Manufacturing: Addressing the Big Questions
At the beginning of your entrepreneurial journey, you start to grow out of your in-house business or small businesses as your demand is beyond what you can fulfill. You need to start sourcing for additional manufacturers who are better equipped to handle your larger volumes.
How does one find the “right” manufacturer that fits your brand?
Fellow Entrepreneurs and Mentors
Tapping your own network connections is a great place to start. Chances are most of them have already been through this process and can offer invaluable insight, both good and bad. Even if their product offering is slightly different than yours, starting with someone you feel you can trust is a great way for you to understand the complex world of contract manufacturing. Think about the familiar phrase “Been There, Done That!”. The more people you tap for information, the more prepared you will be when you reach out to a potential manufacturer, but before reaching out to your network, prepare a short list of questions so your conversations are productive. Having an open-ended question such as “Who is a Good Manufacturer?” is not beneficial for you and can be a waste of time from a valued connection.
Attend Industry Trade Shows/Conferences/Workshops
Every industry has networking events for existing and potential new customers. The format may vary by the trade association putting on the event, but the main purpose of these events is to showcase their company’s strengths and capabilities. To find out what events are in your industry, simply do a Google search on your industry followed by either Trade Show or Conference. Since you are still in the infancy of your brand, money is a huge driver on where you will go. What is the cost to attend the event? Some events can get pricey. By no means does the cost of the event mean more reputable manufacturers will attend. Some events are paid for in part by the companies presenting, allowing attendees with little to no cost to register. When you visit the event’s website, all exhibitors will be listed. Google a few of the exhibitors and research their websites to determine if these are companies you want to engage with. Additionally, try to find events that are close to your home base, so your out-of-pocket expenses are kept at a minimum. We cannot stress enough how important these events are as you get to meet people face to face and see how the company presents themselves. Before attending, be prepared with the list of questions we are going to share with you next. The answers to the questions are pivotal.
Website Research
If you are not able to attend an industry event, do a thorough review of directory websites. Here is a recommended site to begin with: https://www.happi.com/cmpl_listing/. Also consider reviewing exhibitors at industry events websites even if you are not planning to attend. A few key highlights to look for before reaching out to them: do they have an accreditation by a third-party organization? Do they list any information on their facility, facility size, production capacity? What types of product categories do they manufacture? Do they list their quality standards in a meaningful way?
Once you have developed your short list, we strongly recommend your initial email outreach consists of a brief overview of yourself and your brand including history, current selling channels, types of products, retail price points, and estimated sales volume (either units or dollars). If you are in the start-up phase, consider putting together a professional overview of your brand’s mission, a go-to-market plan, and financial resources. Providing this information in a concise email will improve your chances of getting a reply from a manufacturer as you will be perceived as a viable business opportunity for their business. Instead of asking the below questions in an email, ask if you can speak to someone regarding their capabilities instead of listing the questions within the email. Vetting a manufacturer is crucial to the success of your brand. Making a personal connection with someone from their sales team is of the utmost importance. Here are some key questions to pose during the call:
What type of product is their area of expertise? Most likely, the response you may get is that they can do everything within a certain category. Push them by asking what their highest volume product is. If your brand focus is on a certain type of production process and the manufacturer relays to you that their expertise is in a different format, they may not be the ideal partner as the development and production time take longer because it is a process that they are not as efficient in. It doesn’t mean they cannot produce it, it is just something that you as a brand owner may need to consider.
Research and Development. How many staff members and experience? Cost of development? Lead time on development? Since product development projects start here, it is important to understand the breadth and knowledge of the team who will execute your ideas and/or replicate your products. When discussing the cost, understand what the fee covers, i.e.: number of sample iterations, number of samples developed. Timing is also a critical piece to ensure you meet the timing of your launch. Inquire what their average project time is from kickoff to final approval. Most importantly, ask them to walk you through their process so you are clear on what deliverables are your responsibility and theirs.
Is there a path to ownership? Be sure that you understand that development fees paid to a manufacturer do not constitute ownership of a formula or design. This fee covers only the materials, knowledge, and labor to create your product. This is considered Intellectual Property (IP). If you want to own your formula, the cost of this is much higher than development costs. Some manufacturers offer ownership through a flat fee, purchase volume, or a combination of both.
What are their minimum order quantities (MOQ) and most cost-effective production quantity? Many times, brands only ask for the MOQ which will most likely be the most expensive cost. If you also ask the ideal production quantity, the cost will be more favorable and will help you plan for your future. For example, if a manufacturer says their MOQ is 1,000 units but their ideal production quantity is 10,000 units, it is a big leap that you may not achieve in the first year or two so you will be paying a higher cost that will be prohibitive to your financial success.
What type of ingredients or materials do they stock? This is important for you as using ingredients or materials they stock can save you money and time. In most cases, manufacturers will not give you their entire library. Based on your current products, ask them if they stock ingredients or materials that represent the largest portion of your product composition. If they do not, ask the manufacturer what the process, cost, and lead times are for a customer directed ingredient or material. In some cases, vendors will either ask you to supply and deliver to them or they will purchase on your behalf if you provide payment in advance. It is in your best interest to find a vendor who already purchases the main ingredients or materials required to produce your product.
What is an average lead time if they stock all the ingredients or materials in-house? Even if you have additional ingredients or materials that are custom, this will give you an idea of what their normal production times look like.
Do they offer a turnkey option? Turnkey means that the manufacturer will handle procurement of all ingredients, materials, packaging, and labeling leaving you with only having to purchase the finished product from them. If they do offer this service, it may be more expensive; however, it alleviates you from coordination of all the moving pieces. Also inquire about the MOQ and available customization options to ensure your brand stands out from others offering a similar product.
What are the payment terms? As a new customer, most vendors require payment in advance. If this is the case, ask them what the process is to receive terms? In many cases, you will need to complete a credit application. When you decide on a manufacturer, it is a good idea to request this application when you place the first purchase order with them to give you ample time to complete and have them process before placing your next purchase order.
What is their quality system process? Ask them if they perform incoming packaging inspections such as acceptable quality limits, functionality, artwork review, etc. What is the incoming raw material receiving process? Do they test for critical quality attributes or do they release based on COA? How do they ensure that the product meets specifications and what kind of testing is performed before it is released to ship. Are the above services included in their price or will there be additional charges? The answers to the above questions will give you a good sense of the maturity of their quality systems and what to expect during the production process.
Can someone from your brand be present during the initial production scale up? Once you place a purchase order, it is prudent to be there during the initial production run to ensure that the product is being made according to your direction. It is also helpful for the manufacturer if there are any last-minute questions that arise during this phase. We cannot stress how beneficial it is for you or someone on your staff to be present!
Account Manager / Main Point of Contact When working with a manufacturer, it is important to have a main point of contact. Someone who will be your internal advocate to ensure your projects are timely. Will this person be involved in all aspects of your project or only after development is completed. Ideally, you want someone who will be involved throughout the entire process – development, quoting, procurement, production, and delivery.
On a final note, consider location when selecting a manufacturing partner. The closer the manufacturer is to you, the less expensive the shipping costs will be to your warehouse or 3PL partner. Being present and available for new projects or any issues that arise can quickly and cost effectively be resolved by you and/or your team.
If you need assistance with how to properly vet a manufacturer or have any specific questions after the vetting process, please contact us for a FREE 30-minute assessment.