Episode #3: Finding The Perfect Factory For Production: Part 1
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Finally an answer to one of the biggest industry questions out there. How do I start manufacturing my own toy or game ideas with a factory in China? This podcast episode breaks down the easiest way to find, analyze, and communicate with the ideal overseas factory for YOU. Learn how to determine the quality and legitimacy of factories you find online, learn the best way to protect your ideas overseas (hint: it's not an NDA), and learn 8 key questions to ask any factory you're considering partnering with. This quick start guide to finding your perfect factory is full of tips, tricks, and actionable advice. Find the full transcript and more at thetoycoach.com.
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This episode is brought to you by thetoycoach.com
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Azhelle (00:00):
You are listening to Making It in The Toy Industry. Episode number three,
Intro (00:06):
Welcome to Making It in The Toy Industry podcast for inventors and entrepreneurs like you. And now your host Azhelle Wade.
Azhelle (00:16):
Hey there, toy people, Azhelle Wade here and welcome back to another episode of making it in the toy industry. This is a weekly podcast brought to you by the toy coach.com or today's episode. I'm going to walk you through the process of finding and working with your perfect factory. Now we're going to get into a lot of details with tons of actionable advice. So get ready to take notes and to be prepared to listen to this episode again and again. So ever since I started this podcast and started surveying the audience that I hope to serve, I started getting a lot of questions about how to find the right manufacturer and how to figure out how to take your products to production. So since I have both personal and professional experience finding and working with manufacturers in the US and China, I thought I had a great opportunity to utilize that experience to make a podcast episode.
Azhelle (01:19):
So a lot of people have asked me in the past, how do I find reliable factories to sample and produce my products? Well, what if I told you that there are several online marketplaces built for helping you find factories to partner with? Now, originally when I planned to do this episode, the goal was to cover how to find and use manufacturers in the US and China all in one episode. But partway through the development of the episode, I realized there is a whole lot to say and this episode needed to at very least be a two-parter. So today we're going to focus on finding a manufacturer in China and next week come on back to learn about manufacturing in the USA. So to start your search for a manufacturer in China, I'm going to send you to the most commonly used marketplace in the industry and that is alibaba.com Ali Baba features mostly Chinese based manufacturers and is a simple site that allows you to easily communicate with factories.
Azhelle (02:23):
Not many people realize that Alibaba can be a place to find a factory. Oftentimes people think it's just a place where you go to buy wholesale open market goods from overseas. But the things listed on Alibaba are only the tip of the iceberg of its offerings. So before you pull out your phone and do a Google search, let's talk about what you're going to see when you visit alibaba.com so to avoid any possible overwhelm. Now alibaba.com and that is spelled a L I B a, B a.com is basically your Google for factories. The homepage features a search bar. It's outlined in bright orange, and when you scroll down past that bar, you'll find category highlights featuring everything from consumer electronics to clothing, to jewelry, to baby products. Alibaba is your online portal into the China market. And that portal is pretty unguarded. So it's gonna take a bit of time for you to effectively navigate around the good and bad sellers on the site.
Azhelle (03:29):
Now, there are two ways you can navigate this site. When you first get around to it, there is a categories menu, and from that dropdown, if you look hard enough to list as long, you will find a toys and hobbies section. Once inside toys and hobbies, there are dozens of other subsections that you can click around and explore. Now the quickest way that I find to navigate the site when I know what I'm looking for is to head straight for the search bar. So let's go through an exercise. You know, I love this part where I get to walk you through step by step. Okay, so let's say I'm a newbie inventor and I have this revolutionary infant plush sheep concept. And now this is actually an actual product that I designed. Once upon a time, my sheep infant plush is named sleepy sheepy and he's an electronic plush that with a squeeze of his hand will help your child drift off into a cozy night's sleep.
Azhelle (04:27):
So let's, for the fictional purposes of the story, say that I have spent the last couple of months revising the design of sleepy sheepy with a designer and I now have full turnaround drawings that I'm happy with, complete with measurements for all detailing the size of the characters, heads and arms and legs and things. And I also have specifications for sleepy sheepies electronic components. And I'm ready with a bill of materials, also known as a BOM to share with a factory. All I'm missing is the factory, so that is the perfect time to head over to alibaba.com and type into the search bar electronic plush. I hit enter on that search term and I'll get over 24,000 results. Well, what the heck do I do now? So if you're at the same point in your journey where you've got your design down, you have a plan drawing a BLM, you found Alibaba, and you have now completed your first search.
Azhelle (05:29):
Now our next big step is going to be figuring out how to narrow down those results. So we can start narrowing the results by looking at our MOQ. Now that's a little bit of a technical term, but MLQ is your minimum order quantity or the amount that you're going to purchase from whichever factory you choose in your first order. So if you already have a deal with a big player in the industry, go you. And in that case you might have an MOQ of 10,000 pieces or 20,000 pieces. But if you're just starting out, maybe you're just trying to order a few hundred pieces to sell your product directly online or at trade shows to test the concept. So you're going to need to sort your findings by factories that are willing to work with a low MOQ who's sorting your results by MLQ is likely going to cut your options in half.
Azhelle (06:21):
But that's a good thing. We want the best possible factory for you. Now if you look up near the top of your search results, you'll see something that says trade assurance and verified supplier. Those are base-level assurances that alibaba.com gives. So make sure to check those options off. It would just be silly not to utilize them. Next, you can specify the factory costs that you're willing to pay. The margin or percentage of profit that you intend to make will determine your target factory cost and whether or not you intend to sell the finished item directly to customers or if you're selling to a retailer will determine the margin that you need to make. Now there's a whole lot more to learn about margin and percentages, but that will be a whole nother episode. So for now, let's just divide your intended retail costs by four and use that number for your factory cost.
Azhelle (07:16):
Okay, so I just want to break down a quick example. If you're planning on selling an item to a retailer who will then resell it for a $10 price point, you need to make sure that your factory costs are no higher than $2 and 50 cents. So by this point, you've actually narrowed down your 24,000 search result significantly by reducing the MOQ allotment by narrowing the price point that you're willing to accept and by selecting only verified sellers. So with the products you have left in your results, you're going to scour the images and reviews for any sign of quality and legitimacy. Now, not every factory in China conserve the Target's and Walmart's of the world. Quite a few of them are serving small businesses with MOQ is as low as 1500 pieces and even smaller shops with MOQ of 500 pieces. So what you're looking for is to find a product or a toy with similar features to that of your new idea.
Azhelle (08:25):
When you find that product, click on it. Now clicking on a product is going to take you to a product information page. The product information page on Alibaba is going to be filled with information about the price of the products, the quantities that you can order and company information. I mean, there is a lot to take in on the product information page on alibaba.com what you want to do at this point is start building an Excel spreadsheet. Now this Excel spreadsheet is going to be where you will record your factory findings. You're going to record factory reviews, MOQ's, base prices, a link to the product information page, and a picture of the product. Now you may be thinking at this point, why am I doing all this research to find something existing when what I want to do is create a product of my own?
Azhelle (09:17):
Well, trust me, the research is the most important part of utilizing Alibaba to find a factory that is capable of producing your custom product by analyzing the products that they've produced in the past. So once you filled your Excel sheet with a list of seemingly reputable sellers, all with products similar to the concept that you have. So in the example of the electronic plush, that means I'd be looking for people that have electronic mechanisms that have done infant plush in the past and just trying to build an Excel sheet that's a resource of multiple sellers that produce the parts that are going to be needed to make my finished product. So once your Excel sheet is filled and you feel like you have a good number of reputable sellers, it is time to contact them and pitch yourself as a business opportunity. Now you're going to go back to the product page.
Azhelle (10:14):
That's why I wanted you to hold on to those links. And there's a button there that says contact seller and this is the messaging system in which you're going to start your pitch. Now the pitch is really important. How you're perceived on alibaba.com is, is gonna make a difference on if they take you seriously as a new business. And Alibaba has actually recently introduced something where you get rated for the communication that you give to other factories. So not wasting people's time and being a good partner are going to affect how you show up on the site. Now you want to introduce yourself as a business that has a new opportunity to create whatever number of toys for a specific retailer or trade show and you want to tell them that if the product sells really well, the first, however many number of pieces that you will be back to order more.
Azhelle (11:06):
You want to ask the seller if they're available to develop custom products cause that's the most important thing to you. And after some back and forth, you're going to start to get the feeling if this particular seller speaks good enough English to be a great partner for you if they're open to producing the low or high volume of product that you might produce and if they're really open to doing custom development. Now, if the factory person that you're speaking with says yes, they are able to develop custom products now it'd be a great time. If you could ask the supplier if they have a catalog of the items that they produce in the past that they can share with you. Usually, their catalogs are massive. So you're going to need to be specific. You want to say, do you have a catalog of baby plush characters?
Azhelle (11:55):
Do you have a catalog of electronic plush? I would like to see what you've done in the past and see what's similar to the product that I'm trying to make. Once you get the catalog you need to look through it and circle or highlight product with similar materials, finishes or mechanisms to your own. So you're going to be using these fines as quality references as you build your custom product. Okay, so let's go back to the example of developing an infant sheep plush like I started with earlier. Now that I've taken the time to go through their catalog and see similar plush items and similar mechanisms and I've selected the items that I think would work with my product or with a few tweaks could be just like my product or combined together could turn into something similar to my product. I would request that I could order some samples to examine the quality and the mechanisms of their existing items to help the development of your custom item.
Azhelle (12:59):
So the next step is to actually request samples of the items that you've identified are similar or related to the product that you want to develop. So remember every item that you request from the seller has to have some part that is directly related to a piece in your custom item. You are going to have to pay for the samples, but you can negotiate to pay a wholesale price since you really only want it for research purposes which you are requesting are called open market samples. This term open market means when a product is ready and available to buy and does not need further development. Imagine just going to a store and picking something up on the shelf that is the equivalent of open market when you're working with the China factory. So these open-market samples are going to become your quality reference samples for mechanisms, a plastic quality for quality, whatever it is that you're looking to create.
Azhelle (13:55):
You should look at these samples from the factory as a quality reference for the type of work that they'll be able to do for you. Now it can take two to six weeks to receive a requested sample. So you should be ordering these quality reference samples from multiple factories at once so as not to hold up your development process. So you should be requesting open market samples from three to five factories to give yourself a better chance of finding what you need. Now once you receive the samples, you want to record pros and cons on the same Excel sheet that you began earlier to continue your factory comparison. So make a column for cost quality construction and be as detailed as possible with your comments when you've received and reviewed the samples from all of your potential factories, you need to use this information to decide which factory you will proceed with.
Azhelle (14:52):
Now I have to tell you, in a professional setting, you typically develop an item with at least two factories at once. And this is, this is after you already know that they're strong partners to work with. You'll just, you know that they are great partners, you know, they can produce the product, but you'll go through the development process with two of them at once because usually about halfway through the development process, you'll discover that either one factory can't produce the goods the way that you intended or another factory can't hit the target price. And the item will just default to one or the other. So if you have the financial means, as we continue to the next steps, it is best to begin and continued development with multiple factories at first to assure you're getting the best quality and the best price. Now make sure you take the time to fully document the samples that you've received with pictures and notes about what you liked and what you didn't like and what you have questions on.
Azhelle (15:54):
Now, once you have completed your Excel sheet, you have analyzed samples and you've analyzed all of the information you can find on alibaba.com and you have identified a factory whose quality you like and prices you like. It is time to reach back out to them and let them know pleasantries go a long way in this business. So make sure to compliment the things that you liked and express how successful you believe a partnership can be. Now, once you get a response back and you're sure that this factory is ready to work with you, you're gonna want to make sure you get clarity on the following questions. Number one, what are their payment terms? Some factories may accept 50% upfront and the other 50% upon shipment of goods. Remember, you have a say here and you can negotiate terms that work best for you to how quickly can they work with you to develop the item.
Azhelle (16:51):
Will you have a team member dedicated to your project or will many people be in contact with you? Three. What is their production lead time or how long does production take from the receipt of a purchase order for what port do they ship from? When you refer to a port, you're asking what location in China are they shipping goods from? Most of the factories are all along the coast of China. So the port they're going to tell you that they ship from is going to be along that coast as well. And that's where items are loaded up onto ships and sent to the US five. What factory compliance documents do they already have? Can they send them to you? If no, this could be a red flag. You can ask why they don't want to provide them and if the answer is acceptable, move on.
Azhelle (17:40):
Six. What testing labs do they use? Seven. Can they share reports with you of similar items to yours? And finally, number eight when and how will you receive notifications that the product has shipped along with delivery tracking information? Now you don't want to send one long message with all of these questions listed. You just want to have a natural conversation with the person that you're speaking with from the factory and just make sure that during your talk you cover all of these points. Now if your factory comes back with assuring answers to all or most of these questions, then you for sure got a winner on your hands and it is time to get to work. Developing your item. I would suggest starting development via Skype call if you can, is the best way to make a connection for you and for them. And when a factory has a, has a face to put to your name, they tend to react a little bit faster and with more compassion.
Azhelle (18:39):
Now, I do want to say here that if you're an inventor and you're just looking to develop your items so you can show it to a big toy company or you're going to a trade show, you don't always need the kind of testing reports that retailers might need, especially if you're just developing the product to land a deal. Because typically say you land a deal with Mattel or Hasbro, they're going to redesign the product, they're going to take it to their factory, they're going to have their own testing. It is just good general practice to ask about these things, to learn about them and just to make sure that your concept is even feasible for sale in a certain market, be it the American market that you came market. They all have different testing standards and requirements. So it's just all really good information to get used to having and knowing before you get started sharing your product idea with this factory, you might be considering an NDA, simply put an NDA is illegal agreement between two parties aimed at keeping sensitive information private.
Azhelle (19:46):
Now I'm not going to get too deep into this because I'm, it's, it's just a lot of information, but because of the differences in Chinese law, a traditional NDA is not really what you need as that only protects the exposure of your trade secrets, but it does not protect the usage of your information by the manufacturer that you're using to produce it and sell your product. And it doesn't even really protect against an unauthorized third party from selling your product. So if you're looking for some legal protection, you would be better served attempting to get the seller to sign an NNN, which is a nondisclosure non use and non circumvention agreement, which includes all the basic coverings of an NDA with an extra bit of protection for you from having your confidential information used to bypass you and directly reach out to your customer.
Azhelle (20:42):
So say you're selling to target. We can get more into this. I'm on another episode because there's a lot to go into here, but I just wanted you to have that, that overview so you can research it a little bit for yourself if you need to. Okay, so now we are finally ready to develop our product. Yay. Okay. So developing a product with an Alibaba factory is probably the easiest part in all this. You have found them and you know that their quality works. You know that your MOQ works for them. So now you're going to utilize their messaging system. Or if you feel confident and comfortable with the factory and the person you're talking to, you might even email them directly with your business email or your Gmail. A lot of factories also communicate via WhatsApp and we chat. So that is a really efficient way to get ahold of your factory and send them images and just talk back and forth really quickly.
Azhelle (21:39):
At this point, you should be sharing extremely detailed plan drawings with your factory partner, 3d files, detailed images. If you have any existing samples of your product, it would be ideal to ship a sample directly to them. Assume you will not ever see it again to make sure only shipping a copy, but a sample will really help them see exactly how your product should be made and help them reverse engineer how it was made before. Now, depending on the time of the year, whether it's a busy season for your factory or not, maybe it's around Chinese new year, which falls in February. Development could take three months to a year depending on how complicated your product is. You should expect that the factory contact that you're talking to will go through phases of constantly responding to you and longer times of quiet as they have many orders and many customers that they're juggling to make happy all at once for quicker responses.
Azhelle (22:39):
Make sure that you keep in mind the time difference and work your messaging schedule to best fit their work hours. Also, if you notice development stalling, request a video call, usually a face to face conversation moves, things right along. Eventually you will reach what appears to be a final phase of development. They will have made some in house samples of your product or a detailed computer rendering or provided costing that you're finally happy with. At this point, you will need to place an order to pay for the creation of pre production samples and they usually sample creation can run $250 to $500 for products made out of open market pieces are sewn together by plush patterns or 3D printed for plastic products. However, toy molds can get very high and mold cavities by which factories used to form plastic toys are usually made of metal. Some molds can cost $1,000 while larger toy molds are in the range of $50.
Azhelle (23:46):
So if you're not at a stage where you're sure you're ready to mass produce this product, I would opt for requesting a 3d sample from the factory. And if your particular factory doesn't have the ability to do that, you're going to want to request 3d files from them and then use those files to order a 3d sample from another resource, maybe one in the U S like Shapeways or something like that. Now, once you've completed your work with the factory and you've received a sample that is perfect and it's ready for production, I would suggest you build a product specification sheet or a product specification packet. A product specifications sheet should have a date stamped photo of the final approved sample with a listing of all components, graphics, and an image of the approved packaging tags, et cetera. This is the golden guide to the production of your product.
Azhelle (24:44):
The more information that you can put into a product specification packet, the better a product specification package is gonna be similar to be a BOM sheet, but in much greater detail if you have the time. Use it to build this packet and use this packet as a means to guarantee that you only pay for product that meets the criteria specified in your specification packet. Now I would suggest at this point that you request three additional sets of the final approved sample before issuing a purchase order for your full amount. That way you can make sure that the factory really understands which version of the product that you want to move to production with. Because in the development process you could have 10 versions of an item and things can get lost in translation. They are juggling a lot of products. You just want to make sure that you are on the same page.
Azhelle (25:40):
When you say, that is the piece that I want to go to production with. So when you receive those three samples, not only will you be sure that you're both looking at the same version to be the one that goes to production, you'll also get to see the consistency of the samples and identify some areas that might be difficult to be consistent in production. Now a production sample and improved production sample are totally different. Some things might be handmade that won't be handmade in production, but still this is a good opportunity to identify things like you know, if an eye is painted on and not painted on quite right, you know, how, what can they guarantee that the eye will look like or won't look like? Things like that. In our final step in finding your perfect factory is when your product is all complete.
Azhelle (26:31):
You have approved a sample and you're about to submit a purchase order. When you are ready to place a purchase order, I would suggest that you submit it with your product specification attached and you can specify terms in your purchase order for payment. I would suggest specifying that the payment is or certain parts of the payment is only guaranteed if the agreement to produce the product exactly as detailed in the specification packet is met. Typically there's a percentage of deviation that can be agreed upon or a percentage of defective product that is acceptable in an agreement, but whatever your terms are, make sure they're clearly detailed in your purchase order or in your work agreement confirmed in vote both a video call and an email just to assure clarity. You also want to have detailed with your factory how products will be inspected for QA, also known as quality assurance on their end, but also on your end and how long either party has to notify the other of an issue to avoid penalties.
Azhelle (27:43):
So you want to make sure that they have a plan for quality assurance on their end, but that they know that you are going to be analyzing this product the moment you get it. Now typically when a factory goes into full production, there is a short run of about 10 to 30 pieces that comes out from the production line. First and that's just called like the top of the production run. You should request samples from the top of the production run just for another once over. However, if your order is very small, it may not be an option for you, but honestly it doesn't hurt to ask if you get the sample soon enough. And do you notice a small issue you might have a chance to make a change before the next run. Now of shipping samples to you from the top of the production run isn't an option.
Azhelle (28:32):
Another thing you can do is request the factory, do a video call with you. That way they can show you the first samples from the top of the production run and you can give comments and approvals based on what you see with videos and pictures. If you know your product well, you'll know the things to look for and that can be enough to just set your mind at ease as they're going on to produce like thousands of an item that you've just approved. Okay. So we're going to stop our conversation on finding your perfect factory here because honestly, this process goes on and on and I could talk about this day in and day out because it's, I mean, it's what I do, it's what I do day in and day out. But I think we've gotten to a really good place in regards to searching, analyzing and finding and then working with your perfect factory.
Azhelle (29:25):
So I wanna take a moment and just personally thank you for listening to another episode of making it in the toy industry. So before you go, please leave us a review on iTunes and we would just love to hear feedback to help guide future episodes. Also, if you haven't hit subscribe wherever you're listening to this podcast, make sure you do that. I don't want you to miss an episode and I hope you come back next Wednesday when I'm going to walk you through how to find your perfect domestic manufacturing partner. So until then, I will see you later toy people.
Outtro (30:04):
Thanks for listening to making it in the toy industry podcast with Azhelle Wade. Head over to thetoycoach.com for more information, tips, and advice.
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🎓Learn more about how you can develop and pitch your toy idea with Toy Creators Academy® by clicking here to visit toycreatorsacademy.com and join the waitlist.