I was forced to stop everything one day and sit down to look at a part that goes onto one of my products. The part turned out to be defective in it’s design, which meant I had to stop selling the product and start figuring out what to do. I had to make some hard decisions at this point because the part was made overseas and the quality was starting to become a problem. This does not mean that all parts made overseas have quality issues; it was just the case in this particular product.
So the first thing I have to do obviously is find one or two places that can make the part for me. This can be challenging. After that, the next question is checking the quality of the supplier since this is the problem that is plaguing me and I don’t want a repeat performance. The next factor is cost. When you start this project most places will let you know that they cannot beat imported prices right off the bat. They want you to know this so that you do not waste their time. When you start doing this equation you need to figure in the price of the item that you pay plus the price of importing that item. If you really want to be precise add in the price of the customs fee and docking fees to get a true picture. Usually in the USA, you will need to double or triple the import price to come up with a number that is close to what you pay overseas for. Having that number in your head makes it a little easier to swallow and prepares you for the price.
The next thing you need to figure in is what I call the convenience factor. How convenient is it to have this product made locally and available locally? This convenience should be given a dollar value in order to insert it into your formula. Having a local connection is a definite plus since you do not have to wait usually for longer periods of times between containers. This can give you some flexibility and allow you to order in smaller quantities and thus control you cash flow a little better.
The last item in the equation is the quality factor. Just like the convenience factor you have to attach a price to it in order to use it effectively. When you put a number on having a part that is the utmost in quality that will show you how valuable the part is to you locally. I then take all these things into effect and write myself a mini formula.
Import Price + import cost = Cost per part, this equals the import adjusted price.
Manufacture price – convenience factor – quality factor this equals the local adjusted price.
Then you take the local adjusted price and subtract the import adjusted price. This will give you a clearer picture of how to compare the prices of buying overseas and making the part locally.
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