Jill Gilbert Welytok is the managing attorney for Absolute Technology Law Group LLC, which is a team of Registered Patent, Trademark and Transactional attorneys.
Next Inventors' and Entrepreneurs' Forum: June 10th 5:45 pm- Downtown Milwaukee Absolute Technology Law Group Offices - 135 West Wells Street (Germania Building). Topics: Manufacturing Costs - U.S. Southeast Asia and Beyond; Positioning Your Company for Investment - No Registration Required Parking $6
- Jeff Plitt, Plitt International, Southeast Asian Manufacturing Expert (Author, Sourcing From China: A Guide for Small and Mid-Sized Businesses)
- Richard Kranitz, Securities Attorney - will address issues in postioning companies for invesment capital
- Pradeep Nedungadi, Founding Partner, Visthar LLC, a company which has helped companies execute U.S.- India manufacturing for over 17 years
Note: Several inventors will presenting software, medical, electrical and other products to our U.S. and overseas manufacturing, marketing , product design and funding experts. To present your company’s invention or product and/or business plan for feedback please call 414-223-1670. For more information, visit http://www.milwaukeepatents.com/inventors.html
A Checklist of Questions to Ask a Prospective Manufacturer
Before you can decide whether your company has a profitable product or position for investors, you need to figure out how much it will cost to make it. This holds true whether your product is a complex software applicaton or a simple plastic molded product.
Remember that manufacturing/programming costs are only a starting point in determining the overall expenses for producing your product (don’t forget about shipping, advertising, packaging, insurance, and so on). These are all steps in the distribution chain you need to take into account to get your product to consumers.
Generally, costs to directly manufacture your product should be no more than 25 percent of your retail selling price, and the total distribution costs should be no more than 50-60%.
This means that you must ask prospective manufacturers specific and pointed questions in order to identify any hidden costs and make sure they can deliver the quality you need.
Approach all potential new manufacturers as if they are interviewing to become your partner, because in essence, they are. You are looking for a partner who will be responsible for producing a high-quality product at a competitive price with on-time delivery. Be selective and make sure it is a partnership that can last.
Here are a few questions you can ask, beyond cost per unit, to help you compare various manufacturers who may be considering producing your product, whether you are manufacturing a product domestically or overseas:
What types of products do you generally make? There are many types of manufacturers that specialize in the production of everything from heavy machinery to plastic molded items, chemical formulations to electronics, tools to mechanical devices—to name just a few. To find a manufacturer that has expertise in making your type of product, search www.thomasnet.com or www.alibaba.com.
Are you familiar with quality control standards in my industry and the type of quality control testing that will need to be done on my product? In the world of manufacturing, experience can translate into savings. A manufacturer who is familiar with your industry as well as with working with the materials you plan on using will know the effective shortcuts that don’t compromise quality. As an added benefit, they’ll probably be familiar with standards and regulations within your industry. In short, simply comparing cost quotes may not give you all the information you need to determine whether a particular manufacturer is valuable to you.
Are you familiar with quality and safety standards for my product or industry? A manufacturer with this knowledge and experience may be worth more to you than one who quotes you the lowest cost. The savings will be in time and research. However, it is ultimately your responsibility to become familiar with, and independently verify, applicable standards (such as “UL” standards for electrical products).
What types of materials and processes do you most commonly use? What materials and processes would you suggest for my product? Manufacturers have varying levels of expertise in working with various materials. Moreover, it is possible that your invention may be made from a range of materials (plastic, metals, textiles, rubbers, and synthetic materials). If your invention involves textiles, it’s important to ask questions and obtain samples in order to test for qualities such as laundering and resiliency. Similarly, if you’re working with plastics, it’s important to find out about all the types or grades of plastics and the qualities of each (resiliency, cost, biodegradability, dishwasher safety, and so on).
What is your minimum production run? You may not have the funds for large production runs in the early phases and may not have the capacity to warehouse them. Is the manufacturer willing and able to adapt to your changing needs as you begin ramping up your marketing efforts? In seeking sources for manufacturing, try to estimate the quantities you’re expecting to sell as you enter the market, and what your production needs might be if your invention proves to be successful. Ask the manufacturer about quotes for different-size runs (2,000 units versus 10,000 units versus 100,000, for example).
How will you charge for samples? How many are you able to provide to me? Good quality samples are important to getting initial purchase orders. Ask at the outset when the manufacturer can provide them, how many, and at what cost.
Do you produce product packaging and at what cost? What type of packaging recommended? Ask about the costs of various options and be sure to figure the cost of packaging into your total manufacturing costs, and to obtain packaging samples as well.
What are your payment terms? Generally speaking, most new relationships begin with payment up front. However, good payment terms may open up a number of possibilities and marketing strategies. For example, many inventors have been able to launch products without up-front cash by finding manufacturers who are willing to extend credit terms to them. For example, if you get a signed purchase order with a major retailer agreeing to pay you in 30 days, and have 90 days to pay the manufacturer, you are able to pay the manufacturer directly from the sales proceeds without any other type of loan or financing.
What is your policy with regard to defective products and returned products? Find out if and how your manufacturer will reimburse you for defective products, including shipping costs associated with returns and replacements. Also try to negotiate with the manufacturer to guarantee that if an agreed-upon percentage (say, 5 percent) is damaged, they will do a new production run.
Always look at your product and be receptive to what can be changed to improve its quality and make it more appealing to the future user. Likewise, be open to improvements or changes that can make your invention less expensive to produce. It is helpful to get some input from a manufacturer early on. Your goal is to identify alternative, lower-cost, higher-quality ways to make your product and to ask others to do the same. Manufacturers, whether domestic or overseas, will tend to produce what you give them. If you give them a talking dog dish to manufacture, they will give you back a talking dog dish. They won’t necessarily tell you ways in which your dish could be made for half the cost or with improved sound quality, or made more visually appealing for consumers, unless you ask for their assistance. By working with manufacturers who specialize in your industry or product type, you gain from their experience and expertise.
A Final Tip:
Consider Both Long and Short Term Costs: Be sure to ask your manufacturer to help you consider the long and short-term economics of using a particular process. For example, an aluminum mold may be less costly than a durable steel mold, but if you’re going to make a large quantity over a long period, a steel mold with multiple cavities will produce less expensive parts when you actually calculate the cost of the mold per part. If your goal is to present your concept, and you’re not yet at the mass production stage, it may make sense to forego the mold altogether and go with a rapid prototype.