The Dilemma of Choosing Between Manufacturers and Trading Companies in Injection Molding

Picture, when someone is at the center of two diverging roads, and both seem equally stunning. This is precisely the dilemma that injection molding service buyers find themselves in. Do they go to the seller directly, or go through the trade business? This question gives buyers anxiety and there is a reason for that.

Of course there is no universal solution. However, after spending many years in this business and seeing some companies thrive while some falter because of this one decision, there is one thing I know for sure. Knowing the real distinctions that exist between a manufacturer and a trader will make or break your project. It is these factors that I want to discuss when coming to make this decision.

Understanding the Distinctions

What are the facts and matters at hand regarding the decision?

Before we get to the conclusion, let’s get rid of the confusion these definitions may have. A manufacturer is a business that has a quite literal factory, the machines, and the employees that produce your items. Whenever you decide to collaborate with them, you are associating with the stakeholders in charge of every step in the production cycle.

Trade companies perform a different function. They tend to ‘mate’ buyers like you with manufacturers. There seems to be some boast and complaint about these companies. A gentle soul might label them ‘sourcing agents’ or ‘export companies’ while others hold more cynical views regarding these middlemen. However, in the end, all appear to smooth the edges of international trade.

Going Direct: The Manufacturing Route

“Why would you want a middleman, when you can get the source directly?” you might be thinking of. Uh, hold that thought. The answer to this is not as simple as you may believe.

You do not need to argue with the fact that working with manufacturers has its advantages. So, let’s get this straight: when you do not have anyone in between, you will definitely save cash. There is a lack of a trading company markup, meaning that you will have more competitive prices. I have heard many people say that you save almost a quarter with middlemen, and that’s a lot of cash when you want a huge bulk.

Price is not the only aspect you should consider. You can observe manufacturer sites (virtually or physically), observe the process of how your products are made, and talk directly with the manufacturers modifying your designs. This kind of interaction is precious and directly relates to trust, which allows you to anticipate and fix issues before they become costly mistakes.

Discussions of this nature are smoother and more straightforward. No one likes to listen to a message that has been wrapped up and simplified to the point at which its meaning is far from its original point. When you talk to engineers from the factory about any important and sensitive topic, they get the point straight and they offer suggestions that they can actually follow.

Another advantage is the considerable knowledge and understanding on the manufacturer’s side. I’m sure you would agree that manufacturers are die-hard, or have an abundance of knowledge, experience, and understanding in this supply chain. I remember working with a manufacturer in Shenzhen, which is a city designated as a Special Economic Zone in China. This manufacturer suggested a slight deepptchain that lowered the cycle time by 15% more than what a trading company would have aimed for.

The Trading Company Advantage

First things first, as tempting as it might be to race off to book flights to some manufacturing center, the long-standing success of trading companies serves as a reminder that they wouldn’t be around if they didn’t provide some value.

The language and culture barriers are real challenges, and while many manufacturers may have employees that can speak English, negotiating complex contracts or settling quality issues often requires a lot more nuance. Trading companies have personnel that comprehend the two languages well in more than one level, and understand Western business expectations as well as Eastern manufacturing realities, and are capable of filling in the gaps that perhaps even you are unaware of.

Where exactly does the trading company shine? It is in risk management. They have spent years building a network with multiple factories, figuring out which ones are reliable, and which ones only promise and never deliver. When you are working with a reputable trading company, you are paying for their expertise and connections. They have built a network and have learned valuable lessons the hard way so you don’t have to.

Let’s not forget about the importance of flexibility in this business. When it comes to ABS to polycarbonate. Need to add metal inserts to your plastic parts? No problem. Added flexibility makes meeting product goals that evolve continuously easier to meet.

High quality production is still yet another key area where trading companies make money. These specialists work on high quality inspections, waiting to catch any mistakes before the product has been shipped. Directly, every manufacturer may hire third party inspectors, yet trading companies mostly add this high quality inspection to their plans.

Making the Right Choice: Key Factors to Consider

Let me see how I can help you decide. Here are some factors that should influence your choice.

Interestingly, order volume is a critical metric that most companies fail to understand. Consider how many high minimum order quantities a manufacturer may have. These MOQs may force you to overcommit on the first assumption you make about a product. Thankfully, trading companies can help.

The quality of the product is still very critical. Simple, off-the-shelf commodities? Probably the easiest thing to do is go direct. But if you are grappling with development of things with higher degrees of difficulty such as tight tolerances, unusual materials, or complex assemblies, then maybe a trading company’s skill in handling sophisticated projects will really help.

These time and convenience factors are very important. Managing a direct contact with a manufacturer overseas is a convoluted process. You are going to need to hire someone who is very competent to do tasks such as answering phone calls, even if it’s in the middle of the night because of the time zone differences. You also need to have someone who is very familiar with the delegation of the customs papers, and is even willing to travel, in order to meet the factory. It’s infeasible for many companies, especially smaller firms with many competing priorities, to manage even a single person to handle all these ropes.

Your risk tolerance level is really very important. Trading companies simply spread the risk across multiple suppliers, providing backup options when things go sideways. In manufacturing, things always go sideways.

Real World Scenarios: When Each Option Makes Sense

Let me paint you some pictures based on real life situations in the industry.

Scenario one: You’re an empire and this will be your 10th product. You’ve got experienced teams that handle overseas productions. You’re currently ordering 50,000 units every month. Since you dominate this high level operation, you will execute the `go direct` strategy. You have the sophistication to relationship manage and the bandwidth that addresses the issue at hand. Your operational system will handle the rest.

Scenario two: You are a startup and quite the visionary. You have 5,000 units which you need for market testing. You suspect that your product will need adjustments so your founder needs to deploy about 97 hats to get this done. Relating the complexity to the business, this is undoubtedly a job for a trading company. You need a business with which you can bundle your core activities and let the rest to the trading company.

Scenario three: Your product is easily sourced. Let’s talk about basic plastic containers. Your quality expectations are single and the pricing needs to be aggressively competitive. This is a direct manufacturing relationship and works 85% of the time with simple product sourcing. The chances of a quality or communication surprise are significantly reduced.

Scenario four: Help me understand your logic. You have a product that has a plastic cover, electronic accessories, metal plugs, and custom wrapping. You can hand this to a trading company or you can decline your life to become a full-time supply chain manager. The trading company helps you cut the wires of your spirit.

The Mixed Strategy

What articles fail to mention is the fact that you do not need to decide on one option only. There are companies that are very successful that have a mixed strategy. These companies might deal directly with manufacturers for the high core volume products and with trading companies for the other complex and lower-packed volume products.

This strategy has the most advantages because you are saving on high volume products as well as having agility for other products. Additionally, the strategy provides a natural backup option. In the scenario that you have a problem with the direct manufacturer, you are bound to have some backup from the trading company you deal with.

Your Position

What does this mean for you? Start with the problem and take a look from different angles. What is the amount of time and experience you have for supplier management? What is the volume of your orders? What is the level of complexity of your product? How much risk are you willing to take?

You need to ensure that you are also thinking of the future as well. A trading company that is ideal during the early phases of your company is bound to become very expensive as your company continues to grow. On the other hand, the opposite is also true. A company that jumps directly to direct manufacturing without thinking is bound to make very expensive mistakes.

Get in touch with people in your field. Take part in online discussions, go to industry conferences, and don’t hesitate to seek guidance. Those who have gone through the process can provide perspectives and angles that are out of the scope of any written work. Their experiences might help you avoid pitfalls common to the majority.

When evaluating alternatives, always consider the opportunity costs. Direct manufacturing in costs might seem to have lower costs, but consider travel, administrative, opportunity costs, and the time spent on nurturing those relationships, and the difference in costs diminishes. The costs of trading companies often cover value-added services that you would have to purchase differently.

The Brutally Honest Truth

The brutal truth is that you might not get it right the first time. You might work with a manufacturer that does not fully meet your quality standards. You might work with a trading company that marks up prices more than you are willing to pay. It’s fine. The important thing is to take those experiences and refine your strategy.

Like any other manufacturing industry, the injection molding one is a relationship-based industry. It doesn’t matter if you select a manufacturer or trading companies, success is built on mutual understanding and a commitment to quality. Price is important but in the long run, you pay more of lower-priced services with poor quality and poor communication, as lack of mutual respect is a blocker.

Having unproductive discussions with a supplier at first but resolving them with effective collaboration and clear communication is how some of my business supplier relations started. No one should anticipate any collaboration at the start. Instead one should look for integrators who are willing to move towards new points of growth together.

The Future

Understanding the dynamics of this decision which isn’t a one-way street is crucial. In the beginning most companies work with a trading company and over time with more experience and volume start working directly with a manufacturer. Some companies take both rental and trading company facilities with them as they progress.

The progress in the molding process industry has been tremendous. Nowadays, as a result of the adoption of computer technology, designer, prototypes and logistics support are readily offered. More trading companies offer direct contact with themselves as manufacturers and the division of trading and manufacturing companies becomes more and more vague each year.

The one thing which will always be true is clear communications, realistic goals and strong bonds. Spend quality time with either options and build rapport with them. If accessible, visit the facilities. Put yourself in the shoes of your collaborators. Let them know your plans for the future and they will expand with you.

The selection of both manufacturers and trading companies goes beyond just cost consideration; it impacts the entire product and supply chain development approach. Allocate sufficient time to make this decision, as it encompasses both tactical as well as strategic goals arising in the long term.

The decision is entirely yours, and you are the one who can determine which case appears to be the best. There is no reason why someone cannot begin with a trading company while trying to gain relevant experience. If the right materials and expertise are available, why not arrange a meeting straight away with manufacturers? What is most important is the selection of a business model that best suits one’s skills, goals, and willingness to take a risk.

Final Thoughts

The case of trading companies and manufacturers is not of a “right” answer. There is no right answer for you. Both options have led to the success of many businesses, in addition to their spectacular failures, which have resulted from a failure of reasoning.

In case you are not well informed about this topic, I suggest that you do not rush to conclusions. Pay attention to your instincts, but make sure you can back them up with some proof. In most cases, you will be able to get some quotes, references, and places that would allow you to play it safe. In this line of work, rushing almost always backfires. There is no reason why you cannot succeed, provided you do so with the right frame of mind.

Make every effort to dedicate yourself to learning along the journey whichever path you decide. Companies that are successful in injection molding are not the ones who made the ideal decisions from the beginning. Rather, they are the ones who learned and improved from their experiences over time.

Your products deserve the best manufacturing partner from direct manufacturer and trading company expertise. Analyze your options, candidly evaluate your position, and select the course that best prepares your business for persistent growth. The best decision is not only based on the requirements of the moment, but on the strategy that will provide solid building blocks for success in the future.