Manufacturing Cost and Supply Chain

It’s been a busy week already sending emails and leaving voicemails at every kite company and manufacturer we can think of – maybe not a surprise but turns out most kite surfers don’t work the regular 9-5. Our goal this week is to get a deeper understanding of the kite life cycle from manufacture to sale. We’ve also been trying to find answers to some of the teaching team’s questions, like “who is the biggest kite company and how big are they?” This turns out be a pretty difficult question, however, since no kite companies have publicly available sales figures and even in conversation were unwilling to even ballpark their costs or sales numbers.

Nevertheless, through pouring over online kite forums, speaking with distributers, and actually getting a quote from an overseas manufacturer we’ve learned some interesting stuff about the production side of the kite world. The first thing to know is that there are only five factories that make kites- three in China, one in Sri Lanka, and one in Vietnam that is owned by and manufactures exclusively Ozone Kites.  These five (four if you don’t count the Ozone one) factories supply kites for the 20+ kite brands that exist worldwide. Additionally, over 90% of kites are made with Teijin brand fabrics and plastic film so everyone has more or less the same materials and labor costs. That said, we did find a 2005 New York Times article criticizing the Neil Pryde factory (one of the major Chinese factories) as a sweatshop with horrendous working conditions.

Nobody I talked to was willing to give specific numbers on costs or markup, but luckily a close friend in the industry was willing to divulge the general numbers. The factories have a gross margin of  30-40%, the companies have a gross margin of 30-35%, and retailers have a margin of 40-50% percent. This last number I know to be true because through my sponsorship I get kites at retailer pricing, which is about 50% less than what those same kites are sold for in stores.

A few points to consider-

*Kite companies also need to pay for R&D, advertising, sponsorships, etc so they have other costs to consider when deciding the mark-up (basically remember we are talking gross markup not net profit). To be honest I don’t know much about what “normal” margins are but the ones discussed seemed high. I think this means that one could theoretically sell kites for much cheaper or spend more on manufacturing and still sell them at a competitive price. Either option would result in lower profits but right now the main concern is breaking into the market not being the most profitable. This is especially key for us, as the added features we are considering would likely push up the manufacturing price point.

* I found an interesting debate online about if kite companies mark up their product more than they need to as a way to imply that their product is of quality. (Nobody wants to be the cheap brand). I think the reason people fear cheap is that they equate it with unreliable and dangerous. Perhaps there is an opening here in the market if one could prove that their product was both cheap and of exceptional quality.

*Aside from secrecy the reason it is difficult to get hard numbers is that there is a big difference in the cost of a small kite versus a large kite because the latter involves so much more material.

* One of the biggest reasons Ozone has their own factories is that they can produce to meet demand so they never have much surplus inventory, thereby keeping their overhead low.

BONUS!

A video of the Ozone factory and a picture of my friend Ian demonstrating that a regular surfboard without straps works just fine for kiting.

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