How to Estimate the Cost of Manufacturing a Product Using a Per Unit Formula
15 February, 2021
March 25, 2021 at 3:37 am
Many of our clients initially scoff at the idea of manufacturing a product in China. Usually in this situation we let them know that the phone they called us on was made in China, the computer they found us on was made in China, most of the parts in their car were made in China, most of the items in their home were made in China. Almost every aspect of our lives involves something that has been made and manufactured in China!
This can quite a surprise for a lot of people who had previously equated “made in China” with low quality, and it often changes their minds about where they want to get their products made (although we can manufacture in the USA if preferred, but it will be more expensive for basically the same quality).
From AT&T and Armani to Yamaha and Yahoo, almost everybody is manufacturing in China. Some of the biggest corporations, American and otherwise, own or have contract factories in China to produce their products.
Sometimes they produce 100 percent of their products in China. On other occasions, only part of their products are produced there. Either way, China is hard to ignore from a manufacturing perspective.
There are a lot of misconceptions about products coming from China being of low quality. Of course you can get low quality products made anywhere, but if you use the right providers in China the quality can be spectacular. Another way to look at this question is: If everyone from Apple to Xerox is outsourcing their manufacturing to China, they must be doing something right, as you don’t hear people complaining about the quality of their iPhones and copiers!
There are multiple advantages to manufacturing in China and we will try to explain as many of the most important ones below as possible.
It may be obvious by now that manufacturing is China’s strong suit. Because of this, there are factories in China that have specialized skill sets and well-equipped factories to cater to almost any manufacturing need you can think of.
While the materials involved in production may not necessarily be cheaper, the labor costs in China are a lot less than in North America, and cost savings in labor hire can really add up in the final price per unit of your product. It might surprise you to know, however, that China does not have the lowest labor costs in the world. In fact, manufacturing in Mexico is actually slightly cheaper than manufacturing in China.
If you are worried that cheap labor = exploitation, many factories have strict rules around the quality of work and life their employees have. Just make sure you find a good, ethical factory to work with that cares about their employees. Cost of living is also much lower in China, which means people can earn less and still be getting a good wage comparatively. Even when you take shipping costs into account, it is much cheaper to import from China than to manufacture in the USA.
As mentioned above, contrary to popular belief, Chinese manufacturing can be very high quality. Chinese manufacturing processes and quality control have been refined over many decades to the point of excellence that can be achieved there today. That said, you do need to look for the right manufacturing partner. Or cut out the research and guesswork by using a company like us. We already have strong ties with vetted Chinese factories and manufacturing plants who we know for sure will do a great job with your product.
When you are creating a new product, prototyping is a very important part of the process before you start a full production run. Chinese manufacturers use state-of-the-art technologies to prototype products in many different ways. If you work with us and are producing a more complex prototype, we may suggest that our Chinese facilities produce it for you. If it’s a relatively simple product however, we may produce it locally, as you will be able to have the prototype in your hands more quickly that way.
Since China are so strongly specialized in manufacturing, they have many large scale facilities that can manufacture a lot of products, a lot faster than anyone and anywhere else.
You might think that shipping from China would take a long time but China can make and ship a product to the USA faster than, say, Australia. Due to the pandemic and shortages in shipping containers, however, shipping speeds have been somewhat reduced. Because China have the virus under control though, they were able to open their manufacturing facilities again much quicker than many of those in North America who are still struggling under lockdown restrictions.
If your idea takes off and you want to ramp up production quickly, the best place to be making your product is in China. Our Chinese factories have the people, the equipment, the innovation and the experience to scale in step with your business. They are also capable of meeting ever increasing demands if your product goes really viral.
While there are many advantages to manufacturing in China, there are also a few drawbacks that should not be ignored including:
This one may not come as a surprise. While English is widely spoken in China, particularly in professional settings, you may encounter some communication problems. English is rarely a first language and Chinese people are much more precise with their communication than we are and may take what you say in a literal sense. Because of this, a lot of manufacturers like to use photographs and webcams for meetings.
The best way to overcome problems that can occur due to communication issues is to work with a North American company (like us!) with Chinese manufacturing capabilities. Then you get the best of both worlds. You can communicate easily with us, we know how best to explain your project needs to our Chinese partners and you can still receive all the benefits of manufacturing offshore.
Because China is a popular manufacturing hub, many manufacturers are already at capacity and it can be hard to find a factory in China that will take on your work. This is especially true with smaller clients, as profit is made through manufacturing at scale, and factories may not be willing to take on smaller production runs when they can make a lot more money with bigger ones. That is a another reason why it’s useful to work with a North American company that already has facilities in China with capacity to take on your work.
Similar to the above point, Chinese factories run on lower profit margins when compared to the US, so small run orders will usually not be accepted. Larger orders keep large teams and expensive factories busy and are much preferred. For this reason you may find you have to place an order for a large number of units that will cost you more than what you had anticipated. This is great if you are an established business, but not so good if you’re just starting out. If this is an issue, talk to us and we’ll work out a solution for you.
China as a country has known a fair bit of economic and political turmoil. In fact, there was a time when the government made it mandatory for factories to increase pricing. During the height of the recent pandemic, factories closed down and shipping was quite delayed. Some of these issues you may have been able to avoid by manufacturing locally, but in some instances the tables have now turned and you will experience less delays by manufacturing overseas. If you’re not risk averse, on the balance of things manufacturing in China is a good chance to take.
While the quality of manufacturing coming out of China is amazing, some of your customers, especially if they’re older, may have long-held prejudices and think that “Made in China” means an inferior quality product. If your customers would prefer products made in the USA, this may be the best reason not to manufacture in China. Negative comments and bad feedback is to be expected if customers think your product is manufactured locally, but then find out it’s actually made offshore. You must either hide the fact that your product is made in China or ignore any negative feedback, neither of which are a good business strategy.
Despite everything we’ve said above, if you use the wrong supplier, there can be some truth to the allegations of poor quality products coming from China. While this is not true of the whole country as explained above, if you don’t pick the right manufacturing partner and know how to work with them effectively, your product quality can suffer as a result. That’s why we feel it’s important to work with a local company who offshores their manufacturing. Then you’ll know your product will be produced through reliable, established partnerships and you won’t have to figure out how to navigate the intricacies of manufacturing in China yourself in order to get a great end result.
As we’ve shown above, there are many great reasons to have your product manufactured in China, and also a few reasons you may choose not too based on personal preference.
If you’re not sure which approach is best, or have a project in mind you’d like to get started on, give us a call on 1-888-202-2052 or fill out our quote request form to get advice from the manufacturing experts here at JCAD. We’ll be in touch asap!