Hidden Costs and
Risks of Going Direct
Assess the actual costs of choosing an overseas manufacturer By Reggie Medford
When producing retail store fixtures abroad, buyers and planners have two options. One, go direct to the overseas manufacturer. Two, use a domestic
manufacturer or supplier with global
At first glance, buying direct appears
to be less expensive, but hidden costs can
quickly undermine the cost-effectiveness
and quality of a fixture program. Being
aware of the inherent risks can help
retailers better navigate their choices.
1. FINDING THE RIGHT
Searching the world for dependable
manufacturing partners is the first cost
associated with going direct to produce
a program. Often, the process of selecting a factory requires so much time and
resources that retailers will continue to buy
from the same factory to avoid launching
another search. Relying on an RFI alone
will not generate enough information to
drive an informed decision. Touring the
factories, meeting the project managers, and ensuring the manufacturer is the
right fit for the company’s needs supplies
a retailer with more qualified information.
Some qualifying factors for vetting a
· Is the factory financially stable?
· Does the manufacturer hold an ISO
· Is there a quality management system
· Does the factory comply with global
standards for human rights in the
· Are environmental laws and regulations followed?
SUPPLIER OPTION: Long-term partnerships
established with multiple overseas factories
give domestic suppliers leverage to negotiate
the best prices for their retailer clients. These
loyal partnerships can go a long way. Often the
factory will make the supplier’s programs a
higher priority and ensure higher quality standards are met.
2. SOURCING MATERIALS
Searching for materials is another
time-consuming undertaking. Options
include relying on the factory to match
the desired material or hiring an overseas
material sourcing manager.
SUPPLIER OPTION: An experienced supplier
has completed this research up front and found
the best-in-class in all material categories, which
dramatically simplifies the task of finding the
right materials for a retailer’s program.
3. EXECUTING PROGRAMS
Building a team of designers, engineers,
and project managers is another big
expense when going direct—and one
that comes with several challenges:
· Defining roles and responsibilities
takes time and planning.
· Establishing a process takes years to
finesse and is coupled with a long and
steep learning curve.
· Handling fluctuations in workload
makes retaining staff year-round problematic, while hiring on an as-needed
basis makes maintaining a trained work-force difficult.
· Determining costs up front if a system is not yet in place is challenging.
The wages and benefits to cover project management create huge overhead,
Translating conceptual ideas into buildable designs and value engineering existing
designs are realities in store fixture manufacturing. Retailers can choose to submit
conceptual designs and rely on the factory
for engineering, but this option comes with
a high risk. Since specified parts may not
be possible to manufacture, designs can be
compromised. Another option is to hire a
domestic firm to translate the designs. If
the firm is unfamiliar with the factory’s
equipment and manufacturing procedures,
a new set of problems arises.