The Hidden Costs of Manufacturing Overseas
With the increase of globalization, it is becoming easier to get an overseas supplier to quote a price for your products. However, there is MUCH more to consider before getting your goods manufactured overseas. There are definitely risks with choosing the wrong supplier, but even if you are working with a capable supplier, there are still a lot of additional costs to consider. Some of these costs might seem to be no-brainers but there can be a lot of hidden costs that can sink an overseas venture. Usually the most expensive costs are the unforeseen ones. Neglecting these can result in some unwanted surprises and eat away at your margins. Here are a few of the additional costs to consider:
Building a Relationship
When doing business overseas, some manufacturers will not do business with you unless they trust you. It may be a cultural thing, but it will benefit you to know the people better and also trust in them to manufacture your product the way you expect. Often selecting a manufacturer overseas will require a trip to meet face-to-face with the manufacturer, see where your product will inevitably be made and to start a relationship with your manufacturer. If you’re going to be manufacturing large volumes of your products, you are going to want to make sure, not only that the factory can meet your standards, but also has the ability to make your product and meet your quantities. Such a trip involves costs such as hotel arrangements, transportation, food and potentially a translator.
Hiring a third party inspector and sending them frequently to check in on factories and making sure that your quality stays up to par is often necessary in order to avoid getting products that don’t meet your standards. Often, the first production lot may be of high quality, but this quality may start to slip in subsequent shipments if you do not stay on top of it.
It’s crucial to factor in shipping costs in your budgeting. This can often be significant to your unit cost and it can also fluctuate quite a bit with fuel prices, etc… There may also be many handling charges and fees that are applicable for each shipment, so for small value shipments, these costs become a very significant part of your shipping costs.
When going through the quote from the supplier, it is important to understand from what point you will be responsible for the shipment. For example, EX Works terms mean that you will be responsible for the shipment and costs from the moment the goods leave the factory door. FOB terms mean that the supplier will be responsible for the shipment up until the point that it is loaded on the ship. So it is essential to properly calculate and factor in all the costs involved in getting the shipment to you. You would not want to find yourself stuck having to deal with a foreign country’s export customs department.
Shipping dimensions are an important factor in the shipping cost. Making sure to work out appropriate packing to reduce the shipping dimensions can save you money. Even something as simple as designing product packaging to enable products to be interlaced, as opposed to stacked, will allow for a higher quantity to be packaged in the same amount of shipping volume. This will reduce the shipping cost per unit and will end up saving you money overall. Damage caused by shipping factors such as humidity, potential water damage or mishandling of products can cost much more money than if you were to just spend on better packaging/shipping materials in the first place.
Customs Duty and Tariff Codes
It’s very important to check if there is any customs duty and other applicable fees when importing the goods. These costs can come as a surprise if you neglect to look into it when calculating your costs.
Understanding the tariff codes for your product is also very important, and may provide opportunities to save yourself money. Your product could potentially fall under several different classifications and in some cases might not even be subject to customs duty at all.
Sometimes if the product is for a specific application the customs duty is less than if it is classified more generically. For example, certain electric motors are subject to customs duty; however, if the motor you’re importing is only for a specific application like as a part of a humidifier, then it can be classified as such and may not even be subject to any customs duty.
No Price Tag on Time
Finally the most expensive cost will be your Time. In this day and age time is money. For every second you are not stressing about your shipments, or worrying about the quality of your product, you can spend it focusing on growing your business. Time spent on the phone at two in the morning dealing with someone on the other side of the world is a headache, and can be draining. While you might see the price tag right away from your air plane ticket, the time you spend meeting with manufacturers and finding the right one for you will not have a price tag. Time is a valuable asset and a costly one.