Podcast: How to Manufacture Products in China
Sam Miller first moved to Shanghai in the early 90’s to teach at the university there. He then went on to manage the office of a major American home textiles company. He has since worked in the ceramics, gifts and furniture industries offering his experience in sourcing, product development, management and logistics. He currently works with a variety of small businesses to teach them how to manufacture products in China and help them to secure and manage their partner relationships. He blogs frequently about the topic of how to manufacture products in China on his website www.theeastasiaco.com
Why should you manufacture products in China?
I love the idea of purchasing products that are made here in North America, and if your products and business model allow you to do it, there are some big advantages from both a branding and logistics perspective. But the reality is, most of us will not purchase products unless they also meet our price expectations - and price expectations today are largely determined by global markets.
I'm not going to get into the political and moral implications of outsourcing your products to a country like China. But I will say that, depending on your product category, and your competitive set, it may be your only choice to have your products manufactured in a cost competitive manner. I asked Sam about this and he describes how many product categories can no longer be manufactured cost effectively in North America because most of the infrastructure and expertise has moved overseas, where labour is much cheaper.
With our e-commerce business, the business I co-manage with my wife, our products are manufactured in China. This is the reality of the bag category that we are competing in. The global bag manufacturing business is largely centered in China, and all of our competitors' products are manufactured there as well.
Manufacturing in China is anything but easy
But our experience with China has been anything but easy - which Sam says is pretty normal. In fact, Sam says that companies should count on there being problems and build them into expectations and timelines
Case in point, our e-commerce business’s first first experience with manufacturing in China was a complete disaster. We’d already done a test run of products here in North America that were very good, but expensive. So when we found a factory in China that produced some good samples at a fraction of the cost, we hired the factory site unseen to do a production run. However when the products finally arrived 4 months later after a number of delays, they had a serious flaw that made them unsellable.
You need to have a good understanding of how your products are manufactured
In business things don't always go as planned, but what can you do to at least reduce the chances of something going seriously wrong? One of the biggest issues Sam sees with North American brands who approach him about how to manufacture products in China is not having a complete picture of your product specifications or even knowing how your product should be manufactured.
our e-commerce business's products are not extremely complicated, but to be honest - this is something we did not have in place initially but are working on now: creating what's known as a BOM - or bill of materials. What this means is breaking down every individual piece or material that goes into the manufacturing of our products and creating a detailed specification for each, rather than having the factory do it for us, which can create inconsistencies with quality and keeps pricing opaque.
Another common problem Sam sees is companies that don't consider the packaging costs when they are sourcing their products and trying to meet a target price. In fact packaging can sometimes be as important as the product in some cases, and it can make up a substantial percentage of the overall cost
The process of finding a manufacturing partner in China
So let's say you're starting from scratch today, and you are committed to finding a reliable manufacturing partner in China. Here's the process Sam walks his clients through at a high level when they're just starting out:
- Make sure you have your product specs and target prices completely worked out
- Send the specs to 25-30 factories for quotes
- Review and rank the various factories' responsiveness
- Review and rank the factories' pricing
- Get samples from the 7-8 factories that rank the best across responsiveness and pricing
- Choose 2-3 vendors that provide the best samples at the best price
- Choose one for your production run and keep keep an approved/dated sample on file for the other finalists
- Ideally you will then have the opportunity to travel to China to meet with the factory build a relationship and oversee some of the details of the process.
So it's really about casting a wide net just as you would do with a if you were interviewing candidates for a job, then narrowing down the field based on feedback.
I told you about our first horrific experience manufacturing in China. However we didn't give up and by getting references from other people, ultimately we connected with some agents who have been able to deliver some very high quality products through their factory relationships. However we did not follow Sam's advice of sourcing far and wide. Now, because we do not directly control the relationship with the factory, we have become fairly dependent on a single manufacturer and are dealing with other issues around timing and cost.
So essentially, we are going back to the drawing board ourselves. We are putting together a detailed bill of manufacturing and getting used to the idea that we are going to have to spend more time traveling.
Success or failure depends on how much time you want to spend developing vendors
So the bottom line is, manufacturing is such a critical component of your business that you really have to prepare to spend a significant amount of time on it if you want your business to be successful. You can't just expect people half a world away to reliably put your products together while you're off working on other parts of the business. This is a relationship, and you're going to have to invest time not just in overseeing it but actually getting to know and earn the respect of the people who are working for you.
Learning the ins and outs of how to manufacture products in China is not easy. But because it's difficult, it creates a barrier to entry for competition, allowing your manufacturing relationships to become an extremely powerful and profitable engine of your business. So it's extremely important that you invest the time and planning into making sure you understand how your products are made, that you get involved in the process of overseeing the production, and that you build strong relationships with the people who are handling it for you.