By Rhonda Campbell
You don’t have to own a farm to reap the rewards of production expansion. Furthermore, if you get out in front of your expansion efforts and start marketing your products, you also may not have to pay for more real estate in order to store growing inventory.
Expanding Production Capabilities
Truth is, as determined as you might be to increase your customer sales, you may not be positioned to handle the demand. For example, have you considered whether or not you have enough products on hand to fill orders should your sales increase by 30 percent or more within a matter of days? If you ship products to distributors, are you prepared to handle regional spikes in sales? That means you would need to have capital on hand to pay for additional postage and handling charges. Of course, if you offer overnight shipping to customers, you would also need to have enough products on hand to fill overnight orders.
If you don’t have enough niche products on hand to meet growing customer demand, to keep from turning eager customers into dissatisfied customers, you may have to expand your production capabilities. This means that you might have to purchase equipment and hire more workers. For example, if you sell computer monitors, you may have to purchase more flat panels, adaptors and video graphics array (VGA) cables. Come up short in one of these areas and you will have an unfinished product, not to mention hoards of angry customers.
Customer Sales Drive Production Expansion
In fact, customer sales may demand that you expand production. This may be what drove
Samsung to borrow $1 billion to expand the production of iPad and iPhone chips. It is reported in the March 29, 2012 Bloomberg “Samsung Electronics Plans First Dollar Debt Since 2004” article that, “The company has sent requests for proposals to banks to borrow as much as $1 billion to expand production capacity at its factory in Austin, Texas.” In the past, Samsung has raised money to expand production by selling three year notes. However, in a constricted economy there may not be enough buyers for this strategy to raise sufficient capital.
As you may have discovered, another challenge to expanding the production of your top selling niche products has to do with bankers’ reluctance to lend money. You are not alone in facing this challenge. Large companies with an international presence must also get creative when it comes to financing the expansion of their niche products. If you own a manufacturing company the choices available to you to keep producing products for clients may appear to be shrinking. In fact, the New York Times reports in its June 4, 2012 “New Bank Rules, More Lending Worries” article that bank rules designed to force banks to keep more capital on hand (in effort to avoid another financial fallout similar to the bank failings that led to the 2008 recession) may cause bankers to tighten their lending practices even more.
This is a reason businesses like Samsung apply for loans from several banks. It’s certainly a way to compare loan offerings, including interest rates and repayment terms. However, this process can take weeks or months to complete which is a reason some entrepreneurs review alternate funding options, like borrowing money from relatives, taking on business partners, crowd sourcing for funding, etc., to meet their critical production needs.
It’s a smart move. After all, in today’s digital world, you don’t need real estate to operate a successful business. However, you do need to be able to produce services or products you sell at low costs and quickly. Tools you could use to track sales, alerting you to how many units of a product you need to order include point of sale software (i.e Intuit, CounterPoint, MerchantOS), databases and accounting programs. These tools could save you money (keeping you from producing/ordering too many products), time and space.
Other steps you can take to expand your production capabilities include researching the market to stay abreast of trends and shifts in customer buying habits and remaining current on tax laws and import/export laws impacting your business. By making your products and services available digitally, you could ensure that you always have several niche products on hand to offer customers. For example, if you sell mobile phones and you run low on phones, until more phones arrive at your warehouses, you could offer customers free or discounted software packages they can download onto their computers. However, to repeat, the best step you can take to meet expanding production needs is to keep an accurate track of purchases and inventory so you can produce the right amount of products on time.
http://www.bloomberg.com/news/2012-01-16/samsung-electronics-may-issue-first-overseas-bond-since-1997.html (Bloomberg: Samsung Electronics Plans First Dollar Debt Since 2004)
http://online.wsj.com/article/SB10001424052702303640104577438901538000094.html (New York Times: New Bank Rules, More Lending Worries)