For most product-orientated start-ups, there is almost a surreal quality to the process of comparing the landscape and searching for viable gaps in their chosen marketplace. Much of this research is conducted in the virtual world, for example, while any initial product concepts are internalised before being committed to paper.
Once you have finalised your concepts begun to engage manufacturers, however, the process suddenly becomes real and a great deal more challenging. After all, this represents a definitive transition that turns your concept into a practical and saleable product, while the process of negotiating with manufacturers can be difficult from both a logistic and a cultural perspective.
3 Things to Consider When Manufacturing Your Product
With this in mind, let’s take a look at the key considerations when looking to manufacture your product in bulk and bring your business concept kicking and screaming into reality. These include: –
Keep Your Costs and Margins Under Control
Unless you are planning on manufacturing your product independently (which is not recommended unless you have relevant expertise or the resources to secure viable premises), you will be required to outsource this task to established third-parties. Now while this may be cheaper for start-ups in most instances, it still represents a sizeable business cost and one that must be clearly-defined and ideally minimised in line with your initial budget.
The issue is that while figures are budgeted and committed on paper, negotiations take place with real people and hardened professionals who know the intricate details of the service that they provide inside out.
So how do you negate this challenge? The key lies with careful planning and an innate understanding of your own, core business model, as this enables you to negotiate from a realistic starting point and helps to reinforce strong decision making. In terms of planning, you need to budget your initial capital in pence rather than pounds, as this affords you a clear amount that can be committed to manufacturing.
Beyond this, you also need to drill down further into your finances, starting with the creation of viable manufacturing and retail costs for each individual unit. You must be realistic with your cost base and establish a retail price point that the market can bear, creating a potential profit margin that will underpin the success of your business. The key variable is the cost of manufacturing, so your knowledge of margins and ability to aggressively negotiate a deal will prove crucial.
Above all else, try to enter the negotiations with room for manoeuvre and prepare for potential manufacturers to squeeze your desired margins. Leverage can also help in this respect, so it may help if you are able to offer additional incentives to manufacturers (either by the way of a large, bulk order or creating an opportunity for them to branch out into new markets and increase their own revenue streams.
Target Emerging Economies for the Best Outsourcing Deals
While the death-knell for manufacturing is constantly being sounded in the Western world, this remains a flourishing and important economic engine across the globe. It is fair to say that Western and developed economies have placed a greater emphasis on services and the financial sector over the last decade, however, with manufacturing accounting for just 21.4% of GDP output in the US for example.
This has means two things for businesses that are looking to manufacture products and outsource this to industry experts. Firstly, there is now a dearth of manufacturing expertise in developed economies, making it hard to identify viable partners and service providers. Secondly, a lack of industry competition and demand has seen Western manufacturers increase their prices, meaning that it is exceptionally difficult for product-orientated firms to strike a suitable deal.
With this in mind, you will need to peruse alternative markets, paying particular attention to those in emerging economies. Nations such as China and India (and to a lesser extent Brazil) have become dominant performers on the manufacturing stage since the Great Recession, offering skilled labour and a competitive market that helps to improve output and drive down costs.
From here, you can use trade journals and existing industry contacts to highlight the best and most competitive manufacturers within your scope and budget, creating a shortlist of options before entering negotiations. This way, you can use initial discussion and offers as leverage when speaking with other potential manufactures, as this can reduce costs further without impacting on quality.
The Importance of Ethics and Cultural Identity
The importance of company culture should never be underestimated, particularly in an age where business and customers are increasingly motivated by factors beyond bottom line process. Concepts such as ethics and sustainability are increasingly central to your businesses identity, for example, and you cannot afford for these to be compromised by ill-considered partnerships (no matter how much money you save as a result).
This is an issue that has blighted several leading brands, from budget retailers Primark to technology giants such as Sony, Samsung and, most resoundingly, Apple. Clothing brand Primark was the subject of a cutting Panorama documentary back in 2011, for example, while human rights outlet Amnesty International accused the three major technology firms of failing to perform basic checks relating to the minerals used in their products.
More specifically, they claimed that all three companies had failed to ensure that the raw components used in their hardware were sourced ethically, after a report found children as young as seven working in dangerous cobalt mines in the Democratic Republic of the Congo. This mineral remains a key component of lithium-ion batteries, which underpins cordless appliances and the typical power source for modern smartphones.
The message here is clear for small and medium-sized businesses, as they must adhere with compliance laws and a core set of ethical values when sourcing manufacturing partnerships overseas. These must be based on a core, brand identity, while the process itself starts with understanding the culture that exists in nations where potential partners exist. If you suspect that a firm is engaging in suspicious activities that contravene human rights law, you must walk away from a potential deal and find an alternative.
This arguably represents the biggest issue when looking to manufacture products and outsourcing this task, as there is a need to strike a delicate balance between cost, ethics and the long-term reputation of your burgeoning brand.
Read more: Tips for Negotiating with Retailers