By Jack Lander
If you’re thinking of producing and distributing your invention, as opposed to licensing it, you may be able to do so without a spacious facility. A desk in your spare room or garage may suffice.
You’ll need warehouse space and a method for fulfilling orders. These can be one and the same. Fulfillment houses routinely act as warehouses, storing your inventory, packing and shipping it for you. You can even link from your Web site directly to the fulfillment house and have orders fulfilled while you sleep.
If you aren’t selling several orders a day directly to the consumer, but are selling in quantity once or twice a week to catalogs and distributors, you may choose to fulfill orders yourself. In that case, you’ll likely find a domestic storage facility near you in which to warehouse your inventory.
Warehousing and fulfillment cost money and is a deduction from your gross profit. But the storage and fulfillment functions must be built into the price of all products, regardless of how these essential functions are accomplished. When your sales volume grows to the point where you have to work full time in your own business, you may find that renting a few thousand square-feet in an office park will cut your costs. But hiring and supervising employees and maintaining payroll records, is no picnic.
Either way, one of your early problems will be arranging a steady flow of inventory to satisfy your orders. Catalogers and distributors are really fussy about having their orders filled on time and you’ll be dismissed as a supplier if you blow it. If you’re selling through Amazon.com, your rating will drop a couple of stars if you ship late. This means that you must keep the “pipeline” filled. Too little inventory and you’re in trouble with your customers; too much inventory and you’ll likely have to borrow money or factor your accounts receivable to carry you until you are paid by your customers.
Goods from China, India, and so forth are shipped in containers, those metal boxes about the size of a one-car garage. You pay a fixed amount per container whether it’s fractionally filled or filled to the brim. If you don’t need a whole container, according to Edie Tolchin, an inventor-friendly import broker, you should order your goods shipped “CIF,” which stands for “cost, insurance and freight.” Your other choice is “FOB,” standing for “free on board,” and means that the overseas source pays for transportation costs to the point from which your goods are shipped, which may be their shipping dock. You arrange and pay from that point to your warehouse.
Now, here’s the interesting part: If you specify CIF, your source can arrange for your goods to share a container with other shipments. This arrangement enables you to order more frequently, achieve a better balance between cash in-flow and out-flow and avoid being overwhelmed by ordering and warehousing a full container.
It’s easier to start a small business, taking orders from your Web site, from Internet sellers like Amazon.com and from catalogers, rather than attempting mass distribution through brick-and-glass retail chains. But either way, it’s possible to orchestrate a business rather than being the hands-on worker in each of its essential functions. Delegating isn’t just for the fellow who goes to work in a limousine. Delegating frees you to do the most important work. As the grand old man of business theory and practice, Dr. Peter Drucker stated in his timeless masterpiece, Innovation and Entrepreneurship: “Business has only two functions, innovation and creating a customer.” No doubt you’ve mastered the innovation part.
Drucker’s book and Edie Tolchin’s book, Sourcing Smarts, are available online. I highly recommend them.
Editor’s note: Jack Lander is a regular columnist for Inventors Digest. This piece appeared in the May 2009 issue.