Bringing the final product sketches into production is often the most exciting yet challenging part of retail. As highlighted in the Omnilytics Fashion Academy, “The supply chain is one of the most critical aspects of running a business and how you manage it will greatly impact your profits.”
Factory negotiations are one of the aspects where small and medium-sized retailers are often overlooked and under-prepared. Supply chain management covers a wide scope from order fulfilment, logistics to inventory storage. Understanding your production goals for your product line helps to provide clarity and direction in obtaining the best possible outcome and mitigate potential risks associated with the production process.
Here are the three basic steps to note when starting negotiations:
1. Factory Research
Similar to the product research and development process, it is critical to ensure your chosen factory is aligned with your product expectations. Quality and production speed are two major factors to consider when choosing the right manufacturer. The most crucial factors to know prior to your negotiations are:
- Minimum Order Quantity (MOQ)
- Products and brands they produce for
- Factory production scale
It is crucial for SMEs to negotiate good terms for production costs. Driving a low production cost is typically only possible when ordering large quantities. Most factories demand a percentage deposit upon the order placement and the remaining balance prior to the shipment leaving the factory. For safeguarding reasons, a letter of credit from banks is issued, especially for larger orders.
Maintaining a close relationship and clear communication with your factories are key. This helps in aligning the production process and resolve issues that may arise.
Managing a successful production process revolves around setting the right operational expectations, followed by ongoing communication. It is crucial to have at least a weekly scheduled meeting to check-on all relevant progress of the production to reduce any delay in lead times. The implementation of project management is encouraged to collaborate seamlessly and mitigate issues timely.
The bottom line in factory negotiation is to not select your factories and suppliers based on cost solely. Quality and delivery are both crucial terms to highlight in your contract to protect your brand standard. Insist on frequent communication so that the relationship with your suppliers can be productive and fruitful.
We hope you found this article helpful! If you have any questions or would like to explore the Omnilytics dashboard further, feel free to reach out to your respective Client Success Manager.