Are there any advantages for importers like entrepreneurs, startups and SMEs to working with a single turnkey manufacturer in China instead of several different manufacturers who each handle one part of the production? Let’s find out…
What is a turnkey manufacturer?
A turnkey manufacturer is a business that does everything under one roof, usually a contract manufacturer. So in the context of you being an importer and working with one, they provide:
- Sourcing of components, to create the Bill Of Materials
- Sub-supplier management
- New product development, prototyping, testing, and validation
- Assembly, testing, packing, inspection
- Logistics
In other words, they’re a one-stop shop for importers who have a product and want to work with just one partner to develop it (if needed) and/or get it mass-produced and shipped.
These exist in China, for example, many contract manufacturers offer a turnkey service (like us 😉). You’ll no doubt have heard of giants like Foxconn who supplies Apple, too, but there are much smaller companies doing the same activity.
Benefits of working with a turnkey manufacturer
There are a few benefits to working with a single turnkey manufacturer that can be particularly helpful for newbies and SMEs:
- Many SMEs and especially entrepreneurs are pressed for time and cash, therefore managing just one partner abroad can save time, money, and stress.
- They do your sourcing and build the BoM with mass production in mind because they are doing the manufacturing in-house. In most cases, they no doubt have a list of trusted suppliers they’ve worked with before in their approved supplier list which reduces the risks you face when sourcing from a previously unknown company.
- If you can reach their MOQ there will definitely be less admin for you than would be required if trying to manage several suppliers individually.
- You have a single point of contact if there are problems. For example, if a batch of products doesn’t reach your specifications the manufacturer should be responsible for reworking or remaking the pieces (depending on what your manufacturing agreement states).
Downsides and risks of working with one
There are some risks of using a turnkey manufacturer, too:
- The one manufacturer is usually exposed to all of your product IP by necessity because you only work with them, therefore it could be easier for an unscrupulous company to become a copycat competitor. Make sure to check their reputation online.
- It is probably easier to find individual specialized suppliers for the different parts and processes you need than a single suitable turnkey manufacturer who specializes in all of them. (Note, though, that a contract manufacturer handling all your supply chain will need to go out and source the different components, as someone has to do that. If a company says they specialize in PCBA and plastic injection molding and rubber compression molding and so on, they may well be a multi-billion dollar company.)
- You will probably have less flexibility and control over your project if they keep the information ‘close to the vest’. That’s the one big risk, in most projects. You need strong assurance that you will have access to the full bill of materials, to the details of their engineering work, etc.
- The larger turnkey manufacturers probably prefer to work with customers who order at least 10,000+ pieces.
Working with several suppliers to bring your product to market
This is the opposite of using a turnkey manufacturer, yet should ultimately give you the same result: a manufactured product that’s ready to sell.
You will source different suppliers, each responsible for their own tasks. For instance for consumer electronics, you may have a PCB supplier, battery supplier, suppliers for other parts, an injection molding company for the enclosures, and an assembler.
There are more wheels turning here for sure, so let’s look at why you may choose this approach or not.
Benefits of working with several individual suppliers
- You’ll have more flexibility and control because you are (probably) not locked into working with any one supplier, unlike some relationships with a single turnkey supplier.
- For startups and SMEs who only need to place small orders, using different suppliers allows you to find a suitable supplier who will also accept your order quantity which is good for your budget.
- You are likely to be able to find plenty of suppliers who only specialize in your products or the types of key components that you need such as PCBs, displays, batteries, and enclosures. They can also do some sourcing for sub-suppliers in their niche for additional parts.
- Your risks of being copied could be lower because instead of giving one supplier all product information, you only need to provide each supplier with the compartmentalized information they need on a ‘need-to-know’ basis reducing their ability to copy your product.
- You have the flexibility to source from China or other Asian countries where costs are lower, and then ship parts abroad to do testing and assembly closer to home. This is sometimes a good idea when volumes are small.
- In working with the suppliers on all aspects of your project you will learn more and gain experience that could help you when developing your V2.0 product and beyond.
Risks with this approach
- You must do more sourcing work.
- You will probably have a lot more project management work to do to handle each supplier and keep tabs on everything – this could be tough for smaller businesses
- If problems occur, suppliers will commonly play the blame game and point the finger at others in order to avoid responsibility. That’s a key issue when there is no lead in a project.
Which manufacturing approach to choose: a turnkey manufacturer or several suppliers?
This is the big question.
If you value a smooth project where you can be a more hands-off buyer with time for building your business, the turnkey manufacturer could be a good choice. If your orders are large enough, you’ll benefit from working with a partner like a contract manufacturer who can take care of everything while still providing that low Asia cost you’re looking for. Of course, with most of those suppliers, you may have less visibility (and less control) over the day-to-day activities and potentially be open to copycats more, so you need to weigh these cons against the pros. Not all contract manufacturers are equal, of course, and you need to choose one wisely.
On the other hand, if your orders are very small and you want to hand-pick your suppliers while maintaining the flexibility to chop and change them where needed, working with a group of several suppliers may be your option. Just look out for issues diligently, as there are more opportunities for errors to occur.
P.S. you might like to read…
- 10 Sourcing Tips & Hacks to help you Find the Right Suppliers in Asia
- Best Practices To Follow When Qualifying Your Contract Manufacturer Or Component Supplier
- 6 Terms You Should Specifically Negotiate With Your Contract Manufacturer
- Developing New Products? Which Suppliers Are The Right Fit For You?
