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February 25, 2016

How a Startup Can Minimize Investment Cost and Start Production Sooner

Investment cost is sometimes enough to stop a startup dead in its tracks. But don't worry – the good news is that there are other options to get the ball rolling without emptying your wallet. Working with an experienced, flexible contract manufacturer can open the door to opportunities you may not have realized existed. Minimizing up-front investment costs can allow production to launch more quickly and alleviate financial pressures early on. Read on to learn how to get started.

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Minimize Tooling Investment

When it comes to tooling, there are a handful of approaches you can take to reduce investment cost. If you're a small company with short production runs, you could opt for an aluminum tool rather than a steel tool. Benefits include faster fabrication and lower cost. However, an aluminum tool will wear out sooner than a steel tool, so this is something to keep in mind when planning.

Rapid prototype tooling is another great option when only a small quantitiy is required. Its major perk is speed (hence the name rapid) – tooling is ready in just days rather than weeks or months. While this type of tooling is not a production solution and may come at a higher cost than other tooling, it's definitely the fastest route for a small batch of parts. Your supplier can either handle prototyping in-house or through a third party. As long as your contract manufacturer is experienced, they should be able to select the proper tooling process for your needs.

Read more: Tooling Design and Maintenance 101: How Long Will My Tool Last?

Ask About Financing Options

You might find yourself in one of these three financial scenarios when it comes to your tooling investment:

  1. Buyer pays 100 percent of tooling costs
  2. Buyer pays for tooling but CM rebates the cost back to buyer over time 
  3. CM amortizes tooling costs over a specified period of time or number of parts

Not all contract manufacturers will be willing to rebate or amortize tooling costs, so be sure to ask about these options during the quoting process. The good news is there are CMs out there who are willing to offer these types of financing options, which could even extend to areas beyond tooling, such as design services. 

One caveat here is that you must always ask about tool ownership. Who actually owns the tool at the end of the day? If your contract manufacturer has offered to pay for 50 percent of the tooling cost, that's awesome! But if they're also assuming ownership of tool, it is theirs to keep. If this is the case, you may get locked into manufacturing with that CM and not be able to switch suppliers without buying new tooling. Be sure to sort out the issue of tool ownership before proceeding with any CM.

Choose a One Stop Shop Contract Manufacturer 

If you're working with one supplier for product design and Design for Manufacturing (DFM) services, a second supplier for tooling, and a third supplier for sourcing and production, expect to shell out more cash and see longer lead times with each supply chain link you add. Working with a single contract manufacturer who offers a full range of services, from design to distribution, will streamline processes while improving speed and efficiency. Focus on building a strong relationship with your CM, and you will likely gain negotiating power that can lead to substantial cost savings in the long run.

Opt for Accelerated Testing

If your product's life expectancy is significantly long, effective testing can be time-consuming (from a few weeks to several months), which can slow things down considerably. Your CM should be able to develop an accelerated testing plan for life testing or testing at a sub-component level. For example, they could design a one-month life test to simulate a three-month life test in just one-third of the time and delivering equally accurate results. This accelerated testing approach could be a game changer for your time to market.

Take Advantage of Freight Cost Savings

Too many startups underestimate the cost of international freight. Small first-production runs often require air freight or less than containerload (LCL) shipments since the volume isn't enough to fill a shipping container. Working with a contract manufacturer who offers container consolidation options can be a major plus; this way your products can ship with other goods in a full container, which is both less costly and less risky. Consolidation can result in considerable cost savings over time. Be sure to ask your supplier if consolidation is an option.

Read more: 11 Tips to Reduce International Logistics Costs

We hope these tips prove successful in reducing your startup investment cost and launching production sooner. How have you found cost savings in your startup venture? Share your story and/or advice in the comments section, or tweet to us using the button below! 

 

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Filed Under: Business, Start-Ups