Key Product Manufacturing Terms to Know
Properly managing your product manufacturing and sourcing is critical for any consumer product company to understand. This is particularly true for entrepreneurs selling products on Amazon and other eCommerce platforms. But, how do you even know what product manufacturing questions to ask? A good place to start is understanding key manufacturing terms and why they are important to your business. We consulted Process Head of Product Development Bryan Wilson to explain many terms such as bill of materials (BOM), cost of goods (COGS), contract manufacturer, tech pack, and right-sizing.
Bill of materials (BOM)
Our clients most commonly ask about this term. The Bill of Materials or BOM is a list of every component in your supply chain from PCB chips to a simple piece of plastic or thread. The BOM should not be confused with the Cost of Goods.
Cost of Goods (COGs)
The cost of goods includes the BOM as well as assembly, labor, shipping, and other ancillary items such as packaging. It is important to understand both your BOM and your COGs as sometimes the COGs will far exceed the BOM.
The tech pack is the key document ensuring your products are produced to the specifications you desire. The tech pack is a combination of the design and all technical information describing your product including CAD designs, graphic applications, color, material, and the finish of your product. Tech packs often include assembly instructions as well. The tech pack is a critical guide for everyone involved in the creation of your product.
The Contract Manufacturer is a company that works with a company to make sure their product turns out exactly as designed. This is often the final assembly factory, but they are also responsible for quality control of all materials and components sourced from other vendors or subassemblies. A good contract manufacturer is defined by its experience and network. They ensure you save cost, time, and headache enabling you to focus on other aspects of your business such as sales and marketing.
Right-Sizing is a term we use to describe how to find the right equipment and manufacturers for your product and company stage. Right-sizing aligns companies not only with the right equipment but also with the right team. Companies often assume they want to be in the “best factories,” but in truth, if a factory is too large for a company they will not gain access to their human capital and ability to solve problems. If you choose a factory just larger than what you need, however, the factory is incentivized to help you grow as they want you to become a large client for them as well.
These are just a few key terms to help you get on your way to a better understanding of manufacturing and how to improve your current manufacturing stability. If you have any questions or ideas, we would love to hear them. Please reach out via email at firstname.lastname@example.org.