Manufacturing and selling a new product

You’re ready to outsource your manufacturing. How and where do you start?

The most frequent question I hear from entrepreneurs and product developers is, “should I have my products produced in the USA, or should I outsource the production to overseas”?

The answer to this question has a number of components.

First and foremost, the quantities you are thinking of producing will determine if offshore manufacturing is right for you. When you seek offshore suppliers, the key to achieving a good profit margin is dependent upon economies of scale; or rather, the greater the quantity you can order, the lower the price of production you can expect to see.

If you are ready to stop producing product yourself and just looking for a way to save on labor time, then domestic manufacturing may be for you. The caveat here is that you will pay higher rates for labor and production. In turn, you will need to charge a higher price to actually show a profit. On the upside, you are not confined to producing thousands of pieces at one time.

Reasons to consider domestic manufacturing

• Require small production runs ( ex: less than 1000 pieces)
You are just entering into mass production; smaller runs require fewer materials,
fewer labor hours, and smaller warehousing fees.

• Not a labor intensive product
Your product does not require multiple vendors or steps in the production process.

• Not willing to outsource the quality inspection
You need the ability to physically visit production facilities on a regular basis.

• Unable to wait for long production or delivery time
Domestic suppliers generally offer shorter wait times for delivery.
Duty and international tax payments are not required.

• Finished products sell for a premium price

You have an exclusive, high end, or original product that can sell for a higher price in your market.

• Unable to pay for production with international letters of credit
International suppliers often require letters of credit as form of payment.
Your company may be too young or have limited credit for your bank to
provide secured international payment.

• Storage needs are small (ex: 50-150 sq ft)
Storage fees may be small enough that your final sale price is only minimally increased.

Reasons to consider international manufacturing

• Require larger production runs (ex: 5,000+ pieces)
Mass production & high automation are necessary for your product type and customer demands.

• Labor intensive product
International labor rates are often 3 or more times less expensive than domestic rates.

• Willing to outsource your quality control
3rd party inspection companies can assist with quality inspections and product testing.

• Wait time for production not a concern
Production wait times of 6-8 months will not impact your sales schedule.

• Finished product must sell at a low price
Cost of duty/shipping and wait time still offset the higher labor cost for production in domestic markets.

• Able to pay with international letters of credit
You have the secured credit, bank funds, and longevity in business to be approved
for international payments through your bank.

• Storage needs are large (ex: 500 + sq ft)
Your customer demands may be large; however, orders may only happen twice a year.
Generally, it is less expensive to ship product into storage once a year, than to endure
multiple shipments with duty and tax payments.

Finally, whether you choose to outsource with a domestic or an international factory, you will need to give yourself plenty of time to interview factories, obtain samples of their work, and determine which factories offer you the appropriate payment plans, delivery terms, and just in time production for you and your customers. The factory you choose should be viewed as a long term partner that is willing to accommodate your business and production needs.