One of the biggest challenges a company can face is making the transition from being a reseller to a manufacturer. To go from simply putting your logo on someone else’s product and selling it, and actually manufacturing your own product.
With the transition comes a lot of challenges, but also a lot of benefits. Like most things, it’s a decision that really requires you to carefully assess your company and whether or not you can efficiently make the transition.
That’s why on this week’s episode of CFO Weekly, we talked with Rick Mills. Rick is the Chief Financial Officer at Headsets.com, and our discussion centered around his company’s decision to move from being a reseller of product to a manufacturer. What led to the decision to make the transition? What were the challenges? What were the benefits? How has COVID impacted their company?
Why Switch from Reseller to Manufacturer?
Headsets.com was founded in 1997, and around the year 2000, they began to form their existing mode of operations, which is to be a high-service, high-touch operation. To really help customers that need quality customer service.
Back in the year 2000, the internet wasn’t quite what it is today, and you could market resell products, and that marketing would come back to you in the form of sales calls or direct calls. But over time, the internet changed. It took fewer and fewer clicks to get a manufacturer’s product directly, and so they had a decision to make.
Did they want to remain a reseller? Or did they want to have their own product? So they decided to make the jump and move to a “white label” product, where they contracted with a supplier to exclusively manufacture a product for them that had their label. But that didn’t last long, as they ended up in competition with the manufacturer for other similar products.
This led to the transition to their own branding, production, and manufacturing, and ultimately business growth.
Challenges While Making the Switch
As you can imagine, there are challenges in making this transition. The biggest one for Rick and his team was the longer time frame to work out the kinks with a product. Before, they didn’t deal with quality control in factories, as they weren’t the ones manufacturing their own product.
“The biggest challenge in our transition was that when you’re developing your own products, there’s a much longer time frame to work out the kinks. You’re dealing with factories and quality control issues, which we never dealt with before," Mills said.
But now, they’re in charge of the product. It’s their job to ensure that a product works the way it’s supposed to work before it goes to market, not make the discovery after it’s already being used by the customers. They have to work with their facilities to ensure the highest level of quality control possible.
The Benefits of Being a Manufacturer
This transition brought a lot of benefits. The first? A stronger control over the supply chain. Obviously when you’re producing your own product you have much more control. You don’t have nearly the unit commitment that you have when you’re reselling. You have much more control over how much of each product is manufactured, and that control allows you to help save money and pass those savings on to your customers.
“One of the biggest benefits for us was more control over our supply chain, and not having as many commitments to buy product from our manufacturers," Mills said.
The other benefit is an increased focus in marketing efforts. You know that all the sales will come back to you, because it’s your product. You’re not throwing marketing dollars out there only for the customer to go buy direct from the manufacturer. You can sell on Amazon for instance, and not have to worry about people buying from resellers, because you’re the only one selling your product.
Adjusting to Changes in the Economy
Like every other business, COVID had a huge impact on Rick and his team. Initially, it worked in their favor. With everybody working from home, more and more people needed headsets to make that remote work a reality, and Rick and his team saw a 50% increase in sales for roughly seven weeks.
They did see a dip when things began to level out a bit, but for the most part, Rick says, they were lucky. Again, because they have a lot more control over their supply chain, they were able to scale back production in order to not have as much inventory sitting around not being sold.
The Bottom Line
Making that transition from a reseller to a manufacturer isn’t an easy task. There are a lot of moving parts, a lot of things to think about, and a lot of analysis to do of your company. Can you effectively put this into place without disrupting things like revenue streams, customer service, or product integrity? If so, then this transition just might be for you.