professional can especially pay off. The sourcing team at Enventys can take care of finding a shipper, getting the products through customs, paying duties and making sure you don’t end up paying fines. Contact us to learn more.
7. What is your minimum order quantity (MOQ)?
There is no hard and fast number we recommend here, but keep your profit margins in mind. You’ll need to be able to pay for your order regardless of whether you sell all units. It is very common to see price breaks at higher volumes, so it is a good idea to inquire about what volume will trigger a reduction in part cost.
8. What is your sample pricing?
Most factories will provide a sample of existing products as long as you pay the shipping and customs fees, but make sure you’re comfortable with the manufacturer’s sample pricing structure before settling on them. Note that pricing for a custom product often requires that the customer pay 50-100% for tooling.
9. What is your turnaround time?
If you need an order by a certain date, make sure to find a manufacturer who can work within that timeframe. Don’t forget to take shipping into consideration here, as well. If it is a first order with a brand new product and a new factory relationship, allow more time for your shipping date to shift. Fortunately, a smaller partial shipment can often be airfreighted ahead of a boat shipment to fulfill small orders or samples more quickly.
10. What are your payment terms?
Most factories require a down payment of sorts before beginning a preproduction run. Tooling is usually 50% deposit and then 50% on completion. However, if a factory asks for 100% payment up front, this could be a red flag.
11. How do you handle delays?
Ideally, the factory would be proactive when it comes to avoiding delays and the contract would include a penalty clause you feel comfortable with. However, this can be harder to enforce with vendors overseas. Additionally, if the MOQ is not that big, it can be tough to negotiate a penalty clause.
12. How do each of these factories compare to each other?
As you’re answering each of these questions, be sure to compare answers from each factory in order to choose the best fit. One factory might have lower sample pricing, but also have a reputation of delays. Another factory might have a low minimum order quantity, but higher prices. It’s important to consider each of these questions individually and holistically as you’re narrowing down your choices.
After you have answers to questions such as these and have identified a handful of factories you feel would be a good fit, you’ll want to begin requesting quotes. As you are comparing quotes, take a deep look at what is included. Are the quotes for the same order quantity? Do the quotes include shipping and other associated fees? If shipping is included, is it for delivery to a port overseas, or delivery to the U.S.? At this point, you should have enough information to source a factory and begin production.
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