When aiming to become a world-class seller of premium products, selecting the right contract manufacturer is the most important step. Your ultimate goal should be building a partnership with your manufacturer – a relationship that commands respect and cooperation in both directions. Before setting out on your quest, there are a few steps you need to take to ensure you're carrying your weight and are prepared to engage in a meaningful discussion.
Step 1 | Protect Your Intellectual Property (IP)
We recommend hiring – or at least contacting – a patent lawyer at this stage. It's important to protect your design while also ensuring that you aren't infringing on someone else's copyright or existing patents. Better safe than sorry, and best to find out sooner than later, wouldn't you agree?
- Is there any other product like yours currently on the market, or is your idea truly one-of-a-kind?
If it is indeed unique, check out the U.S. Patent and Trademark Office website and confirm there isn’t a patent already on file for a product out there already related your idea. If you are ever in doubt of whether your product has been previously trademarked or not, seek out an attorney who specializes in patents and IP law to help ensure your product idea will be protected.
Step 2 | Finalize Your Design
By "design," we mean something more than a sketch on the back of a napkin. Why? Well, once you have a solid idea, you'll need engineers to build it. Their first request will be that you send over a complete drawing package. Product development engineers are looking for 2D, 3D or solid models with material specifications and dimensional requirements (+ assembly instructions if applicable).
Suppose your design involves electronics.....in this case, you'll also need a bill of materials (BOM) and Gerber files (more electrical engineering stuff). This stage of the process is critical, and you may need a design engineer to help pull these documents together.
Step 3 | Build the Prototype
A real-life, working model of your napkin idea has come to life! You can see it, touch it, experience it. But where do you go to make this happen? Simple – you need to find a prototyping firm that can build a few pieces to test your hypothesis. This might require a 3D printer, a machine shop, an EMS, or some combination of these resources.
Step 4 | Write the Business Plan
You have an idea – and if you could just get your product made, you're positive you could sell it globally. Somewhere between startup mode and obtaining 3 percent of the global market (which will launch your revenue into the billions), you need a plan. Craft your idea, seek advice and test your theory. It’s one thing to think your idea is fantastic. It’s another if people actually prove you right by throwing money at it.
Step 5| Funding
- Will you be paying out of pocket for the manufacturing of products?
- Or do you have other sources of capital, possibly through crowdfunding, to get this project off the ground and running?
Perhaps you have had success with major institutions who have been willing to invest in this product to seed its success. It’s possible your project may need a tool made for $10K, $20K or even $100K+. Get a plan in place and nail down the funding details before you begin your search to have your product manufactured.
Step 6 | Start Production
You may be looking at producing a few hundred, or even a few thousand, pieces. We suggest finding a domestic, short-run (small quantity) contract manufacturer to load up your garage. Yes, you will pay more for these pieces, but it's important to achieve some sales success before filling a warehouse.
Step 7 | Tackle Sales and Marketing
What is your go-to-market strategy? If you have a friend of a friend who knows a buyer at a huge retail chain and your plan is to sell them millions, you still need to show some market success (e.g., sales). Work on securing some sales before someone gives you a purchase order that will launch your business onto the pages of Inc.
- Do you have a marketing plan in place for how you will spread the word of this fabulous product?
- How will you sell your product?
- Does your plan include market analysis, competitive landscape examination, pricing strategies, potential sales channels, etc.?
Lori Greiner, star of Shark Tank and an inventor herself, recommends: “You need to arrange for the sale of your product before you arrange for 10,000 of them to be manufactured. That's where entrepreneurs hurt themselves," Greiner says. "They put out thousands and thousands in inventory, which they haven't sold."
Step 8 | Find the Right Fit
Depending on the nature of your product, be sure to do your research on the best manufacturer for your project. Have a cool idea for a device that can speak to other wireless devices in your home? Seek out a manufacturer who specializes in the Internet of Things (IoT). Have an aluminum die cast thingamajig? Look for a source who has extensive knowledge in metal products. The better fit with a manufacturer, the more expertise they will be able to bring to the table, the better value for you and your project.
Step 9 | Select Your Contract Manufacturer
We finally made it to the last step: finding the right contract manufacturer. You might want to consider a global manufacturer – global, as in achieving efficiencies of scale by manufacturing overseas. That’s a story for another day, but in the meantime, I'll just leave this here: What is Global Contract Manufacturing? We say this is the final step, but in reality, it's just the tipping point. But the good news is that if you've chosen an excellent contract manufacturing partner, you'll be just fine.
Can you guess what the two most challenging obstacles are between steps one and seven? It takes more time and more money than you might think! Most of these steps are capital-intensive (i.e., you become a check writer).
Biggest Mistakes When Selecting a Contract Manufacturer
Mistake 1 | Price
Maybe that's true when you're buying bananas or a gallon of gasoline, but not when you're buying electronic components to interface in an assembly in critical-to-function engineered products. In fact, saving money — while on your list — isn't at the top at all.
Price is important, of course. It is a factor in doing business, but it is only one factor and, as in the example above, not always the most important factor.
Our Takeaway: Talk is cheap, not your product.
Keep in mind that many issues can affect the price of your product, including factors that you control. If any changes large or small are made to the design of your product the quoted price will change - and usually the price will go up.
Here are a few examples of ways your price may change if YOU make even a small change in any facet of your product:
- If the process requires additional labor.
- If the process requires additional material.
- If the process requires an additional finish.
- If the material costs have changed.
- If the tooling requires a change.
Mistake 2 | Time
If you have experience in manufacturing, then you know that it simply takes time to finalize drawings, make tools and molds, build samples, approve samples, tweak molds, start production and ship product halfway around the globe.
Our Takeaway: Be realistic with your production timeline expectations.
Even if you’re not developing a new product, the process of manufacturing overseas will always be slower due to the time it takes to move products from facilities overseas to ports in the U.S.
If you’re developing a new product, you’re adding layers of complexity to the mix. Using an experienced CM will certainly alleviate some of that time and stress, but not all of it. For example, giving feedback on first preproduction samples. This is a big moment in product development. A lot of customers think, “Okay now we’re ready!” Actually, it’s just another step in the process. It’s a big one, but if the customer doesn’t take the time to closely examine the samples and decide exactly what he or she can live with, they can end up slowing down the project. How?
- By approving samples without examining them carefully, the project could move forward when it really shouldn’t. Then later come to a halt because the samples weren’t right to begin with.
- By disapproving samples because they’re not “perfect” (holding the manufacturer to too tight a tolerance) the project can slow down or even grind to a halt because the customer thinks the sample has to be perfect.
Find the happy medium. Determine what you can live with and keep the project moving forward.
Mistake 3 | Experience
Yes, you can. You can find a manufacturer on the internet who says they will make a quality product for a certain amount of money in a certain amount of time and when you get it maybe it will be right but probably it won’t. And then you’ll have to start all over again and you won’t have the benefit of the money you had to begin with.
Do we sound negative? Yes. (Sorry!) Experience has taught us that the aforementioned scenario is the likely outcome.
Our takeaway: Partner with a manufacturer with feet on the street and with a plan to get your product made.
In fact, we suggest working with a contract manufacturer that uses a Project Manager to handle all the details of your project. It doesn’t mean you’re not in the loop, you are. You’re still needed — remember those preproduction samples?? But your Project Manager will handle a ton of responsibilities between the CM and the suppliers including:
- Creating budgets and timelines
- Creating schedules and checklists for product development engineers
- Monitoring/troubleshooting project progress
- Convening after-action meeting to determine lessons learned
Project Managers are a great resource, like an extra set of eyes looking out for you.
Mistake 4 | Communication
If you work in company with more than one person, communication will be a Top 10 complaint. Bank on it. Now, imagine trying build a complex critical-to-function engineered product with specific plating requirements, dimensional tolerances and color that must be matched to a specific Pantone. Now imagine trying to communicate those specifications to an engineer or factory owner in another language, in a different culture 12,000 miles away. All of a sudden you learn the necessity of a process for communication. Communicating globally can be very tricky business.
Our takeaway: Engineering support for your project, where you need it — where you manufacture.
We’ve written frequently about the value of engineering support in contract manufacturing. Here are just five good reasons for working with a CM with an engineering team:
- Your goals are their priority. They’re making your product. They will listen, advise, suggest and execute on your specification.
- They know 80 percent of the cost of a product is fixed in the design phase and that the earlier they’re involved the better the chance that they can keep costs down for you.
- They’re always thinking about the manufacturing process when they’re designing the product.
- They understand Good Manufacturing Practices (GMP) and are looking for ways to make a quality part for a low cost.
- They often have a wide range of work experience both in materials, processes, testing procedures and specifications.
Mistake 5 | Quality
There's a saying in business "Good, Fast and Cheap. You can pick two." It's funny, right?
Our takeaway: Be realistic in your expectations regarding price, speed and quality.
In other words, it’s up to you need to decide if you’re willing to forgo speed for cost. And while we’re on the subject of cost, you’re not going to get products overseas dirt cheap. Those days are gone. We recommend you read our post of the 10 Key categories that go into product pricing. They are:
- Materials - three types of materials Raw Material; Hardware; Electronics
- Tooling - the parts it takes to make your parts
- Overhead and Margin - everyone deserves to make money
- Freight/Duty - fees associated with shipping
- Cost of Quality - Quality performance testing is not negotiable
- Third Party Compliance - Additional product testing
- Volume discounts - Purchasing in volume to save money
- Yield/Scrap - Defects happen
Each of these factors goes into the cost of your product so, realistically, your product will not be “cheap.”
Mistake 6 | Legal Protection
Working directly with a factory ‘overseas’ offers you little or no protection of your IP if you go it alone. If the factory you choose is already engaged in the same vertical, what protection do you have from them sharing YOUR IP with their other customers? Exactly, “nothing”.
Our takeaway: Working with an experienced contract manufacturer is like taking out an IP Insurance Policy.
We have written other blog posts about IP but to give you the thumbnail sketch, there are five main reasons to work with a contract manufacturer with good connections in the country where you plan to manufacture.
- They’ve already built strong supplier relationships. Why re-invent the wheel? An experienced CM has already qualified the suppliers. They’ve invested the time and energy in cultivating the relationships. They know who to trust.
- They are strategic sourcing ninjas. Their supply network is strong and diverse. They’re not risking your supply chain to one single supplier and providing visibility into your supply chain to a single source - a perfect opportunity for an unethical supplier to steal.
- They have on-site resources. An experienced CM will have a sourcing agent or engineer on site to oversee production and monitor potential IP encroachment.
- They have done this before. You can trust them to protect your IP investment.
- They have the legal safeguards in place to protect you. This means contracts, patents, trademarks and copyrights. None of the legal protections will help if they aren’t done in advance. A contract manufacturer will see that all the I’s are dotted and t’s are crossed.
We hope this list has helped, or at least given you some hope. Believe it or not, no one is born knowing how to build a global manufacturing business. So cut yourself a little slack. But do take our tips to heart because, seriously, we know what we're talking about. Read some of the posts we've linked to and keep educating yourself. There's a saying we're especially fond of around here, "Experience is a great teacher, especially someone else's experience." There's no need to reinvent the wheel (AKA make the same mistakes) as your predecessors. So don't!