I'm launching a Kickstarter campaign next month and investigating manufacturing options for my robotics start-up. I'd prefer to deal with an American manufacturer that I could easily visit, verify and trust, but Chinese manufacturing is much cheaper and seems better supply-chain wise. How should I decide whether to work with an American manufacturing firm vs. a Chinese supplier, given the cost constraints of being a crowd-funded start-up?
Jackie Wu Unnamed robotics start-up
Cost constraint is a reality every entrepreneur must live with, and you are not an exception. However, how you manage your cost will determine your success.
Whether or not to go offshore is a complex decision because it is affected by many factors, and it is not possible to give a generalized suggestion that is going to be appropriate for all situations. However, a simple question could simplify the process: Why do you want to go offshore? There are three possible reasons for that: input or resource-related benefits, manufacturing-related benefits and market-related benefits. However, the net benefits must be weighed against the additional logistics cost and the loss of flexibility and control.
In your case, it is very easy to estimate the direct cost of manufacturing and logistics. However, it is very difficult to estimate the cost of loss of flexibility and control with simple accounting methods because many of these costs are intangible. Moreover, they can be significantly larger than your direct manufacturing costs and should not be overlooked. What will be the cost of any supply-chain disruption? How expensive will it be if there is an increase or decrease in demand for your product? How are you going to control quality? Furthermore, how are you going to protect your intellectual property? How many times do you have to travel to your offshore site? What are the currency risks? What are the tax implications? These are some of the questions that you must try to answer to help you come up with a well-informed decision.
About the author
Debasish N. Mallick is a professor of technology and operations management at the University of St. Thomas Opus College of Business.