How to Work with Offshore Manufacturers
If you’re looking at offshore manufacturing as a means to reduce your costs, make sure you spend the time upfront to thoroughly research, and carefully evaluate, your decision. You want to make sure that it’s the right decision for your company, and that you find the right partners.
Carefully Evaluate the Costs
The general assumption is that it’s cheaper to manufacture offshore than in Canada; however, you might find that isn’t necessarily true when you calculate the direct and indirect costs involved.
Direct costs include:
- Customs brokerage fees
- Import duties
Indirect costs include:
- Management time
- Potential loss of intellectual property
Your indirect costs will vary depending on such factors as:
- The complexity of your product(s)
- The qualifications and ability of your manufacturer(s) and their workers
- The reliability of your shipper(s)
- How often you will be required to be in contact with the manufacturer, whether it's in person or by email, teleconference or video conference
Interview Potential Manufacturers
Make sure you thoroughly research potential manufacturers before entering any legal contracts. You should ask for references, and contact each one to see what their experience has been with the manufacturer. If possible, you should tour the manufacturing facility and meet the managers face-to-face to discuss how you’ll work together.
In particular, you want to ensure that the manufacturer:
- Has a good reputation and is trustworthy
- Is dependable and able to provide the goods you need when you need them
- Is able to meet agreed quality standards on a consistent basis
Evaluate Quotes and Samples
After you’ve made contact with manufacturers, you can request a price list, catalogues, and product samples. If the samples are acceptable, you can test them in the market. Be persistent when negotiating for free samples. Although those samples might be some indication of the manufacturer's quality, they might not be representative of what you'll always get.
Be careful when you are evaluating quotes. Make sure you ask for detailed quotes that provide a breakdown of all costs, including materials, manufacturing, shipping and handling, and customs costs. And, as they say, if the quote seems too good to be true, it probably is; you get what you pay for. If the price seems really low, then the quality is most likely not the best.
Pay Attention to Payment Terms and Methods
Be prepared to use Letters of Credit. Your supplier might require a bank letter of credit to guarantee payment on the products that you buy.
Refer to our Import-Starting section for more information on terms and methods of payment, and other import requirements.
About The Author
This article was authored by a member of the Small Business BC team. When you find yourself asking "How do I...?" Give us a call. We'd be happy to help.
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