How to Manufacture a Product and Finding Your manufacturer in China: The Beginner’s Guide on Product Manufacturing and Contract Manufacturing

A great deal of product ideas has held back an awful lot of inexperienced entrepreneurs because they have no idea how to manufacture a product, or how to find a manufacturer to make their product happen. Putting good product ideas on the back burner is like throwing away a possible million-dollar opportunity that nobody in the business can afford to make.

It is what this comprehensive beginner’s guide is for–to help new entrepreneurs turn their ideas into tangible products and bring them to market. In the succeeding sections, you will get to learn more about the following:

• New product introduction (NPI) process

• In-house and outsource manufacturing

• When to outsource manufacturing

• Domestic and offshore/overseas contract manufacturing

• Reasons China is the best country to outsource manufacturing

• Challenges of outsourcing manufacturing in China

• Hidden costs of outsourcing manufacturing

Later in the article, we will also walk you through the steps on how to manufacture a product, including:

• How to find a manufacturer in China

• How to choose a supplier in China

• How to calculate manufacturing overhead

• How to request a quotation from suppliers

• How to ensure product quality and lead time

• How to protect your intellectual property from your manufacturer

• And all the ins and outs of product manufacturing and contract manufacturing from China

To get you started, here are some common manufacturing terms you will meet along the way.

1.1 What is Product Manufacturing?

Product manufacturing, or simply manufacturing, is the production of goods out of raw materials on a large scale. Finished goods or final/end products may be sold to other manufacturers for the production of more complex products, or be sold to wholesalers, retailers, or end users and consumers.

The product manufacturing process begins with a product design and specifications from which the product is made.

Note: If you want to explore the ground rules on how to manufacture a product, or what is known in the industry as new product introduction, we will dive deeper into this topic in Chapter #2.

1.2 What is Outsource Manufacturing?

Outsource manufacturing is the transfer of manufacturing and related support functions to third-party business entities, whether these third parties are onshore/domestic or offshore/overseas. Primarily, cost reduction and cost-saving drive companies to hire third parties.

Note: If you want to get to know more about the advantages and disadvantages of in-house manufacturing and outsource manufacturing, you will learn them in Chapter #3.

1.3 What is Contract Manufacturing?

Contract manufacturing is a form of outsourcing where a manufacturer contracts with a purchasing company to do the production of product components or ready-to-use end products.

Contract manufacturing companies that handle packaging operations are called copackers or contract packagers. Contract manufacturing companies that work for another manufacturer are called subcontractors.

In the contract manufacturing business model, a purchasing company approaches different contract manufacturing companies to produce products for them, either with a product design or formula at hand or based on the contract manufacturer’s design. Contract manufacturing companies will quote the parts based on the cost of processes, labor, tooling, and raw materials.

After a purchasing company decides which contract manufacturer to partner with, the contract manufacturer will then produce and/or ship the components or end products either directly to end consumers or to the purchasing company (for assembly, packaging, etc.)

Contract manufacturing is used by various industries such as electronics, semiconductor, textiles, food, energy, personal care, and automotive, among many others. Over the years, contract manufacturing as a business model has proven to be an unfailing strategy mainly for cost reduction, from tax liabilities to labor.

Contract manufacturing done within a country is called domestic outsourcing/contract manufacturing. When a company outsources manufacturing of a product outside a country, it becomes offshoring or offshore/overseas contract manufacturing.