As the internet and technology continue to disrupt and consolidate global supply chains, an increasing amount of small business owners take a ‘factory-direct’ strategy, meeting and working with overseas suppliers to curb third-party overhead costs. On the surface, this strategy may appear to present a cost savings advantage, but closer inspection reveals another story. More often than not, a ‘factory-direct’ approach creates a greater financial business risk rather than a cost savings advantage. These financial risks are often blanketed through opportunity costs such as lost time invested towards developing core business strengths, lost sales from the absence of a full-time commitment towards acquiring sales and developing marketing efforts, and increased risk of late market entry. Full Service project management firms serve to offset these costs by affording small business owners the opportunity to focus on growing their business without the risks and distractions of managing complex manufacturing and logistical networks.
Here are some tips to remaining cost competitive while ensuring your new product hits the market on time
Do What You Do Best – Operating Your Core Business
Most entrepreneurs and business owners can tell people a thing or two about not having enough time in one day. But what if the pressure of time management was compounded by having to lead an entire line of business outside your core operations? If it doesn’t sound practical, then it’s because it probably isn’t. Yet small business owners often unknowingly take on managing two businesses; selling and market development and the complexities and challenges of outsource manufacturing for their new product launch. There’s nothing wrong with searching for new ways to cut costs, but the unintended consequence of managing a product’s entire outsource manufacturing process often creates unforeseen and unnecessary financial risks.
Full service project management firms provide value by assisting with product design, identifying and verifying qualified suppliers, providing technical engineering, manufacturing, and a global logistics network. This leaves you, the business owner, with more time to do what you do best – growing your core business.
Boost the Bottom Line by focusing on Sales – Not Manufacturing
Lost sales are one of the biggest hidden costs of managing a ‘direct’ outsource manufacturing operation. Potential lost sales are often difficult to calculate because they’re amassed in terms of missed opportunities, rather than explicit costs captured in a company’s financial statements. How many potential sales is your business losing out on? To find out first, calculate the number of sales forecasted for a new product launch that includes a full-time commitment from your sales staff team. This also includes a full-time commitment towards conducting market research analysis, building and enhancing your website, developing packaging and art, attending trade shows, generating new leads, traveling to meet buyers, and closing deals. After this, make a similar calculation, but this time with a part-time commitment towards all variables. The resulting variance is the true opportunity cost of lost sales from the absence of a full-time commitment towards acquiring sales and developing marketing efforts.
Outsourcing the manufacturing process and all supply chain related operations allows new product developers to focus on their biggest bottom line driver – lead generation.
The Early Bird Gets the Worm: Market Pioneers vs. Late Entrants
Everybody loves a good product success story, but nobody likes to hear about a product flop. There’s a mirage of new product success stories circulating on the internet of an entrepreneur or inventor that introduced a product on the market that was a huge success. There are probably even more product failures we never hear about because the product was simply late to market and a competitor had already captured sales in that category.
Full service project management firms have the resources to execute both small and large size manufacturing projects at a speed and scale in which individual players can’t achieve. This advantage allows small business owners to launch their product on the market faster than doing it themselves. China based firms are also able to leverage combined volumes at factories and thus achieving lower costs than individuals can independently obtain.
Even if one is able to successfully navigate the myriad of Chinese suppliers, cultural hurdles, and processes of manufacturing overseas, the challenge of maneuvering through a ‘do-it-yourself’ style outsourcing project jeopardizes the ability of products to hit the market on schedule. When it comes to new product launches, the only benefit a delay provides is the one your competitor receives from beating your product to the market.
Whether managing overseas manufacturers directly or utilizing a full-service project management firm, devising an outsource manufacturing strategy is an important decision where both upfront and hidden costs must be carefully weighed. While some may succeed in leading their own outsource operations, there a multitude of reasons why full service project management firms are reputed as some of the most trusted and reliable sources to bring new products to life on time and within budget.
Michelle Scheblein is China Business Analyst at BaySource Global. She has a B.A. in international business from the University of South Florida and has studied, worked, and traveled throughout China. She can be reached at email@example.com