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ARTICLE Business TipsJuly 26, 2016

Sourcing the perfect product for your online business: Manufacturing, part 1

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You’ve got a great product idea, but how do you go about getting it made? In this series on sourcing a product for your online business, we look at the pros and cons of manufacturing.

If you have a great idea for a product that doesn’t currently exist, how can you bring it to life? Manufacturing can be an effective way to source a unique product or to put a new and innovative spin on an existing design, but is it the right option for your online business and how can you source a manufacturer that suits your needs?

Benefits of manufacturing

Manufacturing is the best way of developing a new product from scratch. If your product is simple, such as a new line of T-shirts, you may be able to produce your own prototype, which means the manufacture turnaround time will be much faster than it would for products that require various components, such as electronic goods. If your product is more complicated, you may need assistance in developing a prototype, in which case you could find an industrial designer. They’ll help you design your product so it both matches your vision and meets manufacturing standards. They can also provide design drawings and documentation, which will be useful for a manufacturer. While this can increase your upfront costs, it will help guarantee that your product is unique and manufactured well.

Manufacturing products can result in the greatest margins for your business. This is because the cost per unit is generally lower than when sourcing products wholesale. By having your product manufactured, you can also control your own price and oversee the quality of the product in ways that you may not be able to when purchasing products wholesale. 

Drawbacks of manufacturing

Depending on the nature of your product, manufacturing generally takes more time than sourcing wholesale. You may need to undergo a long process of prototyping and refining until you can begin production, and this means you’ll have longer to wait until your idea translates into sales.

One of the greatest drawbacks of manufacturing is that you must purchase inventory upfront with no guarantee it will sell. Manufacturers impose a minimum order quantity and this means you may be required to start out with several thousands of units, which may result in excess inventory that impacts your cash flow. Before placing an order, test the market to ensure that there is a demand for your product.

To reduce the risks involved in manufacturing, be sure to request information in writing from suppliers, such as turnaround time, payment terms, production pricing and sample pricing. You should also try to negotiate a minimum order quantity that suits your needs.

Sourcing a manufacturer

As you’d expect, the internet is a great way to find a manufacturer. Austrade’s site has the Australian Suppliers Directory, for example, which allows you to search for thousands of Australian companies, including manufacturers.

To find an overseas manufacturer one of the easiest ways to get started is trawling through websites such as MFG.com, the manufacturing section of Bizbilla, and doing a manufacturing product search at Alibaba.

Word of mouth is also a valuable way of finding a reliable manufacturer, so consider tapping into the experience of your professional network. You can also refer to trade magazines and attend trade shows dedicated to your industry where you’ll find reputable manufacturers and distributors that you can speak to.

Manufacturing locally versus overseas

Manufacturing your products offshore can bring attractive cost savings thanks to more competitive manufacturing markets and lower labour costs. Looking to overseas markets also means you’ll have a greater pool of manufacturers to choose from.

 

However, having your products manufactured overseas also has potential drawbacks. The people employed to make your products may be subjected to lower labour standards than those in Australia. You may have less control over the quality of production and while on-site visits to verify the work of a manufacturer in Australia may be simple to arrange, they can be costly and time consuming when it comes to overseas manufacturers.

Cultural and language differences can also create communication barriers. You’ll also need to consider logistics, such as shipping time and importation and customs clearance.

If you choose to have your products manufactured locally, you’ll have more control over the quality and your customers will have the knowledge that you are supporting local industries. You’ll also be working within a familiar legal framework in terms of labour standards and intellectual property rights and you may have greater recourse if production problems arise. However, local manufacturing does come with higher costs and there will be fewer manufacturers to choose from.

Manufacturing a product from scratch can present great opportunities for your online business but there are many factors to consider before you begin production.

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