Ecommerce Retailers Guide to Manufacturing
- Written by Kaleigh Moore
The product is the core of every ecommerce business. Whether you have years of experience or you’re just starting out, figuring out the production of your products can be your biggest competitive advantage.
The question is: Should you manufacture your products in-house or outsource production? If so, should you work with local or overseas manufacturers and suppliers?
To help you find the answers to these questions and understand the pros and cons of both in-house manufacturing and production outsourcing, we created a comprehensive guide to manufacturing for ecommerce retailers. Let’s dive in.
What is production outsourcing in ecommerce?
Outsourcing production in ecommerce is the process of partnering with external manufacturers to produce your products. This way, you can focus on other aspects of your business while entrusting the production to external partners.
Like with any business decision, there are some pros and cons you need to consider when deciding whether to outsource the production of your products.
Pros of outsourcing production in ecommerce
Cost efficiency—One of the main reasons why ecommerce retailers opt for outsourcing production is cost efficiency. Eliminating the need for investments in production facilities, equipment, and people can result in significant cost savings, which can be beneficial, especially for smaller businesses just starting out.
Focus on core business aspects—Outsourcing product manufacturing not only helps businesses save costs but also allows them to focus on other core business aspects, such as strategy, product development, marketing, and customer experience.
Access to experienced manufacturers—Going down the outsourcing route gives businesses access to experienced manufacturers with the skills and knowledge to produce high-quality products. Oftentimes, these manufacturers also have cutting-edge technology that is extremely expensive and that ecommerce retailers would not be able to afford otherwise.
Business scalability—Starting a small in-house manufacturing facility is one thing, but opening a facility that allows you to scale your production is a huge upfront investment that not many ecommerce retailers can afford when first starting out. Outsourcing production allows you to partner with some of the biggest manufacturers in the world that are able to support your future growth.
Cons of outsourcing production in ecommerce
Lack of control—Outsourcing production means giving up part of the control you would have if you had an in-house manufacturing unit. Working with an external partner means you don’t have control over their processes, decisions, and schedules. This can be a challenge, especially if there are significant changes in market demand, because you won’t be able to react instantly. Outsourcing also makes you more vulnerable to external factors depending on the location of your manufacturers.
Communication challenges—Working with external partners, especially with ones based in other parts of the world, can lead to communication issues caused by language barriers, time zone differences, and even work culture discrepancies. As a result, you can experience delays and misunderstandings that can affect your overall business performance.
Quality control risks—Another potential challenge when working with external manufacturers and suppliers is the lack of quality control. Even though you can agree on certain standards and processes during the negotiations, you can’t perform quality control until the products arrive at your company. This is especially emphasized when working with manufacturers from different countries. Due to the physical distance, you’re not able to perform quality control, which opens up risks for product defects.
Security risks—One more thing to keep in mind when working with external partners is the possibility of security leaks and intellectual property (IP) theft. You can prevent security risks by signing a non-disclosure agreement (NDA). However, you must be aware of the potential risk when exposing sensitive information to external parties.
How to find the right manufacturers
Finding the right manufacturers is not an easy tas; you’ll need to consider many aspects before making a final decision. To help you navigate this challenge, we created a list of questions you should ask and things to look for when choosing manufacturers for your ecommerce business.
Questions to ask manufacturers
1. Lead times
Lead time in manufacturing refers to the amount of time it takes for a product to move through the production process, from the initial order to the final delivery. Having a clear understanding of the lead time will help you organize your processes and plan your orders accordingly.
“Always make sure to know the timeline for production and shipping and give yourself buffer room for the unexpected delays.” - Jason Wong, CEO of Saucy
2. Minimum order quantities
In some cases, manufacturers have minimum order quantities, and you can’t order less than the specified quantity. This helps them ensure efficiency, which also impacts the final product price. Having this information upfront can help you make better forecasts and plan your other activities accordingly.
3. Shipping methods and costs
Shipping costs are a big part of the final price you’ll pay to produce and transport your products. Working with overseas manufacturers makes this cost even more prominent.
That’s why you need to negotiate before making the final decision.
You can also decide to take over the responsibility of arranging the shipping, meaning you’ll have to find a shipping company and handle the whole transportation process.
4. Potential price changes
Prices are not set in stone. They might vary based on different factors.
While some are unpredictable, you can still discuss potential scenarios with the manufacturers to understand under what circumstances the prices would change.
Being aware of market fluctuations and situations that would lead to price change is essential in future-proofing your ecommerce business.
5. Quality control processes
Outsourcing the production of your ecommerce products means that you won’t have full control over the quality.
That’s why you need to discuss and understand the processes manufacturers have in place to check the quality of the final product.
That said, having a third-party inspection is always good, especially if you’re working with overseas partners.
6. Return policies
There’s no way around it—product returns are a normal part of doing business. So, instead of hoping you won’t have to deal with them, discuss return policies upfront. Ask how manufacturers handle returns and negotiate the best way to deal with returns and refund processes.
7. Customer service
Clear communication is the key to a successful partnership with external partners. When looking for manufacturers for your ecommerce business, ask for the customer service and test how responsive, helpful, and friendly they are before signing a contract.
Having a reliable production partner is vital for the business, and finding a proactive and responsive manufacturer will save you lots of headaches in the future.
8. Payment terms and discounts
Negotiating payment methods and terms can set the foundation for a long-lasting partnership. Depending on the quantity of the order, you can even negotiate discounts.
Ask the manufacturer what payment methods they accept, and when payments should be installed. In most cases, manufacturers have clearly defined payment timeframes. However, you can always negotiate and try to get the best deal.
9. Samples
Always ask for product samples. Samples are a good way to define product quality upfront. Note that in some cases, you’ll have to pay for the sample, so make sure to ask the manufacturer for the sample pricing. This is especially the case if the sample is a custom product.
10. Sustainability practices
The topic of sustainability has become a mainstay on news feeds. Customers are becoming more aware of the products they buy and their environmental impact.
During the process of manufacturer selection, make sure to discuss sustainability practices, as this is something that can affect your reputation moving forward.
Things to look for when choosing manufacturers
Financial stability
Stabile geopolitical climate
Quality certifications
Scalability potential
Track record of timely deliveries
List of references
Reliable customer support
Local vs. overseas manufacturers: Everything you need to know
If you decide to outsource your production, you need to make one more decision: whether to use local or overseas manufacturers. Let’s look at the benefits of both strategies.
Benefits of partnering with local manufacturers
Flexibility—One of the biggest benefits of working with local manufacturers is the flexibility you’ll get. Local manufacturers can respond faster to changes by quickly adjusting production schedules and adapting to shifts in demand. As a result, your business will be more flexible and agile.
Control—Working with local manufacturers simplifies the process of quality control. The physical proximity gives you a better sense of the production process, making it easy to go on the spot whenever necessary.
Reduced supply chain costs—While working with overseas manufacturers can help you save production costs, working with local partners means reduced shipping expenses, lower inventory carrying costs, and minimized risk of currency fluctuations.
Sustainability—Another benefit of working with local manufacturers is the positive impact on sustainability, as you can decrease carbon emissions through lower transport and travel.
Clear communication—Working with local manufacturers can foster better collaboration, clear communication, and, as a result, a long-lasting partnership. The possibility of in-person meetings can contribute to better understanding and quality of service.
Benefits of partnering with overseas manufacturers
Access to a greater number of potential manufacturers—If you’re not limiting your selection to local manufacturers only, you have a significant poll of companies you can partner with. This gives you a greater choice and opportunities to work with some of the best companies in the world.
Proximity of raw materials—In some cases, the materials you need for your products can’t be sourced locally. Working with overseas manufacturers means close proximity to raw materials which cuts down the costs of shipping raw materials.
Access to advanced technology—Manufacturers specialized in producing specific products invest a lot of money in the latest cutting-edge technologies, which helps them be more efficient and productive. By working with them, you get the benefits of having access to advanced technology.
Higher manufacturing capabilities—Scaling is not an issue when working with overseas manufacturers. They have the capacity to scale production and support your business as it grows in the future.
Lower production costs—Lower material and labor costs make overseas production less costly. This is usually one of the main reasons why many US ecommerce businesses work with overseas manufacturers.
What is in-house production in ecommerce?
In-house production is the process of manufacturing products within your own facilities. Businesses that choose this approach own every aspect of the production process—from sourcing materials to quality control and fulfillment.
But does in-house production make sense for your ecommerce business? Let’s examine the pros and cons of manufacturing products in-house.
Pros of in-house production
Greater quality control—In-house manufacturing allows you to control every aspect of the production process, which in turn helps you meet quality standards. Being in charge from the moment you receive the raw materials until you get the final product, gives you a clear picture of all the potential issues, risks, and inefficiencies. Having these insights can help you optimize the processes and get a better output.
Customization ability—If you want to create highly customizable products, in-house production might be a better fit for your business. Understanding customers’ needs and tailoring your product offering to fit different needs and preferences can be a significant competitive advantage.
Faster turnaround time—Manufacturing products in-house can help you speed up turnaround time, as you don’t have to wait for shipping and transportation. Moreover, when you are in charge of the production process, you can implement workflows to remove bottlenecks and increase efficiency.
Flexible returns policy—Another benefit of in-house manufacturing is the ability to offer a more flexible returns policy. Unlike outsourced production, when you can’t respond to return requests timely, in-house production makes you more responsive and agile. The end result is higher customer satisfaction and loyalty.
IP protection—Even when your products don’t require a special secret formula, protecting your intellectual property from potential theft is easier if you’re creating the products in-house. From trade secrets to unique product designs, keeping sensitive information from external partners means higher security and peace of mind.
Cons of in-house production
Higher initial investment—Opening production facilities, buying equipment, and investing in a workforce is a significant initial investment, that not many ecommerce businesses can afford, especially when starting out.
Limited scalability—If your products resonate with the target audience, you can expect an increase in demand. To meet customers’ needs, you’ll have to scale up your production, which requires additional investments.
Operational complexities—Operating a manufacturing plant requires a different skillset and knowledge than leading an ecommerce business. There are operational complexities you’ll face along the way, and you need to be prepared to respond quickly to be able to keep your business afloat. Moreover, manufacturing products in-house doesn’t set you free from working with raw materials suppliers, negotiating prices, and managing shipping.
Divided focus—If you choose the in-house production route, you have to be aware that you’ll divide your focus and dedicate a significant amount of attention to controlling the production process. As a result, you will have less time to think about strategic partnerships, marketing, sells, and customer service.
Transform your ecommerce business today
Outsourcing production or manufacturing your products in-house is a matter of strategy. Both offer pros and cons, which you have to weigh in to see what makes better sense for your ecommerce business. This decision will also affect your inventory and shipping management.
The end goal is to create a business model that can respond to any challenges. The future will belong to those willing to reshape their capabilities and grow their business resilience.
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