How to Find, Evaluate, and Partner With Contract Manufacturers
The hard and soft goods industries have seen exponential changes in the last few years. There is now a wealth of services and tools that make it much easier for someone with a product concept to begin prototyping it quickly and cheaply. Advancements in software tools, 3D printing technology, and rapid prototyping services have resulted in an overwhelming number of entrepreneurs trying their hand in product development. This has caused a well-deserved boon for the industries. However, the majority of these startups have stifled their progress when it came time to actually manufacture their goods. Most don’t know where to start when it comes time to produce their products at scale.
I recently had the great opportunity to give a presentation as part of the MAKE IT Monthly series, hosted by the MAKE IT IN LA coalition at the La Kretz Innovation Campus in Los Angeles. The topic was about how to get your product manufactured, specifically using Contract Manufacturers (CMs). You can watch the recording of the talk in its entirety, below.
The following are some key points I wanted the audience to take away from the event so they can successfully scale their idea from prototype to full production.
Defining Mass Production
To start with, I wanted everyone to agree on a definition.
Mass Production is a version of a product, which must meet four specific criteria:
- The product can be sold
- At full market price
- To an anonymous customer
- With full warranty
If all four of these conditions are not met, then the product is a prototype, not a full-scale production unit. This is important to distinguish, as there can be a huge gap of time, effort, and cost between a prototype and a Mass Production (MP) version of your product. This disparity is often undervalued.
Crossing the Gap
An absolute requirement for crossing the gap to scaled production is identifying a viable resource to manufacture your product. There are specific advantages to using Contract Manufacturing (CM) versus manufacturing the product yourself.
First, you can leverage the years of experience and caliber of resources the CMs have accrued. From this, the CM will be much quicker to identify any issues with the manufacturability of your product and can quickly bring in additional resources to address them, as needed.
Second, you can take advantage of their purchasing power. The CM will be manufacturing for other companies with similar products to yours. So, there is a high probability they will be purchasing many of the same parts and materials. This allows the CM to aggregate orders across all customers to get higher volume pricing discounts and pass those savings to you.
Finally a CM can scale a production line, up or down as needed with ease. This is advantageous to you as you introduce your product to the market with initial lower volume production runs, then easily ramp up over time. Some products are seasonal and have natural swings in production volumes as well. Using a CM allows you to absorb these production fluctuations without any financial burden to you.
Finding a CM
Acknowledging the value a CM brings to your company is important, but knowing how to find a CM and how to evaluate them is crucial. Your product is the lifeline for the success of your company; don’t trust it with just any supplier!
My best advice to finding a CM is through referrals. Ask colleagues from other companies and your parts suppliers for recommendations. They will very likely have a list of CMs who they have worked with before and can recommend one that will work well for your product. Referrals have a much higher chance of success than a cold call to a new CM.
Evaluating a CM
Once you have a list of Contract Manufacturers to evaluate, there are two key attributes to look for.
The first is experience with products similar to yours. When a CM has already manufactured similar products, you can feel more comfortable they will understand the critical details with yours and be quick to address any issues that may arise during production.
The second is a manufacturer’s production capacity. CMs are categorized into tiers based on the volume of units they can produce over time. It is absolutely critical you select a CM that matches the volumes you expect for your product. It’s well accepted that the initial volumes for a new product will be lower at first, so don’t worry about that. But look at the expected annual volumes you will be producing once your product is mature and in full production.
CMs take this number seriously and will adjust their resources to match your needs. For example, they may hire more staff or purchase specific equipment. If you are dishonest or negligent in estimating these numbers, I can guarantee it will result in a horrible relationship and greatly decrease the chances of your company being successful. This is true for both over-estimating and under-estimating your forecasting numbers.
If you over-estimate your volumes and fall well short of them, CMs will try to make up for lost expected revenue through other means. A sign the relationship is going south is if your CM starts charging you for every small change or new task. Another sign is if the team you had been working with since the beginning suddenly isn’t available to work with you anymore, and a new, less experienced team has replaced them.
Likewise, if you under-estimate your production volumes, you could stress the CMs teams, forcing them to try to keep up with demands – resulting in poor quality and mistakes.
Bottom line: do your due diligence on what a reasonable production volume curve will look like – at least for the first two years of your product’s lifetime. Use these numbers when you first talk to CMs and ask them if it works within their capabilities.
Be a Responsible Customer
It’s important to approach the process of selecting a CM much like one would think about finding a partner in marriage. You are entering into a relationship that, if successful, will last many years. Don’t skimp on the details. Make sure you spend the time to get to know your CM. Treat them as an equal and make sure you hold up your end of the relationship, as well.
What does that mean? What are your responsibilities for being a good customer?
- Design your product for manufacturability (DFM). This is a fundamental tenet to any product development. Help your CM help you by making it as easy as possible for them to manufacture and test your product. If you need help, just ask them. It’s in a CMs best interest to guide you as much as they can with this effort. This also means you should get your suppliers involved as soon as possible during the design process.
- Minimize changes to your design once you’re in production. Contract Manufacturers hate change. It makes it very difficult for them to do what they do best, which is optimizing the manufacturing processes for higher yields. If you keep making changes, they can’t spend the time necessary to make improvements and you won’t see any progress in quality or cost over time.
- Be responsive. If you get a call from your CM that there’s a problem, don’t ignore them. Be as helpful as possible as quickly as possible. If the production line is on hold, the CM is losing revenue. They can budget some margin for a short downtime. But if the line is dormant for too long, they will take your product off and replace it with another customer’s. That’s not good for you or the relationship.
Trust Your Gut
The last point I want to make is that the best metric you can use to judge whether a supplier is right for your product is your own instincts. Trust your gut. If the relationship doesn’t feel right, or you’re not getting the answers you need, or you’re having trouble communicating with the supplier, walk away. Even if they gave you a great discounted price. It's not worth it.
It can be a painful and expensive process to switch suppliers and greatly delay the success of your company. So, spend the necessary time to vet them before starting a contract, do your part so they can vet you, and trust your gut!