In this down economy more and more engineers are deciding to try taking their inventions or ideas to market and I say, “Bravo!” There’s good news for us entrepreneurs who develop a product and don’t have huge funding to get it to manufacturing – you don’t have to be Nike or Intel to get products manufactured inexpensively in China. In this post, I’ll share with you some of my key lessons in outsourcing manufacturing to China. Though I have visited China numerous times, it is not required in order to have a full manufacturing and even drop-ship business set up there.
For those not familiar with the term Drop Shipping, this means having your supplier do the work of packing the goods and sending them directly to your customer – in your name.
OK, first things first, you need to have a clear definition of a product that you want manufactured or to purchase. China trading companies are not good at working with you to help define this – they are not consultants or marketing specialists so don’t expect much guidance on defining your desired product.
Next step is to find some sources in China that manufacture similar products. You can begin this process yourself by researching on line at some of the websites specializing in direct-from-China products; the two I have experience with and recommend are:
Made in China: http://www.made-in-china.com
and Alibaba.com: http://www.alibaba.com/ which offers sources in other countries as well.
Once you have found what looks to be like a good source, you should contact them to establish if they can manufacture your product (they’ll almost always say yes), what are payment shipping terms, etc. OK, here’s where things get interesting. You might seriously want to consider a sourcing company which will help by doing a quality inspection of the facility, verifying it exists (yes, seriously), and verifying quality of the product before it ships. There are a number of them but my favorite is Daintily Quality Consulting.
I prefer to use a full service project management team which will help with everything from finding a source, establishing beneficial terms (no such thing as “net 30” in China but more on that later), arrange shipping and custom clearances well as help secure your intellectual property (IP) in China (no small task). Again, there are a number of agencies, my favorite is Passage Maker.
I hope I have not scared you off; having your product manufactured in China can be very lucrative and worth the effort. Getting a small quantity manufacturing in the U.S. or Europe can be very cost-prohibitive whereas overseas manufacturers will fight for your business even in relatively small quantity. Once you have a cash flow and are shipping significant quantity, it may be worthwhile to investigate a more local source, primarily to protect your IP and could also be helpful if having “Made in USA” (or whatever your country is) will help with your target market.
Ah, I almost forgot that I promised to mention payment terms or the rarity of “net 30” in dealing with China suppliers. I’ll let Mike Bellamy explain this as he has over seven years of experience as an in-country purchasing manager in China, according to Mike, “Don’t be surprised if a supplier asks for 100 percent payment in advance. But also realize this is negotiable, just as you wouldn’t necessarily accept the first offer of price without a negotiation. I have found that “30-40-30″ terms are often an acceptable middle ground on payment terms, fair to both parties.
Under 30-40-30 terms, the initial 30 percent of the PO value is paid up front as a deposit. This allows the supplier to buy materials and lock in the price, which can be especially important if you have a long lead time or deal in materials that face great price fluctuations, such as metals. The second payment, the 40 percent, occurs at shipping upon confirmation of quality. The final 30 percent is paid upon receipt and inspection at the final destination.”
I hope this posting helps some of you out there are in a situation similar to myself many years ago when I was first looking into manufacturing a product I had designed, believe me it is easier now than it was back then! Also, you may recall I began this post mentioning the “down economy”; my friends, if you are paying retail at this time, especially for electronics, then either you have too much money (feel free to send me some, I’m on paypal) or you’re just plain crazy! Take advantage of your research on direct sources to save a lot of money, and read more on some of my fellow blogger’s websites like this one.