This one is a big question because there are so many variables involved that there is not one answer or process that can cover it all. But let me take a go at the “how to lower manufacturing cost” with three simple steps, based on my experience working with hardware startups and manufacturers:
1.) Get Volume Pricing – when getting quotations on your manufacturing costs, get a few quotes on F.O.B. and E.X.W. prices based on a volume, and don’t get a quote on small volume numbers. For instance if you’re making a computer mouse, ask for FOB/EXW prices for 5,000 units, 10,000 units and 30,000 units. Don’t ask a manufacturer for an FOB of 200 units. This usually means tells the manufacturer that you cannot have their production lines running nonstop for days, and therefore they will slap on a huge markup on your price. In the meantime, ask at least five different manufacturers to see if you’re getting consistent numbers. This will give you a ball park figure on the range in pricing based on volume.
2.) A local touch goes a long way – one other trick I like to use is to call them directly and assuming you’re working with Chinese manufacturers, to have a friend/staff to call in Chinese and ask the same questions. For some reason, there is an unsaid local price, though don’t expect a haircut of 25%, it’s more in the 1-3% range.
3.) Go straight to the components provider – most manufacturers are not verticalized especially in today’s economy. This means that most manufacturers source from suppliers themselves. If you’re manufacturing at volume, you have the ability to go directly to the components manufacturers and negotiate with them on cutting price. A lot of the conversation will be around promising the supplier large volume orders on a continuous basis.
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