I met Phil several years ago when he lived in Hong Kong. At the time, my business partners and I were scrambling to ramp up production of a consumer product. Phil and his partners based in China helped us develop successful sourcing relationships that continue to this day. Phil has helped set up manufacturing relationships for several companies – large and small – in China, the United Kingdom, and the United States. His latest entrepreneurial venture involves cleverly designed electronics.
Phil has also been a co-owner of an innovative packaging company based in China. Pulp Circle helped develop the GreenKraft Clamshell packaging product, for example, for Sustainable Packaging Industries. SPI makes packaging that can be customized in low volumes for small businesses.
I spoke with Phil earlier today to talk about some of the key lessons he’s learned over the years relevant to a human scale business founder seeking to outsource manufacturing close to home or across the ocean. Scroll down to the audio podcast of our conversation to hear from Phil.
Buying Manufacturing Involves Selling
Phil started in business as a chartered accountant with a penchant for travel. He learned about manufacturing and sourcing by doing. He quickly learned that buying manufactured products and components involves a lot of selling. Particularly when you are starting out, you need to sell your vision, potential, and differentiation to attract and retain the attention of a quality manufacturing partner.
When you are starting with nothing and no track record, [sourcing] is selling. It’s about presenting yourself as a person that people want to do business with.
Manufacturing benefits from economies of scale. For a manufacturer to take on a small client involves some risk. That said, volume isn’t the only thing of interest to a manufacturer. The opportunity to work on innovative products and participate in their customer’s growth is also appealing. It’s up to you to demonstrate the special something that differentiates your company and product. How can you become meaningful to your manufacturing partner?
While it can be tempting to focus on larger manufacturers whose capabilities look impressive on paper, it can prove very rewarding to seek out small manufacturers. Great relationships can be built by helping each other succeed.
Phil acknowledges that some of his biggest sourcing problems resulted from him not being sufficiently clear about what he really wanted from a manufacturing partner. Although the Request for Proposal (“RFP”) document is usually a tool of larger, established businesses, it can be a useful template for small companies.
- In the first part of your sorta-like-an-RFP, you’ll want to explain what you make and how you make it. How many do you currently make? How many do you need to make? What are the really important factors that go into making your product? It’s a useful exercise to try to teach somebody how to make your product, because much of the process has probably become tacit. Unless you spell it out in language completely understandable by somebody else, the real know-how will remain trapped in your head. (Video can be a great way to explain a manufacturing process, by the way.)
- In the second half of your document, layout your vision for the product and your company. Who are you? To whom and how do you sell your product?
Such a document helps you set down information that is, first and foremost, valuable to you. By specifying what you need and where you are headed, you’ll be in much better shape to accomplish two important tasks:
- Assessing fit – the best manufacturing partner is the one that has capabilities, capacities, interests, and timeframe that fit yours.
- Establishing expectations – whether you are working with a manufacturer across the street or around the world, they are going to see the world differently than you. Quality glitches, delivery delays, and other problems shouldn’t come as a surprise if you don’t establish clear, baseline expectations for each other.
Finding a Sourcing Partner
Ideally, you’ll be able to tap into your existing network to get recommendations regarding one or more prospective manufacturing partners. (That’s how I originally got connected to Phil.) It takes a little work, but it’s remarkable how small the world can become if you keep asking progressively better questions.
On the other hand, there is nothing wrong with starting by searching Google or Alibaba. It’s a quick and inexpensive way to get a sense of the market and develop a starting list.
Armed with his initial list of prospects and his RFP, Phil likes to connect by email or phone in order to make an initial assessment of interest and fit. Are they responsive? Can you communicate effectively? The next step is to share the RFP and dig deeper with a narrowed list of candidates.
Manufacturing is About Relationships
I’ve learned the hard way that there is no such thing as a simple product, and manufacturing is an inherently complex, dynamic process. Even if the design of your product and the tools used to make it don’t change from order to order, the people running the machines and packaging your product often do to some degree. If you treat your manufacturing partner in a transactional manner, you can expect the favor to be returned.
If it’s all about the Benjamins, you lose the ability to use other currencies.
Phil believes that one of the most important things you can do prior to starting a relationship is to make a personal visit to your prospective sourcing partner.
- It demonstrates your seriousness. That’s particularly true if you are considering overseas manufacturing. Getting to China isn’t hard. Neither is it terribly expensive. However, it takes time and effort. A personal visit represents an investment.
- Meeting face-to-face allows you to more fully assess fit. If you aren’t speaking with a decision-maker during your visit, you haven’t yet achieved an appropriate threshold of meaningfulness. You have some selling to do, or you need to find a better fit.
- In-person meetings are your best chance for affirming mutual expectations.
Email and Skype can go a long way toward laying the groundwork for a successful, productive meeting to serve as a foundation for a mutually beneficial partnership. Meeting face-to-face from time-to-time helps ensure interim communication is effective.
Commit to Mutual Profitability
In the short term, the size of the profit pie is fixed. Negotiating a share of the pie is a zero-sum game: your supplier’s gain is your loss. That said, you and your manufacturing partner must both be attractively profitable, or the relationship simply won’t last. In the longer run, collaboration helps to make the pie bigger for the benefit of both parties.
As Phil explains, it can serve you well to understand how your manufacturing partner makes money. Sometimes, helping them become more profitable need not cost you much, if anything. For example, I remember how a materials change in a product for which I was responsible resulted in a meaningful reduction in headache and cost for a supplier. Our cost didn’t change as a result of the switch, but our relationship deepened, which came in very handy when we need to jump the queue to get our product made and shipped before Chinese New Year – probably the most important time of the year from a sourcing perspective.
You Can Learn This
If you are thinking about outsourcing manufacturing, you are probably already well aware that manufacturing is one of the most challenging aspects of business. That said, there is a lot of expertise in the world, and that expertise is more accessible to small companies than in any time in history. I live in a small city 500 miles from a major city. Nevertheless, there is an amazing number of people here that know a great deal about manufacturing and sourcing. Chances are, the same is true in your hometown – or in a town nearby. Tap into that expertise and learn. If we can help, let us know.