Wesley Chang

July 6, 2017

What Every Hardware Founder Should Know About Manufacturing

Supply chain management for hardware startup

Hardware manufacturing is one of those topics that can be easily misunderstood. More often than not, new hardware entrepreneurs are quick to assume that any manufacturer will be able to build and assemble their product without considering specific qualities the right manufacturer should possess. On top of that, it’s a common misconception that a single CM is responsible for putting together the entire product from PCBs to packaging.

The truth is though, hardware manufacturing is more than just the assembly line or building a killer product that everyone will love. There’s also planning, purchasing and inventory management. I guess you could call that the logistics but what we’re here to talk about today is Supply Chain.

By definition, a supply chain is, “the sequence of processes involved in the production and distribution of a commodity.” But in hardware, this really means that it’s a network of different entities that allow a product to move from a factory (supplier) to your customers. Any material, component, manufacturer, or company that is associated with your product coming to market is part of this network. But what does this matter?

Deadlines!

We can all agree that manufacturing is time sensitive but what some of us aren’t aware of is how supply chain affects a startup’s timeline. Because of this, some startups end up rushing to get to production which can easily cause trouble for your company in the long run. Think recalls, poor packaging, malfunctions, etc.

But even if you do have a functional prototype ready to be mass produced, packaged and shipped out, you can still face some harsh delays. For those who are manufacturing overseas, not having your US Customs documentation completed and properly filed, your inventory could be grounded for weeks or even months.

To help prevent any unexpected delays associated with US Customs, Jim Franz the Head of Supply Chain and Logistics at Canary, a smart home security system, offered a solution in the article, “Supply Chain: The Biggest Factor Hardware Startups Forget,” where he stated,

“Partner with a licensed U.S. Customs Broker.

Assuming you’re manufacturing anywhere outside the US, unless someone on your staff is licensed to clear Customs, you’ll need to partner with a customs broker. Make sure your customs broker is full-service so they can arrange for air and sea shipments; if they’re not, you’ll need to find an additional partner to facilitate these moves. It’s also important to partner with a broker because, as a startup, you won’t have enough volume to negotiate directly with the carriers, which means your shipping rate will be through the roof.”

Your factory is more than your supplier

Manufacturers are more than just suppliers. They’re also customers and business partners. At least they should be treated as such. The founder of uHoo, Dustin Onghanseng–the startup company that built one of the most advanced indoor air toxin sensors and has been featured on major publications such as Forbes and Tech In Asia–summarized this perfectly in a beautifully designed infographic. He wrote,

“Remember that a great idea will not present itself without the right maker. Your manufacturer partner is going to be your most important business partner.

It’s undeniable that experienced manufacturing firms can show a proven record to offer quality services and parts.

But beyond that, you should be concerned with the type of service they can provide you given that you are just a startup and not one of their main clients.

You are irrelevant to them and may easily do without you. You must also factor the manufacturer’s business ethics, ability to scale, supply sources and engineering abilities into your decision.”

But there’s quite a big difference when your manufacturer is a customer. Rather than identifying what services they can provide and how well they can deliver, you’ll also have to convince them of why they should invest their time and resources into. In that case, they’re much like a regular customer who you have to sell to.

During a very recent event called “Supply Chain Management For Hardware Startups” where Ray Thai, the CEO of Mighty Net spoke about how hardware founders should deal with suppliers and how to manage them. The good guys at Hardware Massive put this quite simply in a detailed post on the key takeaways from the event. They wrote,

“You may think that the factory is merely your supplier. However, you should be thinking of your factory as your customer. You have to sell your startup to your factory and treat them as a partner. After all, you’re probably dealing with a risky project that’s low-volume, right? So why should they deal with you? Why wouldn’t they go with another project that will ensure more money for them in the long run? You also need to choose your factory in terms of your next project. Can they handle it? Do they have the capabilities to make your next project, whatever it may be?”

Conclusion

Most startups don’t have someone on their team who specializes in supply chain. It can be a tricky process to handle if you have to rely on your manufacturing partner to get you up to speed with everything. If you do your due diligence prior to shipping, or even assembly, by bringing in a SCM specialist, you can avoid quite a bit of manufacturing problems that most hardware startups face. After all, SCM is critical to the success of any HW startup.

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