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contract manufacturer Archives - Strategic Edge Imports

04 Feb


Don’t Get Burned by the Wrong Manufacturing Partner – Part 2

February 4, 2016 | By |

Thinking vertical integration is critical to best price and lead time. Keith wrote that sometimes this statement is true, but is mostly based on simplified logic and not detailed analysis. “If vertical integration is universally the right model,” he said, “why did the vast majority of OEMs abandon it well before the outsourcing model took off?”

Your business should be able to manage production. Managing manufacturing, outsourced or not, and the supply chain is a profession of its own, and requires its own skilled professionals. Great small businesses may try to stick manufacturing operations under product development, but very, very few are truly successful with this strategy.

Bigger contractors will produce your product at a lower Valued-Added Margin (VAM). said this may be true in some instances, but it’s almost wrong more times than it is true. “For most CMs, the largest cost contributor to VAM is what we refer to as labor influenced costs which include direct labor, indirect labor and even facilities cost,” stated Keith. The purchase of local labor isn’t impacted by volume discount as it would be for raw materials.

Just because one contractor’s presentation was better than the others, it doesn’t mean they’re the best choice. Make sure you don’t confuse resources and expertise of a sales and marketing department with the actual work a manufacturer does. Make reference checks and talk to the operations team, as well as the sales team.

Needing the most technically competent partner. Yes, technical experience is an important part of your decision, but it’s not the biggest factor. Working effectively with your contract manufacturer is a complex relationship, and must function well across many areas. You want your relationship with your manufacturer to be a commercial relationship, and the technical performance shouldn’t overshadow all other requirements.

When it comes time for you to chose a manufacturing partner, remember these tips to make sure you’re getting the best for your business. Don’t get burned by a partner that doesn’t fit your business’s needs!

27 Jan


Don’t Get Burned by the Wrong Manufacturing Partner – Part 1

January 27, 2016 | By |

factorySelecting a manufacturing partner is no easy task! It’s also very crucial to your business’s success. shared a list of some of the most common myths and misconceptions about selecting a contract manufacturer, and here they are summed up for you.

The right contract manufacturing partner will make everything perfect. No, according to, contract manufacturing is a very difficult, competitive, low-margin business that needs to actively be managed. In order to get the best results, your business needs to effectively manage your outsourced manufacturing.

Finding the lowest quote price. “For many products and markets, the X-works per unit manufactured quote price captures just 70% to 80% of the total supply chain cost,” the article reads.

Author Ron Keith, Chief Executive Officer, Riverwood Solutions, wrote he’s “seen many instances where going with a per unit quote price that was two points lower ended up costing an extra five points in other less visible costs – both internal and external. Additionally, many CMs have well-developed and institutionalized business processes for identifying and capturing additional costs that were not included in the quote that are then passed on to the OEM in the form of various fees and charges.”

Impressing your board with a “Tier 1” manufacturing service provider. According to the article, contracting manufacturers are generally grouped in tiers, from one to four, a system which was developed by the financial markets to help explain the differences across the industry. Keith explained, the only time you’d truly need a big contractor is if you have a “great big piece of business to place.” He said, in most cases, he advocates finding the right size fit – including technology, geography, management style, end market experience and your business model.

Not choosing a company because they work for your competitor. You should find the most capable and compatible contractors for your business, even if they are working for your competitor. If the contractor fits your business, that’s what matters most. Having the same contractor is not the same as manufacturing your product on the same line with the same staff as your competitors.

Needing a partner willing to invest in your business. Keith explained, “In my experience, the statement above generally implies that the OEM is looking for someone to lose money building products for them. Rarely is there an actual advantage to having a key supplier lose money on your account – and if you revisit item number 9 above, the fact of the matter is that they rarely do. Expecting a CM with a 6% ROA and a 12% WACC to ‘invest’ in your business is a bit like asking Bernie to manage your accounts.”

That will wrap it up for this week’s manufacturing myths, but stay tuned next time for Part 2 of the series. In the mean time, if you have any questions about manufacturing truths or would like to know more information about what an importing business like SEI can do for your company, don’t hesitate to give us a call!