The Product-by-Product Framework for Smarter Sourcing

I'm going to say something that might change how you think about the entire sourcing conversation. China+1 is not a company decision, it's a product decision. And that distinction between thinking at the brand level and thinking at the SKU level is the difference between a sourcing strategy and a sourcing disaster. Here's what I meant. You have 28 SKUs. Some are simple, some are complex, Some have massive margins. Some are barely surviving at current cost. Some are high volume. Some are long tail. Every single one of those products has a different answer to the question, should this be made somewhere else other than China? But for most founders, make the decision for the whole company at once. Move everything or move nothing. And that's exactly how the brands from last week's video lost $34K, $28K, and $47K. They were making a brand decision when they should have been making a product decision. This week, I'm giving you the exact scorecard I use, 4 factors, a simple scoring system, and the framework to evaluate every SKU in your line, and you know precisely which ones are move candidates, which one should stay, and which one should be a dual source. By the end of this video, you'll have a tool you can use this weekend. Let's build it. I'm Lara, 17 years in supply chain enterprise and DTC. We're in the week 2 of May sourcing series. Last week, the China+1 reality check, what founders expect versus what actually happens, and the 4 case studies that showed the difference between losing $34K and gaining $380K. If you missed that one, I'll link it below. Watch it first. It gives you the foundation for everything we're doing this month. Now, this week, We go one level deeper. Not should your brand diversify, but which specific products in your line are actually candidates for a niche. Next week, how to vet suppliers in a new country without getting burnt. And then week 4, how to manage the transition without blowing up your existing supply chain. And by the end of this month, you have the complete sourcing decision table. Let's get into the framework. There are 4 factors that determine whether a product is a good candidate to move out of China: complexity, margin, volume, lead time sensitivity. Score each SKU 1 to 5 on each factor, add them up. That number tells you where the product belongs. But before I give you the scorecard, I want to walk you through each factor in depth because the nuance inside each one is where founders make mistakes. Factor number 1, complexity. This is the most important factor and it's the most underestimated. Complexity is not about how complicated the product looks. It's about how many things can go wrong during production. Ask yourself these questions. How many components does this product have? How tight are the tolerances? How specialized is the machinery required? How long did it take your current China factory to get this product right? A simple product, a tote bag, a basic candle, a standard supplement bottle, can be picked up by almost any factory in almost any country relatively quickly. The learning curve is short. A complex product, a multi-component electronic, a precision-fit apparel piece, anything with tight quality specification took your current factory years to master. That institutional knowledge does not transfer when you change countries. Here's the scoring for complexity. So score what it means. 5, simple, single material, minimal tolerances, any competent factory can make it. 4, mostly simple, minor complexity, short learning curve in a new factory. 3, moderate, some specialized steps, 6 to 9 months wrap-up. 2, complex, multiple components or tight specs, 12 to 18 months ramp up. 1, highly complex, specialized tooling, machinery, or expertise, stay in China until alternative ecosystem matures. Note that this scoring is inverted here. Lower complexity gets a higher score for MOVE candies. I'll show you why that matters when we build the full scorecard. Factor number 2 is margin. This one is straightforward but critical. A sourcing transition costs money: tooling, samples, QC, travel, management time, quality buffer for early production runs. A high-margin product can absorb those transition costs and still come out ahead. A low-margin product cannot afford a single mistake. And if your product runs on a 20% contribution margin and your first production run in Vietnam has an 8% defect rate, you just have wiped out your margin for that batch entirely, and you still have to fulfill the customer's order. Score margin this way: contribution margin: 5, 50% plus, strong buffer for transition cost and quality risk; 4, 35 to 50%, solid, can absorb reasonable transition friction; 3, 25 to 35%, manageable, Budget carefully. Small pilot first. 2. 15-25% risky. Transition costs could eliminate year 1 benefit entirely. 1. Under 15%. Do not move this product until you have de-risked every other element. Here's the connection to what's happening right now. With tires rising, landed costs, and Red Sea surcharges still in the system, some products that used to sit at 35% margin are now sitting at 22%. That changes their move candidacy score, which is exactly why this evaluation needs to happen with the current numbers, not the margin you had 2 years ago. Factor number 3 is volume. Volume determines leverage. High-volume products get supplier attention. The factory prioritizes your production runs. They dedicate capacity to you. Their teams learn your specs faster because they're running them consistent. Though volume products get squeezed in between other customers' orders, you're not a priority, lead times are not predictable. This is very especially true when you're a new customer in a new country. You have no relationship yet, no track record, no leverage from history. Your only leverage is the size of the order you're placing. Score volume like this: annual units for this SKU 5, 20K+ units, you're a meaningful customer to any factory. 4, 10K to 20K units, solid volume, you will get attention. 3, 5 to 10K units, manageable, factory will work with you if the relationship built right. 2, 2,000 to 5,000 units, low priority for most factories. 1, under 2,000 units, impossible to get a new factory to take you seriously at this volume. you should stay. Factor number 4, lead time sensitivity. The final factor is about how much your business depends on speed. So products are planned far in advance. Seasonal basics, staples, SKUs, anything you reorder on a fixed schedule. These products can absorb a 12 to 14 week ocean freight lead time from Southeast Asia or South Asia without hurting your business. After products are reactive, limited editions, trend-driven items, anything where you're replenishing based on real-time demand signals, these products need short lead times to be viable. For reactive products, nearshore manufacturing Mexico, Central America can change your inventory economics completely. For planned products, lead time is less of a factor, and you can optimize purely on cost and quality. Now here's how we score: 5, low sensitivity. You plan 4+ months ahead. Any country works on timeline. 4, mostly planned, occasional reactive replenishment, some flexibility. 3, mixed, some planned, some reactive. Country choice matters for certain seasons. 2, high sensitivity. You frequently replenish based on demand signals. Nearshore is important. 1, extremely reactive. Fast fashion, viral products, anything where 12-week lead time kills the opportunity must be nearshore or domestic. Now let's put it all together. Score each of your SKUs 1 to 5 on each factor. Add the factor scores. Maximum possible score is 20, minimum possible score is 4. If your total score decision 16 to 20, strong move candidate. This product is built for sourcing diversification. Move it. If your score is 11 to 15, evaluate carefully. Consider dual sourcing. The economics might work, but there's meaningful risk. Don't move 100% yet. 6 to 10, likely stay. The risk, complexity, or volume doesn't justify the transition cost right now. 4 to 5, definitely stay. This product needs your existing supply chain infrastructures. Moving it will cost you more than it saves. Now let me show you what this looks like in real practice. SKU A: Basic Cotton Tote Bag. Complexity: 5. Single material. Simple construction. Any factory can make it. Margin: 4. 42% contribution margin. Volume: 4. 14,000 units per year. Lead time sensitivity is 4. Planned product. 3-month order cycle. Total is 17. Strong move candidate. SKU B, multi-component electronic travel kit. Complexity is 1, precision electronics, multiple components, tight tolerances. Margin is 3, 23% contribution. Volume is 4, 12K units. Lead time sensitivity is 3, mixed planning horizon. Total is 11. Evaluate carefully, dual source consideration, but complexity score is a hard morning. SKU C, the premium scented candle. Hero SKU, viral product. Complexity is 4, relatively simple construction. Margin is 2, 19% contribution margin after current tariff structure. Lead time sensitivity is 1, trend-driven, needs fast replenishment when it goes viral. And volume is 3, 7,000 units. Total of 10. State The low margin and lead time sensitivity make this too risky to move until margin improves. Now, do you see what the scorecard does? It removes the emotion. You stop saying, I feel like we should move this, or I'm scared to move that. You just score it, and then the math tells you where to focus. One more thing I want you to notice, SKU C, the hero SKU, the viral candles, scored low, not because it's a bad product, because its margin has been compressed by tariff and it Lead time sensitivity makes nearshoring complicated. That's important information because the instinct would be to prioritize moving your hero SKU because it drives the most revenue. The scorecard says, yo, fix the margin problem first, then visit. Now I want to spend a few more minutes on complexity because this is the factor founders most consistently underestimate, and it is the one that costs the most money when you get it wrong. Let me give you a real example. A consumer electronic accessories brand, strong business, decided to diversify out of China. They had two product lines. Line 1, precision fit phone cases with embedded components. Their China factory had been running this product for 3 years. Defect rate is 2.1%, fully dialed in. Line 2, simple nylon phone pouches, basic construction. Their China factory could run those in their sleep. They moved both to a new factory in Vietnam at the same time. The nylon pouches, up and running in 4 months, quality matched China immediately, zero issues. The precision phone cases, 14 months of problems. Wrong tolerances, components not seating correctly, color inconsistency batch to batch. $38K in defective inventory before the Vietnam factory finally got it right. Same country, same factory, two completely different outcomes. Because complexity is not about where you make something, it is about how much institutional knowledge your current factory has built up inside your product. When you move to a new factory, that knowledge does not come with it. Now, the nylon pouch has almost no institutional knowledge. Any competent factory can figure it out. Quickly, the Precision Electronics case has 3 years of accumulated learning inside it. The China factory has adjusted the tuning 17 times. They know exactly which components sit correctly and which supplier parts run slightly off spec. That cannot be transferred in a kickoff meeting. Here is a rule I give every brand I work with: for every year your current factory has been running a product budget 3 months of ramp-up time at a new factory. So 3-year relationship, budget 9 months minimum. 5-year relationship, budget 12 to 15 months. And allocate a quality buffer of at least 8% of that product's first year production cost for the defects and rework that will happen during that ramp-up. This is not pessimism, this is planning. The brand that lost $38K didn't plan for it, the brand that added $308K in margin did. Now I want to talk about the middle path because not every SKU is a clear move or a clear stay. Some of them land in the 11 to 15 range on the scorecard— interesting candidates, real economic upside, but enough complexity or risk that going 100% to a new factory feels aggressive. For those products, there is a third option: dual sourcing. The 70/30 split: your primary source, whether that's China or wherever you currently manufacture, handles 70% of the production. A secondary source in a different country handles 30%. It sounds simple, and structurally it is, but the strategic value is enormous. One, it builds capability without betting the business. You are developing a real manufacturing relationship in a new country while your primary source maintains the fulfillment. If the new factory underperforms in year 1, and they often do, you have not blown up your supply chain. You have just learned something expensive from 30% of one SKU instead of 100% of your business. 2, it creates leverage with your primary source. This is the one most brands don't talk about. When your China factory knows you have a secondary source, the conversation changes. Before, our price is $11.6 million. Take it or wait 6 months for the next production run. After, our secondary source in Vietnam came in at $10.4 million. We'd prefer to keep you as primary. What can you do? The dual source does not just protect you from disruption, it protects you from being held hostage. Number 3, it gives you the real backup when something breaks because something always eventually breaks. You've seen a pandemic, the tariff, now the Middle East wars, port congestion, factory fire, political disruption, quality failure at scale. The brands with a proven secondary source recover fast. The brands with 100% concentration in one scramble. Now the warning: dual sourcing adds complexity. Two supplier relationships to manage, two QC processes, two inbound logistics streams, 2 sets of specs to keep aligned. For a brand with a small ops team, that is not trivial. This is why I say dual source only your high-volume strategic SKUs, not your long tail, not your low-margin survivors, not your strategic SKUs. Have the volume to justify the operational overhead. For most brands, that's 3 to 6 products, not 28. All right, let me show you the full picture with a real brand. $4 million annual revenue, 28 SKUs, 100% China source. When they came to me, the question was, we know we need to diversify, but we don't know where to start or what to move. We run the scorecard on all 28 SKUs. Here's what we found. For SKUs, strong move candidate score is 16 to 20. These represented 35% of the revenue. Simple construction, strong margins, high volume, long replenishment cycles. Decision: Move this to a secondary source in Southeast Asia within 18 months. 6 SKUs, dual source candidate, score is 11 to 15. These represented 40% of the revenue. Mix of moderate complexity and solid margins, high enough volume to justify dual source overhead. Decision: 70/30 split, primary China, secondary Vietnam, over 24 months. 18 SKUs stay, score 10 and below. This represented 25% of the revenue. Combination of high complexity, low margin, low volume, and high lead time sensitivity. Decision: stay in China, optimize cost through negotiation, not relocation. Now let me show you what that does to their China concentration. Before the scorecard, 100% China, so a single point of failure across entire business. After full implementation, 18 months to complete, China handling 55% of production, Vietnam handling 30%, the remaining 15% being actively evaluated. They didn't blow anything up, not a single late shipment during the transition, not a single stockout. The 4 move candidates were transitioned sequentially, one at a time, so that at no point was more than one SKU in active transition. The 6 dual-source SKUs were run in parallel with existing China production, so there was always a fully proven source covering the majority of the volume. Here's what I want you to take away from this: they went from 100% China exposure to 55% in 18 months, but it was not 20 8 decisions. It was 4 decisions to move, 6 decisions to dual source. The other 18 SKUs, they didn't touch because the scorecard told them not to do. That discipline, knowing what not to move, is what made the strategy work. Most brands that diversify badly try to move everything, or they move the wrong things because they're driven by fear or tariff headlines instead of product-level data. This brand moved the right things because they did the math first. List every SKU in your line, score each one on the 4 factors: complexity, margin, volume, lead time, sensitivity. Add the scores up, you now have a prioritized sourcing decision map for your entire product line, and you can stop asking the question, should we leave China? Because the scorecard will tell you which products have already answered that question with a yes which need more evaluation, and which should stay exactly where they are. That's all I'm looking for, just Saturday morning. Next week, and this one is very, very important. Let's say you've run the scorecard, you know which SKUs should move. Now what? You need a factory in a country where you have zero relationship, zero track record, and no way to walk in the door and shake hands with someone who knows you. How do you find a supplier you can actually trust without flying to Vietnam and hoping for the best? That is next week's video, and I'm going to give you the exact vetting process I use, including the 3 red flags that tell you to walk away no matter how good the price looks. Subscribe so you don't miss it. And if you're building this sourcing strategy in real time right now, subscribe to Unbox Weekly. This week's issue is on something directly connected to this scorecard, the tariff rate change between China and the top 4 alternative sourcing countries, Vietnam, India, Mexico, and Bangladesh, and how those rates are shifting the math on the move candidates you just identified. One last thing, drop your top-scoring SKU in the comments. Tell me what it is, what it scored, and which country you're thinking about for it. I read every comment. See you next week!