HOW TO OUTSOURCE JEWELRY PRODUCTION

When looking for a custom jewelry manufacturer to produce your jewelry line there are a few key points to research.

In today’s world of globalization, finding a manufacturer isn’t the hard part. The hard part is finding the right manufacturer. Your manufacturer will be a key partner and a critical part of your business. Choosing poorly can lead to catastrophe and can kill you company before you even begin to see revenues.

Important considerations:

Manufacturer’s Intellectual Property Agreements:

One of the first things you should examine when evaluating if a manufacturer is the right one for your jewelry line is the manufacturers policies relating to your design rights. The vast majority of jewelry factories primary business is selling their own collections directly to retail outlets. Most of these factories are happy to take up new business, some of them will agree to produce custom designs at very close to cost just to be able to add the new models to their own collections. Many manufacturers in China are notorious for this. For further reading on some pitfalls to avoid if working with a Chinese Manufacturer I strongly recommend checking out the book titled Poorly Made In China, by Paul Midler.

IP Points to consider:

  1. Does the company have a standardized IP agreement that they issue to custom clients?
    1. A good sign that the company in question does a lot of custom branded work is that the company will have a standardized agreement on hand for the protection of client intellectual property. Most reputable manufacturers will not accept client provided agreements as the administrative load of operating under many different manufacturing agreements would not be feasible for any mid-sized operator, so I would not bother hiring a lawyer to prepare one.
    2. Be wary of companies that are willing to accept your own custom agreements (unless of course you represent a very large and well known organization), as chances are high that the company you will be dealing with is a small organization or a startup and plans on subcontracting most of the processes in manufacturing your line. If this is the case you can be sure that whatever agreements you may have on paper won’t be respected as the company you are doing business with will have no way to enforce IP confidentiality with their sub-contractors.
  2. What sort of enforcement options are in place for ensuring compliance to the agreements?
    1. When dealing in the world of international manufacturing, enforcement is a bit of a tricky issue. In many countries, non-resident aliens do not have the right to sue. In some countries the legal process is either prohibitively expensive to engage in, or subject to corruption. It’s important to do due diligence on the juristic framework in place and ensure that agreements are in fact enforceable.
    2. In most cases a contract that includes an arbitration clause is desirable to one that does not. Arbitration awards in most countries are easily enforceable elsewhere in the world and arbitration is standardized pretty much wherever you go.

Manufacturer or Subcontractor:

A very important question you will want to be sure of right off the bat is whether the company you are dealing with is a manufacturer or a subcontractor. There are many small operators who act as brokers to factories in their respective areas. While subcontractors may be able to add some benefit in certain circumstances such as providing an external QC, or by acting as a sourcing agent to inventory and supply a jewelry factory with raw materials that you intend to provide, for the most part subcontractors tend to get in the way of things. If you are dealing with a subcontractor it’s important to make sure you know all of the facts. Make sure to find out who is the factory that will ultimately be producing your goods, what is their relationship with them, what added value will the subcontractor be providing, and what assurances you will have that your intellectual property will be safeguarded by the factory that will ultimately be producing your goods. Never do business with a company that is not up front about its position in the production chain.

Usually it is recommended to due proper due diligence on the company you will be doing business with and ensure they are who they say they are. There are a number of ways to accomplish this:

  1. Request a factory visit: If you are dealing with a large established factory, they usually won’t have a problem receiving clients directly at their factory.
  2. Request a third party audit: There are a number of well known international audit companies that are more then willing to audit your prospective manufacturer for you. The audit fees they charge tend to range between $500 and $2000 depending on how detailed of an audit you require. If the manufacturer refuses a third party audit, then you know something is fishy. A few well known companies that provide audit services in many manufacturing countries are:
    1. Verisio: Verisio audits (inspects) factories and farms for ethical and legal working conditions on behalf of retailers and other organisations. They have been auditing sites for social compliance since 1997.
    2. Beureu Veritas: Beureu Veritas provide solutions in quality, health & safety, environmental protection and social responsibility.

Manufacturer quality and capacity:

  1. A very important question you will want to determine early on in your relationship with a new manufacturer is the size of the manufacturer’s organization. A thorough checkup should provide you with details of exactly what capacity the factory has. You should find out which processes the factory outsources (if any), and how many production staff the factory has.
  2. Jewelry factories with fewer than 10 workers are very small operators. Usually factories in this size range will not have specialization of labor, and as a result quality may vary widely dependent on the skill of each individual worker. If dealing with a small operator a further concern to ensure addressed is assurances of financial stability. Some things to look into are do they own their own premises or do they rent. What kind of work brings them their most revenue? Do they specialize in retail pieces but need some additional work just to cover the down time? A company experiencing financial difficulty is not a company that you want to entrust your productions to. Most of the bigger retailers will request bank references before engaging large scale productions with a factory. (I certainly would not go this far unless the factory in question is likely to know your brand already and there is question of the factory’s solvency.)
  3. If you are planning a scale-able production, an ideal factory size will have more than twenty, but less than one hundred production workers. This is because larger factories tend to give higher priority to their current business then to new opportunities, so unless you hit the ground running with initial orders in the five to ten thousand piece range, you are likely to be deprioritized by a larger company as a small vendor. So long as the factory that you end up dealing with is in the mid-size range, it should be able to scale its operations to meet your volumes as your business grows, as companies don’t become mid-sized operators without an effective infrastructure.
  4. Can your factory provide samples to examine the craftsmanship? While this is usually one of the first questions people will ask manufacturers, it is in fact one of the least important. If you are in the jewelry business you have at least one nice piece of jewelry, whether it was made by you or not. Pieces that the factory has made in the past really have nothing to do with the execution of your design. What’s far more important is to judge the workmanship on an initial sample of your design. If you feel confident the factory that you are dealing with is on the up and up and will be able to meet your anticipated capacity, it is a relatively small investment to let them make a sample.

Manufacturer Pricing:

Prices in custom jewelry manufacturing: What should you expect?

Pricing in the jewelry manufacturing circuit generally falls into two groups, companies that break things down into components and companies that don’t. Companies that break things down into component pricing tend to be pretty transparent. In this case pricing is usually formula based, calculated by taking raw material costs and applying percentage and labor to those components. Usually manufacturers that present their prices this way take fairly low margins and depend on volume business to remain profitable. Many times volume factories will give pricing with slim to no margins to promising new customers in an attempt to win their long term business. Attempting to negotiate prices before developing a substantial business relationship with the factory risks demonstrating to the manufacturer that you are unfamiliar with industry pricing which can deprioritize your business.

As a general rule, when considering a jewelry production, you should try to stay away from manufacturers that do not break down their invoices into component pricing. These tend to be smaller operations that make significant portions of their income on retail sales.

  1. Manufacturer MOQ’s and development fees:
    1. Jewelry manufacturers generally operate on one of two basis, either they offer free development with minimum quantity orders (MOQ) or they charge a development fee for your masters and molds.
      1. Minimum Order Quantities (MOQ’s): Whether or not the factory charges a development fee, most factories will have MOQ’s which is the minimum number of a product that they are willing to allow you to order. It is very important to get this in writing and to know whether or not a factory’s MOQ is in contradiction to your plan of business.
      2. Development fees. Development fees can be classified into two categories, design fees and prototyping fees.
        1. Design fees are typically charged for either hand or CAD design to produce a factory useable design schematic or a CAD file that can be fed to a 3D printer for rapid prototyping.
        2. Prototyping fees generally deal with the construction of production devices. Typically this is either a set of a master and molds, or a stamping or traveling die. Prototyping fees can vary widely across the industry along with design complexity. Typical development fees can range anywhere from thirty to five hundred dollars for masters and molds, to many thousands for stamping or traveling dies.
      3. Be wary of any factory offering free development with no MOQ. Factories aren’t charities, and a great deal of time and money goes into developing a product. I would make sure you have crystal clear confirmation that you have exclusive rights to any designs you develop along with ownership of any production devices used to produce those designs and any works derived from them before proceeding with any factory offering “free development”.

A few last questions you may want to consider in your search for the right factory to produce your jewelry lines are:

  1. What are the manufacturer’s policies for defective goods and repairs?
  2. Is the manufacturer willing to stock your stones or components for use in your jewelry?
  3. What kind of taxes apply to imports from the manufacturer’s base of operations?

Finally, try to remember that you are trying to convince the factory that they need your business as much as the other way around.

Where to look?

Start with American Gemstone Group. We host this forum, but we really are the best by miles.

For other reference points, many of the companies that you would want to entrust your designs with will have an internet presence. As with most searches in today’s era, the first place to look is google.

Many jewelry factories will also maintain a presence at some of the larger trade fairs like JCK New York and Las Vegas, HKTDC Hong Kong Jewelry shows, and the Bangkok Gem and Jewelry Fair in Thailand. If you are in the jewelry business and haven’t been to any of the above mentioned jewelry fairs, I strongly recommend visiting at least one of them at the very least to examine the market. Be wary of companies displaying large collections of jewelry at the shows. These companies rely primarily on wholesale direct to stores and are essentially in the same business as you.

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