The Untold Secrets to Cutting Manufacturing Costs & Lead Times
When you’re starting your ecommerce store, figuring out where you’re going to manufacture can be one of the biggest hurdles you will face. Though there will be lots of competing products with similarities, you unfortunately can’t just ask one of these companies who their manufacturer is.
In the world of manufacturing, your supply chain is a trade secret and the company who has the best manufacturing partners will often be better suited to scale. That is why entrepreneurs rarely share their process of bringing a product to life—why would they eliminate this barrier to entry?
Luckily for you, this article is going to dive deep into what you should do to prepare for your manufacturing search and how you know you’ve found a good manufacturing partner who can save you costs when just starting out.
I’ll start with my own experience manufacturing products through Sourcify:
The first products I ever helped manufacture were shirts for one of the programs at my school. This was during my junior year of high school in 2010 where I was a foreign exchange student in Beijing attending a local Chinese high school and studying Chinese four hours a day while living with a host family that didn’t speak English.
My school just needed a few hundred shirts and I worked alongside one of our program directors to manufacture them. Interacting with a factory fascinated me and by the end of that experience, I wanted to learn more about manufacturing.
I spent most of my weekends during the year at the local markets across Beijing where I befriended several shopkeepers. Back then in 2010, there were several markets in Beijing that openly sold knock-off goods. You could purchase everything from a fresh pair of Nike shoes to Beats By Dre headphones that sounded just like the real ones (we did a sound comparison).
The shopkeepers explained to me that while most the goods people bought were indeed fake, some of them were actually runoff goods from the factories producing the real products. When a company goes to produce 100,000 units of the same product, a factory can’t produce exactly 100,000 units. There is always runoff and this left over product is then sold on the black markets. That is how some of these fakes seem so real.
Since that year in 2010, I became eager to manufacture more products and in late 2013 I started going through the manufacturing process for my first ecommerce company, Yes Man. We invented the first leather watch strap without holes that worked like a zip-tie and ended up growing that store to over six figures in revenue.
It literally took us over five months to get to our first prototype though and after bringing dozens of new products to market over the last four years, I now understand where our first pitfalls were. Those pitfalls that I fell for will be explained in this article so you don’t have to spend five months bringing your product to life.
Along the way, I realized that the manufacturing mixup stems from not only finding the right manufacturer but also having a suite of project management tools to understand where you’re at in the product development cycle.
This problem faced by almost every ecommerce entrepreneur is what motivated me to transition from a ecommerce store owner to the founder of Sourcify, a platform that is on a mission to make bringing a product to life easy.
This article explains what we do to help users cut costs and lead times.
If you start your manufacturing search by first contacting dozens of manufacturers through open databases like Alibaba, you’re doing it all wrong. To have a smooth manufacturing process, you first need to understand what you want:
When you first think of bringing a product to life you need to know what that end product is going to look life. Though several manufacturers can be there to help you finalize your specifications, before you even begin your manufacturing search, it is important to know about the colors, materials, and even dimensions of the product you’re looking to manufacture.
As an example, we recently worked with an ecommerce company looking to produce a new line of messenger bags. They came to us looking for a smooth manufacturing experience, yet halfway through the process, they completely changed the material requirements. Instead of seeking a bag made from mostly leather, they were now looking for a bag made with canvas and nylon. Though this was an easy change, it cost them about two weeks in their manufacturing cycle because they had to switch manufacturers.
Specifications you should have already set when starting to find a manufacturer include your logo, estimated order size, material, color, and size. The needed specifications depend on the product, yet those are a basic rundown. For watches, as an example, you’re going to need to know the watch case material, watch movement, type of hands, watch case width, watch case diameter, and more.
These specifications can be made clear in the following forms:
Renderings or Drawings
Designer drawings are life-like renderings of the product you’re looking to bring to life. To make renderings or drawings, you often need to consult with a designer who will use a software like Adobe Illustrator to help design your product.
Though I have seen some manufacturers deal with drawings that are done by hand, most of them always prefer a computer generated rendering.
CADs are Computer Aided Designs that are specific engineering drawings that detail your product down to the exact measurements. CADs are made by engineers using software like AutoCAD. CADs are usually needed when producing hardware products out of any metal.
Now that we have an understanding of what to do before starting the manufacturing search, it’s time to get into the analysis you should conduct when trying to find the right manufacturer.
Finding the Right Manufacturer
One of the trickiest parts of starting an ecommerce store is the process of finding the right manufacturer. With so many possibilities out there, sorting through them all can be a nightmare. This is why it’s important to have a systemized approach to understanding who your manufacturer should be.
To start your search on the right foot, use the following tricks:Finding the right manufacturer for your online store is tricky, check out this post for tips & tricks:Click To Tweet
This is counterintuitive of a business competitive analysis, yet most manufacturers who produce the same products are located in the same areas. This stems from the access to raw materials or location of the smaller component manufacturers.
It also stems from the fact that many factory founders once worked for a factory themselves where they learned the ins and outs of manufacturing that specific product. This is most common in Asia, specifically in China where there are certain cities that are known for producing specific products.
For example, whenever I go to Shenzhen to visit factories, there is a specific part on the outskirts of the city that has over a dozen watch factories. Even with their close proximity, it is rare that I am able to visit more than three factories in a day as meetings average two-three hours with each factory. This stems from the cultural driven business environment in China—on a typical factory visit we’ll start with a conversation to get to know each other, then see the actual factory facilities, then have lunch, then head back to the factory and discuss our specific details, then have tea, and then head out.
Since business in Asia is relationship based, you need to expect your meetings to last longer than usual. Once you understand the manufacturing landscape for your product, you’ll start to notice that many manufacturers who produce your product are based in the same city.
Detail Manufacturer Size
The size of a manufacturer is mostly based around their monthly output capacity, which is dictated by the number of production lines they have and number of employees they employ. Your estimated order size will dictate the size of the manufacturer you should work with.
Small manufacturers deal in the hundreds to tens of thousands of units range. These manufacturers often have scrappy facilities and lower quality production than middle size factories that produce a few thousand to hundreds of thousands of units a month. The middle tier manufacturers are your sweet spot, as they’ll not only have cleaner facilities but will also have the needed certifications often required to import into America.
Big manufacturers are the ones who can produce millions of units per month and are the Foxconn’s of the world (Apple’s main manufacturer).
When analyzing which manufacturer to work with, think of it like this: would you rather be a big fish in a small pond or a small fish in a big pond? When manufacturing you usually want more attention so being a big fish would be a better approach.
Use Existing Molds
If you’re looking to cut lead times dramatically and save thousands of dollars, try to find a manufacturer who has produced near identical products to the one’s you’re looking to produce. This enables you to use their existing molds, meaning you don’t have to spend the money or time opening your own.
Since opening a mold can cost thousands of dollars and take weeks, finding a manufacturer who has an existing mold you can use is game changing. To find this manufacturer, you really need to be specific about the product you’re looking to produce and conduct a very thorough search.
When we were producing our second round of designs at my old watch company, Yes Man, we saved thousands by working with a manufacturer who already had the exact watch case mold that we were looking for. This enabled us to easily get started in the production process and save costs.
Since our watches weren’t the most unique, it wasn’t too hard to find a manufacturer who had a mold to fit our specifications. The more unique your product is the harder it will be to find a manufacturer who has existing molds you can use.
Most manufacturers take payment on a 30% upfront, 70% once production is complete basis—100% paid before shipment. This is common practice and having your finances aligned when you start a production run is crucial.
For an ecommerce business, paying 100% of your inventory upfront drains your cash. If you’re looking to explore other ways to pay for your inventory, give Kickfurther a look. This unique platform crowdfunds your inventory so you don’t have to pay for it all upfront. They retain ownership of your inventory on a consignment basis and you can pay for it as you sell it.
If you’re starting your company through a crowdfunding platform like Kickstarter, one trick you can apply to get your products produced on time is by paying that 30% upfront payment once you’ve reached your funding goal. If your project has reached its funding goal, you know you’ll get that money once your campaign is complete. By fronting the 30% to your manufacturer before your Kickstarter campaign is complete, your production run will be started as your campaign is still going.
When nearly 50% of crowdfunding campaigns don’t fulfill their backer rewards on time, taking this approach could be huge to meet delivery expectations.
Once you’ve paid for and finished your production run, it’s time to figure out how to actually get your products to your end buyers. Most manufacturers will recommend a freight company that they usually use, yet if you want to try something more secure and streamlined, you may want to find someone on your own.
If you’re producing at scale and looking to ship a container, taking a software driven approach would be smart. That is why I often recommend Flexport to the clients at Sourcify who are producing at a larger scale.
For straight ecommerce fulfillment, we often recommend FloShip. This Hong Kong based company makes ecommerce logistics easy and they can also handle crowdfunding campaign fulfillment. By having a Hong Kong based location, they can easily get products from your factory to their fulfillment center.
The key to understanding your best shipping options will depend on your shipment size, location, and time requirements.
Preparing for your manufacturing search is a vital, yet often overlooked part of the process. If you don’t know exactly what you want, how can you expect a manufacturer to know?
Finding a good manufacturing partner who can save you money and time is a complex process. The ability to use an existing mold doesn’t always come often and you’re going to spend a lot of time researching potential fits.
That is why it’s best to track progress and be detailed oriented when starting to find a manufacturer. The best way to start is to first understand your own company goals. Once you have that set, it’s time to start finding your manufacturing partner.Share with others! The untold secrets to cutting manufacturing costs & lead times as told by an overseas sourcing expert:Click To Tweet