Overseas manufacturing in China is not just a matter of convenience for small and medium-sized companies, it’s a matter of survival. When companies cannot use contract manufacturers, they simply do not have the economies of scale to compete with larger firms. Small companies tend to face a greater number of outsourcing challenges than their larger counterparts.
The following guide identifies some of those difficulties, as well as suggests solutions.
#1- Choosing the Right Size Manufacturer
Not all contract manufacturers with the desired capabilities will be interested in working with small-scale businesses. Profit is at the heart of every business relationship, no matter if that business is in the United States or China. All manufacturers want to know how much profit they can make by partnering with a particular company. It is crucial a company thoroughly investigates a factory’s current production capabilities, as well as their upside production flexibility. When companies do their homework prior to asking for a production quote for overseas manufacturing, they can be much more confident the factory they have chosen has the ability and background to successfully manufacture their goods to specifications. This includes history, expertise, experience, and size.
#2- Minding the MOQ
The Minimum Order Quantity (MOQ) is something that must be thoroughly understood. Be sure to confirm a manufacturer’s minimum order quantity (MOQ) before moving forward. The MOQ is critical not only for the finished item, but for each component. You may discover the MOQ for a particular component is greater than the MOQ for the completed item. If this is the case, you’ll end up with leftover component parts in the factory. That may or may not be acceptable. Do you plan to follow up with another order? Will the factory store the leftover component(s) in their factory? Will they be protected? Is there a charge for storage? These are details you should know upfront so you can consider how this will impact spending.
#3- Knowing- ‘Who Owns the Tooling?’
If you pay for tooling and then want to switch to another factory, can you take the tooling? If you stay with the factory that originally made the tooling, what happens when that tooling begins to degrade or needs repair? It’s crucial to discuss and thoroughly understand what the situation is with YOUR tooling.
#4- Reducing Inventory Liability
In many cases, inventory liability is not a detail that is considered until something goes wrong. During the most recent technology downturn, relationships between some OEMs and overseas manufacturing companies became strained as both sides attempted to shift inventory liability to the other. If not agreed upon and documented up front, questions of inventory liability can cause frequent disputes. While the issues often arise because of inaccurate demand projections, there are lessons to be learned. Liability must be crystal clear prior to project authorization or before any money changing hands.
#5- Pricing Difficulties
Rushing through the process of finding, negotiating with, and contracting overseas manufacturing with a Chinese factory can lead to mistakes and pricing errors. Sudden and unexpected price increases can happen especially when a company pushes a factory for a rock-bottom price in exchange for business. The factory may agree to the pricing to get the business (amid promises of larger orders to come), but then the reality of not making enough profit for the set-up, training, and expense necessary to produce the order sets in. What happens is that the first shipment will be the first and last one the factory will make for the agreed upon price. The surprise comes when the next order is placed. Be careful. Remember, this is a partnership, not a contest.
#6- Obtaining Quality Assurance
It can take years to build a rock-solid brand, but only a few mistakes to ruin it. It’s critical to clearly define the acceptable quality level needed. Taking quality for granted is the best way for quality to quickly get out of control. Take the time to carefully document testing and inspection criteria. In other words, how do you know when your product is right? How many manufacturing issues have there been in the past that need to be addressed and put on a “watch for” list? Again, clear communication is the key to preventing past issues from coming back around. A clear description and even more important, a perfect sample for the factory to examine, goes a long way in preventing the “they should have known” syndrome.
While overseas manufacturing is now open and easily accessible to US-based businesses of all sizes, be aware the process is the same no matter the size of the company or size of the project. This also means the number of things that can go wrong is just as real, no matter what size project or how “simple” the product is. Products manufactured correctly with consistent quality are just as critical to the small company as it is to the multinational.
ITI Manufacturing works with multi-national corporations, as well as smaller companies. We adjust our services to the needs of our clients – large or small. Our business is managing the offshore overseas manufacturing and logistics (including the paperwork) for our customers. We are responsible for the goods until our clients take possession as the domestic or international destination of their choice. We guarantee no manufacturing defects. Those capabilities and services are a benefit to companies of any size. Connect with us today. Call 888-574-6823, or discover more about China manufacturing here!