Comment · Mon, September 23, 2024 · ND Owner
What’s the deal with this?
What they were answering
ShouldReallyGetWorkn · 2 points
Oh interesting, I always thought vertical integration was supposed to lead to cost savings since you get to cut out middlemen. But I can see how that can be dependent on scale and specialization since you don't get to spread your fixed costs across as many units.
u/MisterYouAreSoDumb · ND Owner
Vertical integration can lead to cost savings, but only when you are swapping out like-for-like solutions, and can get into economies of scale. The issue is that 99% of contract manufacturers are cutting corners and not doing things properly to the standards I want. So when I built my own manufacturing facility, I was not swapping out like-for-like. I was building a facility as I felt was necessary to ensure things were perfect every time. This means that our costs are higher, because we have a lot more steps and processes than the average contract manufacturer. The same goes for my lab. We are doing science that no other labs in the world do. That's the only way to bring out novel products. So we have a ton of costs associated with that R&D and science that other contract labs don't have. This is why our overhead is higher. Now could I make those costs more efficient as I scale these operations up? Absolutely! If we sold 10X as many units, I could amortize the fixed costs of our operation over a much larger number of orders. This would make the per unit cost of all our overhead a lot less, giving us the ability to potentially be able to distribute through places like iHerb. However, we need to scale up sales to do that, which is hard when you don't play the same games all the other brands are. We'll get there, though!