What small businesses need to know about manufacturing

If you’re a small business and need to work with a manufacturer, it can be overwhelming. There’s a lot to know. 

There are different processes used in manufacturing industries for everyday and specialty products. You might work with a global manufacturer, or you could keep your business fully within the US. 

You need to maintain a strong relationship with your manufacturing partners, and before you start working with a company, you should have done the research and assessed all risks. 

The following is a broad overview of what you need to know about manufacturing, particularly from your perspective as a small business owner. 

The basics of manufacturing

Manufacturing is a term encompassing the process of making goods by machine as well as by hand. Then, once the product is completed, the business can sell it to another business or directly to a customer. 

Raw materials are used in manufacturing, as are components that are used in the creation of a bigger product. Manufacturing is typically done on a large scale using skilled labour and machinery, but it can be done on a small scale too. 

There are three general types of manufacturing processes.

The first is called Made-to-Stock or MTS. In this scenario, a manufacturing facility will create goods to stock stores. The manufacturer plans production activity based on their predictions of the market.

They don’t want to sell too much because they may have to sell it at a loss, and if they sell too little, they might not be able to cover their costs.

Made-to-Order or MTO is a scenario where producers wait for orders and then manufacture stock based on those orders. The manufacturer doesn’t have to rely so heavily on market demand, but to stay in production, a steady stream of orders is needed. 

The third manufacturing model is Made-to-Assemble or MTA. In this scenario, a manufacturing facility creates components or parts to anticipate orders for assembly. 

Preparing for manufacturing

If you’re going to hire a factory to begin producing products for you, such as various types of annealing ovens, you should do a few things first. 

·       Conduct market research. You have to make sure you’re not going to spend time and money manufacturing something that there’s no market for, and no one will buy. You have to have a clear, research, and data-driven view of your competition and how you’re going to further create value for your customers. 

·       Licensing is a step where you’ll decide if you’re going to produce and sell a product yourself or you’re going to license the idea to a more experienced company. When you license your idea, the company renting it from you handles manufacturing, marketing, and distribution and then pays you based on sales. You don’t have to invest anything upfront. 

·       If you’re going to manufacture your product yourself, you’ll have to create a prototype. The prototype will allow you to refine your product design and ensure that you can make it to specifications in a factory setting. 

·       You may need to protect your intellectual property. You can do this by registering for a patent, buying a trademark, or copyrighting your work. 

Choosing a manufacturing partnership

When you choose a manufacturer to work with, your goal should be a smooth, mutually beneficial, and long-term relationship. To achieve these goals, remember the following:

·       To prepare for a mutually beneficial partnership, you want to make sure that you’re ready to bring an incentive to the table. If you’re a small business or a startup, this can be tough because you might not be able to offer the volume manufacturers are ideally looking for.

You may have to identify other strategic ways a relationship with you will benefit the manufacturer. For example, maybe it will allow them to expand into a new category of business. 

·       Checking references before you partner with a manufacturer is one of the most important things you can do. 

·       Take it slow. It takes a lot of resources in terms of both time and money to set up manufacturing, and mistakes can be costly. 

·       You can reduce your risk if you’re able to rely on multiple options instead of one vendor only. If you have a list of vendors you trust and you can alternate working with them, you’re not only spreading your risk, but you may be able to get more competitive pricing. 

·       Know the people that you work with. Relationships are important, and you need to feel comfortable with the people you partner with. If you’re going with an overseas manufacturer, this part can be more challenging, but you should go overseas at least once to see the facility and meet the owners and employees. 

Know the risks of working with manufacturers ahead of time, so you can better protect yourself against them. 

For example, you want to make sure that your manufacturing partners are using fair labour practices.

Otherwise, you could be facing a PR crisis. One way to mitigate this risk is to work with a US-based manufacturer. The higher upfront costs are often offset by the risk mitigation of keeping your manufacturing in the country. 

You need to determine how a manufacturer treats and pays their workers, whether they’re compliant with all regulations, and how safe the working conditions are. 

Another risk is fraud, especially if you want to work with a foreign manufacturer. Corruption and fraud are often common overseas.

Before you go any further in a relationship with a manufacturer, you need to check references, as mentioned above, and ask to see the business's finances you’re thinking about partnering with. 

Finally, when you work with a manufacturer, IP theft can also be a potential risk. Your IP is the core of what sets you apart.

One way to protect your IP is to use multiple suppliers to get materials, and you should make sure you have all the necessary legal protections in place before you talk to manufacturers at all.