How To Find A Low Cost Manufacturing Supplier When You’re Starting Up

Every great product begins as a great idea, but how does a great idea become an actual product? Manufacturing, of course.

But finding a manufacturer isn’t always easy. There are a lot of details for entrepreneurs and/or startups to consider when contracting with a manufacturer:

• The manufacturer’s experience
• The manufacturer’s capability
• How the manufacturer communicates information
• Whether or not the manufacturer can help solve production problems
• How the manufacturer safeguards IP (You’ll want to learn all you can about intellectual property. Start with this article.) 
• How the manufacturer will influence the supply chain and inventory
• The cost of contract/hire the manufacturer (a/k/a budget)

Most companies know that they need to pay close attention to the last item on this list (budget) when contracting a manufacturer, but a lot of the other considerations on this list don’t necessarily get the proper review.

As one of Mexico’s premier contract manufacturers – as well as an affordable manufacturer that has experience working with young companies – we feel uniquely qualified to offer advice on this topic. (Get more details about contract manufacturing in this Intran article.)

Experience And Capability

These two considerations go hand-in-hand. A manufacturer with experience usually doesn’t have any capacity issues, because:

1. They’ve experienced capacity issues before and know how to avoid them
2. Because they have experience, they know to set expectations

When considering a manufacturer to produce your widget, it’s a good idea to ask them if they have any relevant experience. If so, you should follow up with questions about trouble spots and production bottlenecks:

• Do you have any experience producing widgets like ours? What about items with similar complexity?
• What trouble spots (if any) do you anticipate in terms of production?
• What are the bottlenecks in production? If we needed to suddenly ramp up, what would be our challenges?

These are crucial questions for young companies with a new product, as a manufacturing mistake in the first batch of products can make or break the business. Not to mention, if the product is really successful, it’s important to understand the path to scaling up production.

Communication Problems Lead To Production Problems

Communication is always a challenge in business, but it’s particularly difficult when working with an overseas manufacturer. Manufacturers in East Asia, for example, are on a significant time delay. If there’s a need for a phone call, it can be difficult to arrange quickly.

Likewise, communicating with manufacturing companies outside the USA or Canada often means conversing with someone who doesn’t speak English as their first language. While some countries (such as Mexico) have a very high percentage of English speakers, others do not.

Different styles of communication can lead to misunderstandings. In some countries, it’s culturally taboo to be confrontational. If you or your engineering team asks for something that’s going to be difficult (or impossible) to pull off, the response might be a “maybe” instead of a hard “no.”

Finally, there’s no substitute for person-to-person meetings and communication. It’s one thing to have a conference call with your manufacturer, quite another to see them face to face. At Intran, we like to see our clients face-to-face before beginning a manufacturing project, as it helps us make sure we understand the project.

Be sure to ask:

• Who would be my point of contact when I run into a problem? What happens if that person isn’t available?
• What about when I have a question outside normal business hours? Who can I call?
• What’s the process for visiting the plant? When I visit, who will I speak with?
• Can I speak with the plant manager or team leader that’s assigned to my project when I have questions?
• How long does it take to get a response to an email, on average?
• Will our contract outline communication processes and timelines? How can I make sure your company is responsive to our questions?

Tackling The Inevitable Production Challenges

Murphy’s law says that production challenges are inevitable. While we’re not 100% in agreement on that point, we will say that new products tend to have more “hiccups” than established parts.

Whatever manufacturer you contract needs to be able to help you identify problems as well as offer solutions. For that reason, we feel it’s vitally important to have engineering talent in-house. That way, if/when a problem comes up, our own engineering team can review the problem and suggest possible solutions to our clients’ engineers.

Questions to ask:

• Do you have engineering resources on staff at your facility, or do you outsource engineering when you need it?
• If I were to come visit, can I meet with the engineering team?
• Can I communicate directly with the engineering team, or do I need to go through a 3rd party?
• How much experience do your engineers have with manufacturing widgets like ours?

Intellectual Property (IP) – What Every Startup Should Know

We won’t pull any punches: Any company outsourcing manufacturing outside of the US, Canada, or Mexico is risking their IP. That’s not an indictment of manufacturers in East Asia, it’s just a reflection of legal differences between these three countries (which, as part of NAFTA, have nearly identical intellectual property laws and protections) and the rest of world.

Obviously, intellectual property is a huge concern for young companies with a new product. The last thing any company wants to see is cheap knock-offs being produced months after placing their first order.

Consider The Manufacturer’s Impact On Supply Chain And Inventory

Two of the most important aspects of manufacturing are a) supply chain length and b) inventory requirements. These two items impact business in a lot of key ways:

1. When supply chains are long, inventory requirements tend to be much larger. This is because it often doesn’t make financial sense to ship a small number of widgets across the ocean. When travel times are long, orders are placed by the container.
2. On the flipside, inventory needs are reduced when supply chains are short. Because Mexican manufacturers are so much closer to the US and Canada than Chinese manufacturers, orders can be made by the pallet. This can make a big difference in terms of cash flow.
3. Shorter supply chains maximize return on capital. Whether your company contracts a manufacturer down the street or across the globe, carrying costs impact production pricing.

When contracting a manufacturer, it’s a good idea to ask about their experience working with US customs, minimum order sizes, and transit times.

Last, We Come To Budget

Everyone understands the importance of low-cost production. A few pennies here and there can make a difference. Still, there’s more to the budget conversation than just “how much per unit?”

• Ask about minimum order requirements and transit times, and determine how that will impact return on capital
• Be sure to discuss defect rates and processes for recovering warranty costs
• Be sure to ask how production volume changes (increasing or decreasing) effect pricing
• Be sure to ask about payment terms, when payments are due (upon shipment or upon delivery), and how unexpected costs (like customs holds or lost or damaged product) are handled
• If/when there’s a problem with raw materials, what are the remedies?
• If raw material costs increase, how does that impact production costs?

Summing Up

This isn’t meant to be an exhaustive list of questions that startups should ask manufacturers, but it is meant to help young companies understand the big picture. Too often, young companies overlook key considerations, focusing on budget only and opening themselves up to a lot of problems.

As a manufacturer with nearly 50 years of experience, Intran has worked with dozens of smaller companies. Our experience is what helped us create this list of questions, and it’s our hope that our advice will help startups find the best manufacturing option they can.

Of course, we’re also hoping you will contact us with questions, or to have us review your project and provide a quote.