Low cost does NOT always mean best deal. I don’t think there is much to explain about this as it seems common sense. But, oh do people fall for this one time and time again. There are many factors that go into cost including materials, quality, service and consistency to name a few. I think we’ve all been there staring at a rack of you-name-it, T-shirts, tuners, tools etc. 2 or 3 of the items are $10, but a couple are $7. Why? Seems the grey matter rationalizes that maybe they have more volume, better material purchasing or lower margins. Full disclosure, I have fallen for this more than a few times at retail! Only after the head of the hammer flies off, the knobs on the electronics fall to the floor and the shirt disintegrates in the washer does the grey matter say “what were you thinking?”
Keep this in mind when searching for any manufacturing source. You have to think like Wal-Mart – yes the big evil retailer as some people refer to them. But they have mastered the value equation and everyone should stand up and take notice. They did not get to where they are by overpaying or taking shortcuts. They deliver the most quality for the least price – period. Of course you can pay a lot more for a hammer with an incredible handle, tuner that will work in outer space, or a designer T-Shirt with superior quality. You can also go to a flea market and get the opposite. Wal-Mart has mastered the middle ground. Getting just enough quality for the lowest price. They’re not going to waste their time on bad quality leading to brand image issues and returns as much as they are going to be shopping at the Paris fashion show for $8,000 dresses. You buy something from Wal-Mart you expect it to last long enough and not cost very much. You normally walk away feeling like you got a good deal for what you bought. The masses have spoken – Wal-Mart is king of the value equation.
How do you apply this to your business? You go into CSI mode – rather MSI mode: Manufacturing Stuff Investigation. Put the front end work into what you’re doing, ask the questions, demand the answers, trust but verify. Are they a manufacturer or trading company, broker or other? Prove your materials by MSDS sheets, get firm quotes that spell out all the materials, details, processes. Create sign off samples representing EXACTLY what the product being bought will match EXACTLY. Poke holes in their quotes, answers, explanations. Know the whole process top to bottom before agreeing to a deal. Where are they getting the raw materials, how is it verified, explain your QC, get a commitment in writing. Be up front with them, “your quote is 20% lower than 3 other factories quoting this – how do you explain this? Not that I want to pay more, but I do need to know how you get to your price”. In 90% of the cases I’ve seen, the answers lie in the details. Go MSI on them!
Real world example: So many to choose from, but 1 in particular stands out. They had an simple powder coated aluminum extrusion part – not complex but important since it had to withstand the outside elements of a Minnesota winter. I quoted the unit with the most critical part being a specific Sherwin-Williams protection paint. I provided the details, MSDS, had all the logistics worked out. They went with the lower cost supplier in China. I was on good terms with this client and I asked what they ended up paying for the unit. I was very surprised as the paint alone to transport from North America was spendy. Sherwin-Williams did not supply this paint in China. After informing the client of this, they said they had a good feeling about this supplier and he guaranteed it was all spec materials and the samples looked good. Only took a year before my phone rang asking me how fast can we could manufacturer that part. Turns out the supplier was using a Chinese aluminum (weaker structure and obviously lower cost) as well as an off brand “equivalent” powder coat paint. Could have been avoided by going MSI. Before it ships, get the certificate of quality from new suppliers. Have them show the raw material invoices, contact names and numbers to suppliers, even negotiate in the deal that they pay for certified lab testing to verify coatings.
Summary: We all love Earl Scheib and Dr. Nick – but what are you really getting in return?
Posted by Joel Buckley – Entrepreneur
Posted by Joel Buckley
Specialized in product development, sourcing, marketing and branding