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Jewelry service and subcontracting

Contracting Conundrum

When does it make sense to outsource production?

By Shawna Kulpa

Jewelry business owners often wear a lot of hats, especially when they’re sole proprietors. They’re designers, bench jewelers, CAD modelers, polishers, stone setters, photographers, marketers, salespeople, shippers, and even janitors sometimes. But as their businesses grow and succeed, they have to decide when it makes sense to turn over some of the reins to someone else.

Whether it’s because of concerns over the costs to pay someone else to create their jewelry, or worries that an unscrupulous contractor will rip off their designs, deciding to outsource production isn’t always easy. If your company has grown to a point where you feel yourself burning out while trying to keep up, it may be time to sit down and ask the big question: Would outsourcing ultimately be better for both yourself and your bottom line?

And to best answer that, you should first ask yourself a series of smaller questions.

Do You Have the Capacity?

When jewelers consider whether or not it makes sense to keep production in-house, the first question they need to consider is whether or not their operation has the capacity to handle all the production.

Actually, that’s only the first question, says Linus Drogs, president of Au Enterprises in Berkley, Michigan. If the answer is yes, he recommends that they then ask a follow-up question: Can they produce it in-house efficiently at the margins they need?

Part of being able to manufacture efficiently means investing in the right equipment, which can sometimes be on the costlier side. Because contractors are strictly in the business of manufacturing, they already have factories filled with such equipment. Not only that, but they often purchase the best equipment out there to reduce the likelihood of failure.

Ross Wesdorp, director of sales at Jewel-Craft in Erlanger, Kentucky, for example, notes that his company invests in the type of high-end casting equipment that is typically out of reach of a small shop or retail store.

“The high-end equipment allows you to produce better results in several ways: [more efficient] technologies, more accurate temperature readings, better metal mixing, as well as speeding up the time it takes,” he says. “It would take a lot of investment to get to that level.”

3-D printed model and jeweler at laser welder

In addition to having more equipment than a typical jeweler’s shop, contractors often invest in higher-end equipment that allows them to produce at a higher level and a faster rate. 

There’s also the quantity of equipment to consider. Whereas a jeweler may have one tumbler in her shop, a contractor could have 10. If the jeweler’s tumbler goes down in the middle of a job, she’ll likely be on the phone scrambling to find someone to fix it or waiting on a replacement in order to get a pressing job done on time. If one of the contractor’s tumblers go down, he has nine other ones to compensate. Plus, the contractor can put all of those tumblers to use at the same time with several types of material to help cut down on labor when finishing parts.

In addition to having all of the equipment needed for the job at hand, contractors often “have lean processes and can run items with minimal waste and tool changes,” says Wesdorp. Because of the expertise and high-quality equipment contractors have, it can sometimes be “just as affordable to send something out as to do it in-house.”

It goes beyond just the equipment, though. Jewelers must consider what additional staffing they’ll need to hire to accommodate greater production, and what associated costs that will bring. They also should look past the project at hand.

Joel Weiss, vice president of Carrera Casting in New York City points out that jewelers need to think through how they’ll handle slower times, when orders aren’t coming in and production slows down. If production remains slow for an extended period of time, the jeweler may need to consider laying off workers—only to go through the hiring process all over again when orders start to roll in again. Such contractions and expansions can be disruptive, lead to poor workforce morale, and ultimately lead to more headaches.

Ellen Lyons was one jeweler who had to decide whether to invest in additional equipment as her business grew. A sole proprietor designer in Seattle, Lyons mostly makes one-of-a-kind pieces that she hand fabricates. But she also does limited production runs of some pieces, including a recent collection based on some wax carvings she created. Though she likes the control that comes with doing everything in-house, she had no interest in expanding her operation to cast her own models.

“I don’t have the capability to do mass production so I decided to send them out to my caster,” she explains. Because she hand fabricates 95 percent of her work, she doesn’t see the need to invest in casting equipment, not to mention the time needed to learn how to operate it, for her shop.

Do You Have  the Experience?

Even if jewelers have the capacity to handle all parts of production, they also need to ask themselves if they have the experience needed to do everything they want to do and at the level that they want it done.

This was the position that Julie Romanenko, owner of Just Jules in Scottsdale, Arizona, once found herself in. The self-described Type A designer realized one day that she simply couldn’t create everything she envisioned.

“I’m a self-taught bench jeweler,” she explains. “Inevitably, I got to the point where I was designing pieces I didn’t know how to make. Designing pieces way be-yond what I could actually create.” For a while, she continued trying to do it all but soon recognized that in order for her business to grow, “I had to start contracting out some of the work.”

Drogs cautions that even if a jeweler does have experience in all aspects of manufacturing, it doesn’t necessarily mean that they also have the expertise to get the job done in the most efficient and cost-effective way.

“If you’re trying to do something in-house and control all aspects of it but don’t have the experience to produce it at the expectations of your customer, or you have to remake it, it’s additional loss of margin, effort, and time that could have been spent on something else,” he says. On the other hand, contractors who do nothing all day but print, cast, polish, etc., usually have the processes down pat.

Necklace detail by Julie Romanenko

Jewelers may decide to outsource production when they reach a point where they don’t have the skills or knowledge needed to bring the designs they envision to life.

To help potential clients make the decision on whether or not to outsource, Oscar Valencia, president of Master Casting & CAD in Chicago, likens the process to medicine. A jeweler is like the family doctor that’s good for handling everyday things. Contractors are the specialists people turn to when something more is needed.

“A lot of clients do their own bench work,” he explains. “Filing and polishing don’t require a lot of work and a lot of people like to do that. But as far as casting goes, most people don’t have the knowledge. That’s when it makes more sense to send it out to experts.”

Even if a jeweler does have extensive specialized experience in any area, it doesn’t mean it always makes sense for them to handle it themselves.

For example, Lyons, who carves many of her own models, knows how to cut her models out of rubber molds. However, she prefers to turn that task over to an expert who cuts as many molds in a day as Lyons might do in a few years.

“They’re going to be better at it, more efficient, and they’re not going to mess it up,” she explains.

Lyons also shares this attitude when it comes to other parts of her business. She does most of her own photography for her website and social media pages. However, she’s happy to turn over the reins to a professional photographer when it comes to taking photos she plans to submit for competitions and exhibitions.

“I’ve learned how to do photographic editing for my website and social media, but am I going to learn how to use a really state-of-the-art digital camera? No, I don’t have time for that,” she says. “I’m willing to accept my limitations. I look at my skill set, what I am good at, what I am not so great at, and who can do this for me more efficiently.”

However, there are times when Lyons keeps production in-house, even if she doesn’t have as much experience in something as she would like. It simply depends on the unique circumstances of the job. A few years ago, for instance, she obtained shards of ancient Roman glass that she planned to set in one-of-a-kind pieces.

“The glass is 2,000 years old and had been buried in the ground, so it had a lot of iridescence from the minerals in the soil,” she explains. “I have a way to set them to make sure that the iridescence won’t flake off. I wouldn’t trust anyone else with that.”

If jewelers believe they have the experience to continue doing everything in-house, Wesdorp recommends they take a page out of a contractor’s book and take meticulous notes documenting each and every process done during production. Documenting the processes will ensure that every time a specific job is run, it’s done the same way.

“Even for processes we run once a year, we have everything documented,” he says.

However, if jewelers recognize that they don’t have the skills needed for some aspect of production and plan to outsource the work, they should still obtain some knowledge and experience in the production processes. Otherwise, how else can they accurately evaluate the work their subcontractors do?

“It’s on them to evaluate if a vendor is doing a good job,” says Ted Doudak, CEO of Riva Precision Manufacturing in Brooklyn, New York. “If they’re ignorant of the process, they’re not going to be good at evaluating the work. They need to understand it. The more they know, the more that they grow.”

Can You Relinquish Control?

One of the many reasons jewelers start their own businesses is because they like to maintain control over the product that bears their name. That need for control is also one of the biggest reasons why jewelers struggle when deciding whether or not to outsource some of their production. After all, if the product is being cast and polished on the other side of the country, how can jewelers know for sure that it’s being produced just the way they want it to be?

It’s something that Doudak sees a lot. “When you do it in-house, you can connect the whole process together—CAD, casting, polishing—all under one roof. You lose some of the links if sending out.”

But part of being in control of a business is learning to recognize when it’s time to pass off responsibility to someone else. Unless jewelers need to produce only a handful of pieces every year to support themselves, at some point they’ll have to expand their business, which usually means handing off some control over production to someone else.

This rings true for Romanenko, the self-professed “Type A.”

“I like to feel like I am in control,” she says. “Outsourcing feels like you’re giving up some of that, and I didn’t want to have to worry about sacrificing quality.”

Casting Trees by Master Casting & CAD

If jewelers outsource their production, the should still obtain some knowledge about the production process so they can accurately evaluate their subcontracto’s work.

Although it wasn’t easy for her, Romanenko eventually learned to relinquish some of that control when she got to the point when she wanted to do things with her jewelry that she simply wasn’t capable of doing herself, such as casting. In fact, she’s so happy and comfortable with the contractor that she’s worked with for more than 15 years that she jokes that she herself might have to retire if he ever does.

It’s important to keep in mind that subcontracting work doesn’t mean relinquishing all control over the situation. While there are many contractors that will manufacture pieces from start to finish—from CAD work and 3-D printing to casting and final polishing—many offer jewelers the opportunity to take advantage of only the services they want or need. If a jeweler has someone on staff who is a wiz at polishing and has the time, experience, and equipment needed to complete jobs on time and at the highest level, she can outsource the CAD, printing, and casting and keep the final polish in-house.

“We are a full-service manufacturer, but that doesn’t mean that a client will use all of our services from start to finish,” says Drogs. “They may decide they have enough capacity for setting and they decide to take delivery as ready-to-set. Maybe they supply their own cast pieces. It depends on what a customer is good at and what they’re not good at.”

Jewelers should think of subcontracting as a buffet, opting for what they can’t do themselves and passing on what they can. As Weiss notes, even if jewelers do lose a little control when subcontracting, if it adds to the bottom line then it’s ultimately worth it.

Can You Risk It?

Many jewelers may be leery of hiring a subcontractor because of the perceived risk. After all, they’re trusting a company to produce their designs to a high standard and to deliver them on time, and no jeweler wants to become known for late, shoddy work.

When subcontracting out work, jewelers need to work out all the details before production begins, including the deadline for the job to be complete, the final cost, and the level of quality expected. Once agreed upon, all those details should be placed in writing, so both parties can refer to it if needed. If a contractor encounters a problem during the manufacturing of the pieces, they are responsible for doing anything and everything needed to get that job completed on time and to all the expectations laid out in the contract. If it winds up costing the manufacturer more money than it had anticipated, they have to eat that cost.

“We hold to that price,” says Wesdorp. “Prices don’t go up based on any errors we made.”

Jeweler working on CAD at Jewel-Craft

Part of being in control of a business is learning to recognize when it’s time to pass off responsibility to someone else, whether it’s for CAD work, casting, setting, or polishing.

Another risk that jewelers often see when it comes to outsourcing production is worrying that the subcontractor will knock off a design and start producing it themselves. It’s one of the reasons why Romanenko stopped working with one of her casters years ago. She was in New York City and stopped in to see her caster. She shared the elevator ride up with one of the caster’s employees, who was wearing one of her pieces.

“I asked her about it and she was embarrassed [so] I assumed she had taken my mold and just made herself a piece,” says Romanenko. “That’s not okay. Just be-cause they have the molds doesn’t mean they can cast them for themselves.” Not long after, she pulled her molds.

But that situation hasn’t soured her on subcontracting, as she now works with a different caster. “You have to trust, and I trust him,” she says. “I often will compare my relationship with him to a marriage of sorts. It has to be a respectful one, a working one. It has to be with someone you can get along with, that you can trust, and that can do the work.”

Jewelers concerned about a contractor possibly stealing their designs should consider requiring the contractor to sign a non-disclosure agreement (NDA), which legally prohibits them from sharing information about the job.

Drogs notes that years ago “the idea of trade secrets was an agreed-upon set of ethics that didn’t need a formal contract. But it’s 2020, and things have changed.” Now, NDAs have become standard, and many jewelers have begun requesting them, if not presenting contractors with their own.

Lyons doesn’t really worry much about infringement issues with any of the contractors she uses for her work. “My caster is the least of my concerns,” she says. “My bigger concern would be Pinterest. I trust my caster. You’re building a relationship with someone you’re going to work with in the future. If I’m worried about my caster, I wouldn’t sleep at night.”

But she also points out that it’s on the part of the jeweler to research someone before hiring them. “Talk to other people,” she recommends. “It’s time consuming to do, but you have to make sure you’re using the best people. I’ve never had a problem with any of the casters I’ve worked with, and they’ve had stellar reputations.”

Can You Afford It?

To do an apples-to-apples comparison between the cost to manufacture in-house versus hiring a subcontractor, jewelers first need to know all their costs—their current expenses, the subcontractor’s fees, and any projected costs for additional equipment, supplies, or staff that would be needed to complete a job themselves. 

Lyons does a cost-benefits analysis anytime she considers whether or not it makes sense for her to pay someone else to do something. She sets a lot of her own stones, but if she has a collection with pieces that are heavy on gems, she’ll run the numbers to see if it makes sense for her to send the job to two stone setters with whom she frequently works.

“With my stone setters, sometimes it’s cheaper to let them take care of it while I concentrate on other things,” says Lyons. “I feel like they’re doing a much better job than I can with everything else I’m trying to do.”

That’s why it’s important that jewelers look beyond just the initial costs that a subcontracted job would entail.

First, they should consider that the price quoted by a contractor for the job is fixed, though it could change due to fluctuations in material prices or if pieces need to be re-engineered. If a printing or casting job fails and needs to be redone, the manufacturer is responsible for those additional costs, not the jeweler.

“If someone sends us a project and we agree on parameters and a price for that, we are obligated to fulfill those obligations,” says Drogs, though he notes that that might not be the case with all subcontractors.

“One of the advantages in subcontracting is that you know your costs,” adds Weiss. “You know if you have someone doing your work, it costs X to make this piece. When you do it in-house, you have no idea.” That’s because jewelers produce at different speeds. If a jeweler is feeling under the weather one day, her production likely goes down. If a contractor’s workers are feeling under the weather, the contractor will compensate to make up for any lost production time; the jeweler still pays the same amount per piece that was agreed upon at the start of the job, regardless of how long production actually took.

Jewelers should also look at how the contractor is arriving at its fees—and maybe how they’re calculating their own. If the cost per piece seems astronomical, the problem might not be with the contractor.

Generally speaking, jewelers—especially those just starting out—are often afraid that customers will be turned off by higher prices, even if they’re justified. As a result, jewelers often set their labor rate unsustainably low.

Wesdorp has seen this first-hand. “They undervalue themselves when pricing out their product,” he says. “They don’t value their time enough and how much they should be charging for the labor.”

In addition to evaluating their own fees, jewelers also need to consider other factors. Presumably, the manufacturer is using high-quality equipment that can help minimize any mistakes, which can add to the initial costs but ultimately save time (and money) in rework. Jewelers also need to consider what they could be doing with the extra time they’ll have if they’re not making everything themselves.

“Does it make more sense for them to be doing everything in-house or using a subcontractor that would free them up to do something else that might actually grow their operation?” asks Drogs.

That was certainly true for Romanenko. Outsourcing production allowed her to do the things she does best in her business—designing, selling, social media, and paperwork. It also freed her up to travel.

“Years ago, I never did trunk shows. I couldn’t leave, because then work wasn’t being done,” she explains. “Now, I’m away at least one weekend a month. I’m able to travel because I know the work is still going to be made.”

Finally, jewelers should think about one cost that can’t be quantified—peace of mind. It’s easy to get caught up crunching numbers and looking for the most cost-effective way of doing something. However, jewelers should be mindful that though outsourcing a job may cost a bit more, there’s something to be said for knowing that, barring a natural disaster, a trusted contractor will deliver the job on-time, for the agreed-upon price, and at the expected level of quality every time.

“If you want to grow, you have to consider outsourcing,” says Wesdorp. “Don’t burn yourself out.”

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