Finding Contract Manufacturing sources can be a daunting task for any company, let alone a fledgling organization with tight cash flow constraints.
In today`s hypercompetitve marketplace, it is vital to work with a company that has significant presence in low-cost countries throughout the world. Today it is China and India, tomorrow it will be the Korea`s, and the next day countries in Eastern Europe. It is continually evolving and technology is of course driving this evolution.
Companies need to be able to leverage low cost country sources to effectively compete in a global marketplace.
OPERATIONAL CHALLENGE:
•- Constrained resources
•- Lack of local presence/expertise
•- Long, complex product flows
•- Evolving regulations
•- High costs of poor quality (failure)
•- Managing flexibility & responsiveness
Common Issues in going offshore: Not having a clearly defined strategy for your product, not having clear concise drawings/specifications or prototypes, relying on ISO/QS certifications, freight estimation, using price as the key deciding factor, only speaking with one factory or single sourcing the contract manufacturing, not having a back-up factory should the terms become unfavorable, and finally, finding a relaible freight forwarding company to work with the factory to ship and ultimately clear customs.
When working with clients to find contract manufacturing opportunities, whether it be Stateside or Offshore, here is my approach:
This approach assumes you have a prototype built and are ready to launch your product. It also assumes you have performed your due diligence and market analysis of what you can ultimately sell your product for to the consumer.
1- First and foremost, does your product have a high labor content? If yes, then you need to go offshore. With US labor rates upwards of $15-20/hr. fully loaded, you will never find a factory competitive enough. If no, then you will be able to find a good quality source within the USA with relative ease.
2- Understand your budget and your "True" cost of manufacturing the product here in the United States. What does it actually cost you to produce the final product? This is a key piece of the model which many people overlook.
3- Develop a "Target" price for your product to be produced. In essence, what would you like your total spend to be per unit. Understanding your total cost is extremely important.
4- Find a company who can work with you in various capacities to help you find contract manufacturing sources in low cost countries. Prior to searching for a partner, decide how you want the relationship to develop. For instance, do you simply want to pay a 1-time fee for an introduction to a factory or group of factories in China/India/etc? Or, do you want the company to play a larger role in the introduction, negotiating terms, negotiating freight, and program mangement of the goods? Either scenario is fine, you just need to understand how in depth your role will be. If you choose the former, you can antipate traveling to the factory at least on a quarterly basis to maintain the relationship.
When an existing customer or a potential customer approaches us, we work in various ways. For instance, we have a client who owns a Baby Clothing company who sources everything in China including all of the textiles as well as the production of the finished goods. He hired us to Program Manage the order flow. He hired us on a monthly retainer to cover 6 separate factories throughout southern China for the life of the Programs. He supplied us with a complete schedule of goods including the volume per unit, samples of each product, drawings and specifications. In addition, the schedule also lists how many of each product should ship on a monthly basis. We then deploy a designer that is on our W2 in Hong Kong to each respective factory. This person is solely responsible in executing the "checks and balances". If the product produced does not match the sample our client supplied, it never leaves the factory. This of course saves a tremendous amount of money for our customer in time and frustration.
Having an office in Hong Kong allows us to take much of the guess work out of finding contract manufacturing opportunities for our clients. We have over 17 years in experience throughout Southeast Asia including China and India. The company you ultimately choose should want to work very hard to understand your business model and ultimate goals and objectives. They should have a local presence in China or India with interpretors who truly understand OUR culture. If the company has an American citizen who runs the offshore facility - even better. This will help shorten the success curve!
Hope this helps.
mj
Rich2006-5-1 11:4:56
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