Sourcing and the Size of Production Runs

When sourcing an order with a Chinese or other overseas factory, a major decision is the size of the production run. Numerous factors need to be taken into consideration when deciding the size of an order. The following is a look at some of these factors.

The amount that can be invested in production is an obvious factor. With economies of scale, it is best the place the largest order one can afford to get the lowest unit cost. Up to a point, the larger the order the lower the unit cost. Also, shipping and other costs tend to be less when ordering in bulk. Shipping by full container gives the best rates. These factors need to be balanced with storage costs, projected sales and the amount the organization buying the product wants to invest.

One factor when deciding the size of a production run is trust in the manufacturer. Sampling is not always a clear indication of the quality of work a factory will ultimately produce. Until the manufacturer has demonstrated they produce quality work on a consistent basis, it is prudent to limit exposure in any single production run and source in smaller quantities.

Time will also dictate how large a production run should be. When time is limited, it is sometimes necessary to do a run that is smaller than would otherwise be optimal.

Setting up a production run requires time and money. Machines and parts often need to be purchased, workers trained and factory floor space set aside. If the manufacturer does not believe the order quantity will generate enough profit to make the production set-up worthwhile, they will simply refuse to take the order. Therefore, while there are a few products that can be ordered by the hundreds, the vast majority require production runs in the thousands, tens of thousands or more. Size of Production Runs

Suppliers are also often a factor. Buying on the open market is usually considerably more expensive, so materials need to be purchased in bulk from suppliers. Even if a manufacturer is willing to do a smaller run, they may have to purchase materials in much larger quantities than needed for the production run. Since manufacturers are rarely willing to store materials, any leftover materials will be considered waste and will add to unit costs.

The type of product is also a major factor to consider when deciding on the quantity of product to order. Some products, such as plastics, need molds and therefore require some of the largest production runs. Not only does the mold need to be produced, which usually requires a significant investment, but the materials for the plastic must be purchased in bulk. Furthermore, machines need to be set-up to produce the mold.

Molds and tooling are major factors in determining production runs. Since they usually require a significant investment, a larger order quantity may be needed to allocate the set-up costs over more units. If the purchaser is planning future orders to recoup these costs, they should stipulate they will own the tooling.

On the other hand, products such as bags are easier to source and their production runs tend to be less complicated to set-up. They can sometimes be ordered in much smaller quantities.

While every product is different, carefully considering these factors will help in deciding the quantity of a product to order with the factory.

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