Supply Chain Part 2
So… We’re back
Bob needs to decide where to produce and the next question I get secondly most often, which is; Do suppliers really not want to run my orders? Sadly, no, they really don’t.
A false notion in many start-ups of physical consumer goods is that your special and you have the leverage because you are going to pay. The reality is your start-up cost suppliers more than not.
Back to Bob, remember he is looking for a cell phone case manufacturer; he used Alibaba to source five suppliers and is in negotiating, which we can touch on this in next weeks post about sourcing and suppliers; how to pick one. Bob begins discussing his opening order; these suppliers bolster extremely low prices but their MOQ is 50,000 units; Bob is not discouraged - He continues to push.
Here is the catch, the suppliers do not need Bob’s business. His opening order is 5,000 units due to the lower volume the cost per units is higher for the supplier. The supplier is currently producing hundreds of thousands of cases each week – frankly, Bob is not special at all; he’s an annoying noise no supplier wants to deal with unless they see a later opportunity for larger order.
So how does Bob get it produced – there are few options, but all start with Bob knowing he is at the mercy of the suppliers not the other way around. 1. He find a supplier that will run it and sees Bob’s “big” picture. This is hard to find but not out of the question and relies on Bob’s ability to sell his story. 2. Start with local suppliers in the US – to start. Yes you will need to take less profits and possible get creative on how to reduce cost in other areas such as packaging or pushing shipping cost to customers, etc. Once you hit larger orders, work with US suppliers to reduce cost and keep it in the US or move your larger numbers outside the US for lower labor rates. 3. Pre-sale and use profits from purchased units to help push your opening order to the desired MOQ.
So, remember you’re not special until you start hitting higher unit numbers. Now how to see red flags and how choose a supplier…we will jump on this next week as we continue this supply chain econ 101.