SUPPLIER OPTION: Labor costs are usually
distributed over multiple clients’ projects, allowing suppliers to keep prices low. Bridging the
communication bet ween the client designs and
the factory to ensure fixtures meet specifications brings big value to any program. Providing
shop drawings and value-engineering existing
designs are services the supplier often offers
without additional charge. Translating designs
into production-ready documents is a much
smoother process when the supplier has established longterm relationships with factories and
a solid understanding about capabilities.
4. MANAGING QUALIT Y
A program might sail through production
at an overseas manufacturer, but quality
issues can quickly wipe out any savings of
going direct. To prevent costly mistakes,
it’s critical to have a quality management
system in place. The highest quality is produced by keeping a company-owned, multidisciplinary quality control team on the
ground in China. While the quality control
team should be composed of non-factory
employees, it’s important that they fully
understand the factory’s processes.
For infrequent, smaller-volume programs, the cost of hiring a company-sponsored quality control team typically
can’t be justified. Sending U.S.-based quality inspectors to spot check a program
quickly adds up at $3,000 per trip. When
going direct, it’s also recommended to
inspect fixtures upon arrival in the U.S. and
to hire a domestic manufacturer as backup
in case last-minute changes are necessary.
If a retailer is working directly with a factory overseas and a quality issue develops,
there is a risk that the factory will “walk”
rather than fix the program. When going
direct, it’s advisable to locate a dependable
domestic manufacturer and budget for
back up in the U.S. to be ready to cover any
delays that may occur.
SUPPLIER OPTION: When it comes to quality,
the supplier takes on most, if not all, of the risk
and maintains responsibility to fix a failed
situation. The supplier typically leverages multiple programs at the same factory, so it is in
the best interest of the manufacturer to fix any
“If a retailer is working directly with
a factory overseas
and a quality issue
is a risk that the
factory will ‘walk’
rather than fix
5. SHIPPING AND LOGISTICS
If going direct with smaller orders, shipping
partial containers tends to be costly.
SUPPLIER OPTION: Consolidating multiple
customers’ orders into one shipping container
generates substantial cost savings retailers
typically wouldn’t realize when going direct.
6. ASSEMBLING FIXTURES
Shipping fixtures from overseas knocked
down yields major savings in freight costs.
However, once fixtures arrive in the U.S.,
assembly costs frequently forfeit some of
SUPPLIER OPTION: Fixture assembly costs
are often included in a supplier’s price.
AND ORDER FULFILLMENT
Large production runs are common in overseas manufacturing. The hidden costs surface when shipments hit U.S. soil. Program
inventory is often warehoused prior to
shipping out to stores, which is an added
cost unless the retailer already maintains
warehouse space. Retailers generally have
to pay for the space even during slow periods when space is empty. Often, warehousing expenses also encompass shipping
and receiving personnel, inventory management, blanket wrapping, professional
loaders, pallets, boxes, and other shipping
SUPPLIER OPTION: Warehousing fees may
vary, but some suppliers include warehousing
in the price.
8. MANAGING CASH FLOW
When going direct to an overseas manufacturer, retailers typically pay for the product
when the containers ship from China.
SUPPLIER OPTION: The retailer is usually not
invoiced for the product until the product leaves
a U.S.-based warehouse. On top of this, credit
terms are common. While deposits—as high as
50 percent—can offset some of these cash
management savings, suppliers often pre-pay
for fixtures a year before the retailer submits
9. HANDLING PRICE FLUCTUATIONS
Due to the “short-term nature” of price
guarantees offered by China factories,
retailers often experience price fluctuations when going direct.
SUPPLIER OP TION: Suppliers often negotiate
year-long commitments with retailers, absorb
potential factory price increases, and thereby
guarantee price stability.
Before deciding to go direct, calculate all
of the hidden costs and determine whether
the savings of going direct is worth the risk.
Short-term savings can over time lead to
long-term losses. Retailers should evaluate whether they are better off focusing on
their core competencies.
Depending on the size and complexity
of a program, the hidden costs of going
direct to a manufacturer could easily outweigh the cost savings. Most programs
are complex and involve multiple layers of
cooperation between the retailer, overseas
resources and domestic distribution vendors. Establishing a solid system of reliable
overseas resources, quality control, and
project management can take years.
Balancing the potential cost savings with
the realities of risk helps retailers align the
right resources with the program.
Reggie Medford is director
of sales for Grand + Benedicts,
based in Portland, Ore. Con
tact him at 5032321988 or
This article is drawn from a white paper created
by the company. Download a copy from