5 Ways to Keep Your Costs Down When Manufacturing Products in Asia

The way you manage your costs can make your break your business, especially if you’re launching your very first product. You’ve probably heard of at least a few Kickstarter projects that failed because the founders either underestimated the cost to bring a product to market or as a result of poor planning and cost management.

Well, in this article I’ll share a few tried and tested strategies that can help you avoid that fate.

This is covered

1. Self-manage the importing process
2. Use factory standard components to reduce tooling costs
3. Implement a strict quality assurance program
4. Book ocean freight instead of air freight
5. Cost-optimized lab testing

1. Self-manage the importing process

It might be tempting to let an agency manage everything from supplier sourcing and product development to quality control and compliance. If you ask me, it’s only highly risky to outsource the entire procurement process - but also costly.

Some low-level sourcing agencies charge a commission based on the order value. It may look reasonable at a first glance, as most are not charging more than 5 to 10%. However, many sourcing agents receive kickbacks that far exceed their commission rate - thereby drastically increasing the real product cost

Another issue with low-level sourcing agents is that you’re not only paying more, but also increasing the risk of quality and compliance issues, but that’s a different story.

At the other end of the spectrum, there are professional sourcing companies that operate in a more transparent way. However, their services are either priced accordingly, or they set a relatively high minimum yearly order volume.

I know some companies which only work with importers who are currently buying for at least 600,000 US dollars and up.

By managing the sourcing process on your own, you may not only save a lot of money, but also build a transparent supply chain, which will keep paying dividends for years to come. It may take a few hours extra each week, but it’s almost always worth the extra effort.

Product Compliance

Importing costs are not only limited to sourcing and product development. Product compliance is among the more costly part of the process when launching a new product. I am not referring to lab testing costs, which I will touch upon later in this guide, but the cost of hiring consultants to assist with the following steps:

• Confirm mandatory product regulations and standards
• Create/issue certification, technical files, user manuals, and other documents
• Book and manage lab testing
• Create label and print files

Outsourcing this entire process can cost you tens of thousands of dollars, at least for more advanced products such as electronics.

2. Use factory standard components to reduce tooling costs

Sometimes you need to invest in new injection molds or other tooling to realize a new product design. That said, you don’t need to get every single button, hardware part or other component custom made according to your specification.

More often than not, you’ll actually save time by selecting factory standard components (sometimes referred to as ODM components) when manufacturing products in China, Vietnam and elsewhere in Asia.

Example: Wrist Watch Tooling Cost

As you can see in the example above, using ODM parts can save you a lot of money.

3. Implement a strict quality assurance program

Cutting costs is not all about reducing the upfront unit price. It’s also a matter of keeping the number of defective units down. I’ll let the numbers speak for themselves.

Example: Wrist Watch Defect Rate

Yet, many buyers (even those with experience) fail at keeping the defect rate at a low level.

One reason for this is caused by poorly defined product specifications. Regardless of what you buy, it’s always critical to clearly defined the product’s material, design, quality, functionality and compliance requirements.

Second, this must be complemented by a strict quality control process, as you must also verify if the product is made according to your well-defined specifications.

Luckily, this is the easy part of the quality assurance process, as you can book quality inspections online.

It’s also crucial to inform your supplier that the payment is also tied to the result of the quality inspection. It’s all about giving your supplier a clear incentive to actually bother reading your product specification documents.

4. Book ocean freight instead of air freight

It goes without saying that air freight is more expensive than ocean freight. Still, how many times have you been forced to book a last-minute air freight shipment due to delays or just poor planning?

While it’s often easier said than done, placing your order a month or so earlier than usual can save you thousands of dollars per shipment

Also, European buyers may also want to consider railway freight as an alternative to both ocean freight and air freight. It’s right in between in terms of both cost and delivery time.

5. Cost-optimized lab testing

Lab testing costs multiply depending on the number of materials and colors you need to get tested. As such, the more products, colors, and materials - the higher the bill.

Again, I let the numbers tell the rest:

Example: Garment Lab Testing

You can either cut the lab testing cost by using fewer materials and colors. In practice, this could mean that you use the same materials and colors on more than one product, or reduce the number of colors and materials used to make each product.

Another way to reduce lab testing costs is by not trying to cover all major countries at once. You’ll need to pay for each test needed, and if you intend to get it tested according to US, EU and Australian standards all at once - then it will cost you a lot more.