Manufacturers provide for production overages or shortages in manufacturing contracts to protect themselves from unexpected expenses and larger way bills.
One of the hardest concepts for a new business owner to understand is why manufacturers sometimes ship 10% over or under the requested order quantity. A business owner that is unfamiliar with the manufacturing process will rationalize that they could never get by with shipping an indefinite quantity to their customers, and they are correct. The difference between manufacturers and those that sell to the end user (or consumer) is what is expected from the purchaser.
Businesses that deal with manufacturers have become familiar with receiving small percentages above or below their ordered quantity, as shipping variances are quite common in the manufacturing process. When a promotional products manufacturer accepts an order, it is typical to find an over/under clause in the purchase contract. This clause is most frequently enacted to protect the manufacturer from normal production variances. An over/under clause is typically used for items that are specifically manufactured for only one customer, as well as for items that require a specific dye or tooling process. Manufacturers can also rely on an under/over clause to compensate for breakage during shipping or for components that are not expected to meet customer quality standards. With the number of items being manufactured overseas, it is often cheaper for manufacturers to produce and ship items over what was actually ordered due to the cost of replacing items that could later be found to be defective or below the customer’s quality standards.
If dealing with overseas manufacturers, it is a good idea to hire a broker in the manufacturer’s native country to oversee the purchasing process for you and to act in your company’s best interest. A typical broker’s fee would be minimal considering the amount of money being paid to the manufacturer. The broker will be able to negotiate and review the manufacturer’s contract on your behalf to ensure that all is typical for that manufacturer and the type of product being produced. The broker would also have the ability to oversee the manufacturer’s progress, as well as inspect your order before it leaves the manufacturer's facility and a way bill is generated.
When a manufacturer produces specialty items that are typically produced for one customer, they have the added expense of calibrating their machinery to start the production process. This fee is typically passed along to the customer as a tooling fee. With the over/under clause in the contract, the customer is contracted to take the number of items manufactured in that run within a certain range. While the manufacturer should always attempt to produce the ordered number of items, several factors play into the total output of a production run. A planned overage could be used to compensate for items that manufacturers know will not meet quality standards.
When purchasing from any manufacturer, it is always important to ask and have included in the sales contract what the total production run is expected to be, as well as to include specific overage or shortage provisions. This will protect you from any unexpected shipping expenses and a larger bill.
|Article By Jill Tooley|
Jill has been obsessed with words since her fingers could turn the pages of a book. She’s a hopeless bibliophile who recently purchased a Kindle after almost 6 years of radical opposition, and she loves stumbling upon new music on Pandora. Random interests include (but are not limited to) bookstores, movie memorabilia, and adorable rodents. In addition to managing the QLP blog, Jill also manages the content development team, assists with the company’s social media accounts, and writes like a fiend whenever given the chance. You can connect with Jill on Google+.
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