{Don Debelak’s new book, Turning Your Invention into Cash is now available on Amazon for $3.49. Go to Amazon.com and enter inventions Don Debelak to purchase. From the author of Entrepreneur Magazine’s Bringing Your Product to Market.}
Inventors Find the Right Manufactures
Unless you plan on manufacturing your product yourself, or plan on licensing your product, you will need to find a quality manufacturer to handle production of your product. So whether you are contract manufacturing, private-label selling, or forming partnerships, you will need to find someone who can cheaply and effectively make your product. But what do you look for in a manufacturer? There are a few important things that you need to check on before you hire or form a partnership with any manufacturer.
The first thing you need to check on is that the manufacturer has all of the right equipment. If the manufacturer doesn’t have the right equipment, they might still agree to take on your products, but they will charge you for the equipment they need to buy, either as an upfront charge or by charging you a higher cost per product. If you want the best price, and also the shortest time to production, you will need to find manufacturers with the right equipment. This may seem difficult, but it is easier than you might think.
Once you know how your product will be produced, you will know what types of processes will be used. So if you need a plastic injection molded part, you know you will need a manufacturer with plastic injection molding machinery. Then you find manufacturers of the plastic injection molding machinery, either through trade magazines or trade association websites, and ask for sales literature. Usually this literature comes with a sales contact’s name and phone number. Call this person up and tell him or her you are a business person with a product that needs to be produced with a plastic injection molded part and you need a manufacturer with plastic injection molding equipment. If you ask if he or she knows anyone looking for more business, he or she should be able to tell you the names of at least a few companies.
Then check with these companies if they have all of the other right equipment you need. You may need to repeat this step a few times with different manufacturing equipment to get a good list of potential manufacturers.
The second thing you want to do is find a manufacturer with an underused plant. Every manufacturer has overhead, or fixed, costs (i.e. salaries, rent, and phone bills) that they need to pass on to the products they produce. So the fewer products they produce, the higher overhead cost per product.
Now it may seem that you will want a manufacturer that is running their plant near capacity to have the lowest overhead cost per product, which if you are a well financed entrepreneur looking for a contract manufacturer you might want, but I’ve met few inventors who had plenty of funds and what is good about using an underused plant is that they will want your business and should be willing to make concessions. For instance, if you can have extended terms for the first six months to year you will need much less operating capital, which will save you from getting too many investors and losing shares of your company. Or you could get whatever start up costs they have amortized, which mean that for the first run of your product, the start up costs are spread out on each product produced as a small fee. All of these concessions can make a big deal for an underfinanced inventor.
So how do you find a manufacturer with an underused plant? Locate companies that produce 100 to 400% of what you expect to sell and then request a quote and delivery time from those companies. Request multiple quotes for different amounts of product. The delivery times should tell you who has an underused plant. If the delivery times are long, the plant is probably running near capacity, but if they are short, chances are the plant is underused. Also, for the higher quantity requests, a near capacity plant will have longer lead times while an underused plant will not.
The third consideration is the manufacturer’s financial status. While you want a manufacturer with an underused plant to offer you concessions, you don’t want a company that is about to go bankrupt. Request a financial statement from all of your potential manufacturers. Then find an experienced business person to review this document with you. If the company is in financial trouble, it is probably too risky for you to produce your product with them.
So in a manufacturer you want to find a plant with all of the right equipment that is not running near capacity, but not so slow that they are in financial trouble. This may seem difficult to ascertain, but by following the above steps you should be able to find out all of this information from them. Don’t be shy in calling companies, they usually tell you much more than you would expect.
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