This blog is about the top three mistakes that entrepreneurs make when manufacturing a product overseas for the first time. Mismanaged manufacturing can cost you an exceptional amount of time and money. In some cases, these mistakes can even put you out of business. The top three mistakes are:
- An improper or unclear Tech Pack
- Miscalculating total production cost or “landed cost”
- Not obtaining a legally binding factory agreement
1. Unclear Tech Pack
A Tech Pack, or technical package, is the blueprint of your product. All crucial aspects of your product design need to be included in this document. Your tech pack must include the following:
- Detailed measurements
- Specific materials
- Color codes
- Reference images
If your Tech Pack is unclear or missing vital information about how to build your product, then two things can happen:
- The factory will tell you to submit proper designs
- The factory will accept your tech pack and make your product however they think is best
If you leave it up to the factory to interpret your tech pack, then you will never receive a correct product sample, no matter how many factories you investigate. The best practice is to hire a professional tech pack designer to create your design files. Tech pack designers for apparel and accessories products typically charge anywhere from $10 to $100 per hour. Depending on the complexity of your product, you may need to hire an engineer, which could be more costly. However, getting your tech pack right is crucial for successful production.
2. Miscalculating Total Cost aka Landed Cost
Total cost of production is much more than the cost of materials and labor. Often referred to as “landed cost”, your total cost of production includes:
- Duties (tariffs)
We have found that many novice entrepreneurs do not account for key expenses like shipping and duties when calculating their total production cost. As a result, they do not accurately price their products and their profit margins suffer.
International shipping is costly. Depending on your product and where it’s being made, import duties (tariffs) may significantly add to your total expense. Since the US trade war with China, some products being imported from China have become much more expensive. It’s also essential that you classify your product properly on your import documents. Misclassification can result in your product being held in customs along with hefty fines.
3. No Factory Agreement
Not signing a legally binding factory agreement is one of the biggest and most common mistakes that entrepreneurs make when manufacturing overseas. Not having a proper factory agreement in place means you do not have any legal protection if the factory does not complete your order as expected. For example, a factory in Asia could decide to use a material other than the one you approved for your production, resulting in your product being defective. If you do not have an agreement that is legally binding in the country where your factory is located, then you will have no way to get your money back. For small and medium-sized businesses, this type of mistake could put you out of business.
While there are a variety of things that can wrong when manufacturing a product overseas, if you can avoid these three rookie mistakes, then will be much better off. Product development and manufacturing has many complicate pieces, but we are here to help you. Contact us today for a free consultation and let Blacksmith worry about your supply chain so you can focus on growing your brand.