A woman and a man stand among industrial machinery. Both of them wear hard hats, protective goggles and neon high-visibility vests. The woman holds a clipboard and points off into the distances. The man wears black rubber gloves and points down at part of one of the machines. Near the woman's hand holding the clipboard is a lever with a bright red ball on top.
Your manufacturing partners will be responsible for creating and distributing your products. A close and communicative relationship with them is a must-have. — Getty Images/Thirawatana Phaisalratana

When searching for and vetting a manufacturing partner, it helps to know the lingo. Working with a manufacturing partner requires knowing a little about a lot of different things: logistics, distribution, compliance and cash flow, among other things. This quick guide can help you start to build expertise as you speak to different manufacturing partners and grow your business.

Prototype

A prototype is an initial sample or model that businesses can use for testing, to solicit feedback and to introduce the concept or product to investors. Throwaway prototypes are lo-fi versions of a product or concept that can be made out of household items. These are meant to be used once to convey an idea; they can help product designers get a sense of what to build. A throwaway prototype is the same as a minimum viable product.

An evolutionary prototype is more developed. This type of prototype is built to solicit real feedback. It can be manipulated, updated and transformed to create a close-to-perfect final design. These prototypes tend to be more visually appealing and acceptable to show to manufacturing partners, investors or focus groups.

[Read more: How to Create a Product Prototype]

Minimum viable product

A minimum viable product (MVP) is a concept from Lean project management. It’s defined as “that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.” Some manufacturing partners ask to see a minimum viable product to help create a sample of the type of product you’re seeking to mass-produce.

Landed cost

Landed cost is the total amount it costs to create, transport and deliver a product to the customer. This calculation includes shipping, raw materials, import duties and other fees, shipping insurance and any other related costs that allow you to get a product from the manufacturer to the end customer. Generally speaking, landed cost is made up of four main components:

  1. Shipping costs.
  2. Customs, taxes and duties.
  3. Insurance and other compliance expenses.
  4. Handling and processing fees.

It’s important to know your landed cost to ensure you build in a healthy profit margin when you price your products for customers.

A throwaway prototype is the same as a minimum viable product. An evolutionary prototype is more developed.

Minimum order quantity

Minimum order quantity is the minimum amount that can be ordered from a manufacturing partner. For instance, a manufacturing partner may have an MOQ of 50 units, meaning you may not place an order for fewer than 50 units with them. Ask if a manufacturer has an MOQ before signing an agreement in order to effectively manage your cash flow and inventory costs.

Lead time

Lead time is the length of time it will take for the factory to produce your product. A lead time of two to four weeks doesn’t necessarily mean that it will take two weeks to create your order; it may be that there are other clients and orders that the factory needs to fulfill ahead of yours. Knowing your lead time can help ensure that you don’t run out of inventory.

Production run

A production run indicates the products that you are asking the manufacturer to make for you. A production run of a seasonal item, for instance, could be 1000; the factory will only produce 1000 items of the seasonal piece. You may hear this term used in lieu of your specific project or brand: e.g., “Your production run is scheduled for first thing tomorrow morning.”

Overs (and unders)

An over is any piece that comes off the production line that was over the quantity that you ordered. Overs are common in the production process, as manufacturers will order excess inputs and raw materials to test their machines and ensure everything is properly set up for the entire production run. Or sometimes it’s impossible for a manufacturer to make the quantity that you’ve specified, and so they will make extra to ensure they don’t underdeliver.

Unders are rare. “If setup is complicated or a manufacturer needs to run many tests, they may run out of machine time for your project, and/or they may need more than the excess testing material,” explained one manufacturing blog. “Running out of time or material would mean that you'd receive less than the quantity you ordered.”

[Read more: How to Find a Factory to Manufacture Your Product]

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Published September 30, 2021