Obtaining Accurate Cost Estimates for Offshore Manufacturing
What will your product cost to make? How far down the path of developing and marketing your product have you tread, before obtaining ballpark figures on this issue? If you are going to manufacture your product overseas, what do you need to get cost estimates for this? It's not uncommon for product developers, inventors, and companies to get too far into the product commercialization process before having a handle on these issues. It's also a risk that much of that effort could be lost, because the product or business plan might need to be reconsidered when a product is designed without manufacturing considerations in mind.
Early cost figures only need be estimates in the beginning of the process. Not long after distilling your product ideas down into one, or a few product concepts and features, will it be helpful to create some form of ‘back-of-the-napkin' analysis. An easy place to start is by looking at similar products on the shelf to get an idea of what price your product should be sold at. A very generic rule of thumb is that a product is marked up four or five times from manufacturer to retail. If you see a widget selling for $4 on the shelf, you can assume that the hard cost to produce it was about $1.
As your product progresses through the development cycle, you'll continue to refine the assumptions that you've made. Is the product correctly positioned for the target market? Do you have the resources to realistically take the product to market? And, is the product truly feasible from a cost and manufacturing perspective?
Accurate numbers become much more important at the later stages of the development process. When you believe you are close to finalizing your design, it's a good idea to add some concrete cost information to this analysis by contacting experts to get quotes on your project. What will you need to share to obtain this information? Established companies might submit a design specification package, which can include several different drawings of the product showing dimensions and assembly, a Bill of Materials (often referred to as a BOM), information regarding tolerances (tolerance refers to the margin of error allowed when fabricating your product), a marketing requirements document (often referred to as an MRD), and many other documents communicating information about your product.
But quite often, all these things are not available when inventors go to obtain production quotes. Combine this factor of imperfect information, with the task of conveying your product concept to an overseas factory effectively, and quoting a product accurately becomes a bit more of a challenge. So what is helpful?
To do this overseas, you need to realize that effective communication is critical to accuracy and success. Thus, anything that can help you overcome the barriers of language, culture, and distance will help. Engineering drawings - such as professional, CAD (Computer Aided Design) drawings - are excellent for this. They convey information in the international language of math, and numbers as descriptors that are not relative from one person to another-such as " very long", "deep shade of red", or "elegant". If you don't have access to the services of a professional industrial designer, hand drawings may suffice for initial quotation purposes, particularly if the product is simple and you include basic dimensions. But keep in mind, the more accurate of information you provide, the less guesswork you leave to an engineer who knows nothing about you, your market, and your product.
Another great method for conveying information about your product is sharing an actual prototype or sample with the manufacturer. An incredible amount of information can be deduced from a physical representation in one's hand. Color, finish, materials, parts, mechanics, etc., can all be quickly ascertained via a sample of your product. If you don't have a sample to share, but can share an off-the-shelf product that is very close to what you are looking for, this might be your best option.
Finally, if you don't have these things in your quiver just yet, pictures and descriptions can be helpful. A picture can convey numerous qualities in similar fashion to samples. And descriptions of how the product functions, what conditions it will need to withstand, and such, can help an engineer understand what is going to be needed to manufacture your product correctly.
As for the kind of information you will want to see when you obtain a quote, look for estimates for tooling, unit costs by production quantity, packaging, and Minimum Order Quantities (MOQs). You may want to consider shipping and customs costs as well.
Unfortunately, because every product is different, there is no conclusive formula for what will be needed. Some simple products may need very little, while others might need a great deal of design work, computer files, and information. Some products will have very small up-front costs, while others may involve tooling, which can range from anywhere between a few hundred dollars to several hundred thousand dollars. Thus, don't hesitate to strike up a conversation with someone in the field early on to begin addressing the specific issues surrounding the costs of producing your product.
For more tips and information on manufacturing your invention, check out Chinese Sourcing Can Save You Money, If You Follow These Rules and check out the Manufacturing Your Invention Information section of our site.
Global Sourcing Specialists