Why have costs changed this year?
At GPI we are always being asked: why is my game more expensive to produce this year and what can I do to reduce or control manufacturing costs?
There are many factors that are driving manufacturing costs up in China.
- Labor - The unemployment rate in China is very low about 4.1% currently. So for a country whose population (1.3 billion) represents 19% of the world population they have a tremendous work force. The central government takes great measures to keep the people employed and provides incentives for agricultural work so there is more competition for workers in the manufacturing sector. Labor in the manufacturing sector is paid on a piece basis and workers can renegotiate at any time. In 2011 wages are up 20- 25%. China is also trying to give birth to a larger middle class in order to drive expendable income dollars to fuel their own economy and not be so dependent on exports. This all adds up to higher labor costs.
- Raw Materials - There is some fluctuation with the cost of raw materials due to changes in demand but they are predominantly going up. Demand for raw materials of all types to fuel China's domestic growth is contributing to increasing costs. Furthermore, China's continued investment in infrastructure is impacting raw materials available and driving up costs.
- Power - Cost of fuel and electricity are increasing so the cost to convert raw materials to end product is more expensive.
- Money - Interest rates in China are up so Lines of Credit terms are more restrictive and more expensive. Monetary policy by the China Central Government has allowed China's currency, the Yuan, to appreciate in value by 21% since as recently as 2005. This translates to a corresponding decrease in the buying power of Yuan by other currencies, resulting in higher costs for buyers of Chinese produced products.
- Shipping - As with conversion cost rising fuel costs affects shipping costs.
- Testing - It seems that every year the CPSC gets more stringent with testing which makes testing practices more expensive.
So what can one do to reduce/control costs given that there is not much one can do to affect labor, raw materials, power, cost of money, shipping and testing costs?
Start by examining the packaging and components of your game with your project manager and take a look at potential cost reduction options. Here are some questions to get you started.
- Can I reduce the size of my game board thereby reducing the size of the face label for the game board, game box size, box wraps and game tray?
- If your game is in Tin can you use a set-up box? If the game is in a set up box can you use a folding carton?
- Can you reduce the number of cards?
- If the cards are in box/tray can you get rid of the box/tray and shrink wrap the cards?
- If you have custom molded or die cut game pieces can you use standard pawns?
- If your game has pencils are they necessary?
- Can you reduce the number of score pads and/or number of pages?
Of course we encourage you to contact your project manager to discuss any options regarding your project that may help to control costs.
Make It Here, Make It There —
Can't I Make It Anywhere?
Where best to produce my game, the United States or China? That's a question I'm asked all the time. There are many variables to consider when deciding which country is the best choice. The decision often times boils down to time and money (most things in life usually do…). While from a manufacturing cost perspective it will typically be more expensive to produce your product in the United States, nevertheless U.S. manufacturers generally enjoy the benefit of a shorter overall timeline- the commencement of the manufacturing through to the delivery of the inventory to its final destination. This is usually thanks to the lengthy overseas freight forwarding process. Products produced overseas need to be shipped via ocean freight, generally taking 30 days. Shipping your products via air freight is always an option, but this is an extremely expensive proposition.
In addition to the time vs cost consideration, another rule of thumb that influences where best to produce your product are the components that make up your game. Here is a quick rundown of typical components in a game, where they are most cost-effectively produced, and how they contribute to the China vs United States manufacturing analysis:
- Printed Materials (Cards, Gameboards, Retail Packages): These components are commonly manufactured in both countries. Most factories in China, however, tend to focus on a minimum of 5,000 pieces of each component as a minimum order quantity (MOQ).
- Plastic Components (Dice, Pawns, Chips, Sandtimers, etc.): China is the country of choice here. The manufacturing costs as well as the cost of the molds are far cheaper in China over the U.S. If your product is being primarily produced and then assembled in the U.S., an expense to keep in mind however, is the cost to ship these components from China to the assembly plant here in the states. If the plastic components represent a large percentage of the overall cost of the total product, then producing the entire game overseas may be a more economically viable option.
- Metal Tokens, Metal Tin Packaging: Definitely China. The cost to produce these components in the U.S. is substantially more expensive, especially when lower production quantities are involved. If you plan to use a metal tin for the retail package for your game, this tends to be a compelling reason for producing the entire product overseas (as opposed to producing just the metal tin overseas and then shipping the empty tins to a U.S. assembly plant.)
- Textiles and Vinyls (Drawstring Bags, Game Mats, etc.): China tends to be the country of choice here as well. The pre-production setup costs are very low, and the manufacturing costs tend to be much lower as well. If producing the majority of your game in the U.S., shipping these components from China to the U.S. for assembly tend to be very cost effective however, as the packing is very efficient.
- Electronic Components: China tends to the favored here. The engineering and development costs tend to be cheaper, as well as the manufacturing costs.
In the end, the decision over where to have your game produced (entirely in the U.S., entirely in China, or a blend of U.S. and China manufacturing) is heavily influenced by the nature of the components in the product, the overall manufacturing cost, and how tight your timeframe is for getting the production and delivery completed. The formula for success is very dependent upon two key elements: 1) accurately identifying all the costs that comprise the project (preproduction set up, manufacturing, and shipping) and 2) properly managing the plan from initial product development to manufacturing to final delivery.