How to Find Reliable Manufacturers in China Part 1: How to Find a Factory
One of the main questions we are asked to present at events and meetups is How to find reliable manufacturers in China. It is a tricky topics that has many misconceptions, misleading advice and bad rep around it. we have built this guide to create more clarity and help you navigate the seas of China’s manufacturing. (you can download presentation at the end of the post)
When you Google a factory in Shenzhen:
Introduction to China’s EMS Industry
Business Operation Model OEM — Original Equipment Manufacturing
It is a manufacturing company, often called Contract Manufacturer (CM), that produces parts or complete products for other companies that are then sold by the client under their own brand (e.g. Apple). All aspects of the design process is provided by the customer. The CM’s strength is the manufacturing and production process — faster, cheaper, higher quantities, etc.
The OEM model requires the client to have complete technical capabilities. Typically, only large companies (like Apple, DELL, etc.) with hundreds or even thousands of engineers can use this model effectively.
Note: The term “OEM” is often confused and used incorrectly. For instance, Apple is incorrectly called an OEM or CM. Foxconn is also called an OEM, or OEM is often used as a verb.
Business Operation Model ODM — Original Design Manufacturing
In this case, the manufacturing company will design the product based on the client’s specification and then manufacture it. Basically, and ODM company can turn a concept or a drawing into a product. You only need to provide the required specs and they will create a prototype and eventually mass produce it.
For most of the projects, the client will take part in the design process. For example, they would not only provide technical specifications, but also industrial design (appearance) of the product.
Business Operation Model JDM — Joint Development Manufacturing
In the old days the factories where just providing labor force and facilities, now they have full range of EMS services. Actually, most large scale projects nowadays are operated under the JDM model. As the name implies, here the client and manufacture develop the product together.
Outsourcing your project 100% is very expensive. So in many cases, SMEs and startups create full functioning prototype and work with factory only on DFM stages.
More information:
Design for Manufacturing (DFM)
Design for Manufacturability is a very important process for IoT start-ups who can rarely manage this internally. Basically, DFM describes the process to make a product suitable for mass production. It is the design process that makes your prototype (3D printed or handmade) suitable for industrial mass production.
The goal of DFM is to:
- Make production easier.
- Reduce cost.
- Shorten the new product development (NPD) cycle
Typical DFM Steps:
- Reducing the number of parts used to reduce complexity of assembly process.
- Shape the casing design e.g. to make it suitable for plastic injection process.
- Use of standard parts, e.g. standard screws.
Types of factories for DFM:
CM Contract Manufacturer. The client needs to approach the CM with complete designs, manufacturing and assembly instructions. In general, by definition CMs have no DFM capabilities, but in reality they all do.
EMS Electronic Manufacturing Services. They provide a wider scope of service than CMs. Most the time the EMS starts at the prototype level and then helps the client with the Design for Manufacturing Service to further improve the product and make it suitable for mass production
More about DFM:
Before we get there: Hurdles
The main hurdles to work with a particular type of manufacturer are the MOQ and MO requirements:
- MOQ stands for the Minimum Order Quantity a manufacturer requires to accept an order.
- MO is the Minimum Order (Value) a manufacturer requires to accept an order.
Tier 1 Factories
Tier 1 factories are huge corporations, ten billions of USD in revenue, tens of thousands employees. Their preferred customers: 50M+ revenue per year, very high MOQ requirements.
Tier 2 Factories
Public listed companies, 1B+ revenue, thousands employees , preferred customer generates millions USD revenue, high MOQ.
Tier 3 Factories
They are privately owned, double digit USD millions revenue. Preferred customer generate hundreds of thousands USD revenue per year. They have moderate MOQ requirement.
Realistic Manufacturing Options
Tier 1 and 2: better option for SMEs
Tier 1&2 companies are usually not realistic options for hardware startups. It could be an option for medium to bigger size SMEs.
- They have high MOQs. Generally, these companies expect double digits USD million annual revenue and clients with complete technical teams (dozens of highly specialized engineers).
- They develop long term relationships with very large clients.
- They respond slowly and are very inflexible.
Tier 3: better for hardware startups
They typically expect hundreds of thousands revenue per year.
- Flexible with MOQ requirements.
- Sometimes willing to take on a small order if there is a feasible chance for larger follow up order.
- Paying a NRE Fee (Non Recurring Engineering Fee) and client investment into tooling often help to get things moving.
Alternative Option: Innovation Labs
Almost all Tier 1 and 2 manufactures have “Innovation Labs”, “Creative Labs” or other special Business Units (BU). These BUs have a spending budget similar to a R&D team and can take on projects that have low profitability margin (or even are not profitable). The motivation behind is that these large companies want to scout new technologies and want to get ready for new generation of products.
Alternative Option: Strategic Alliance
Is your project strategically important to a large corporation? Is your product suitable to be an early adaptor of a new technology, new chipset, new business segment of a large corporation? Then you can form an alliance.
“Silicon companies” like Intel, TI, Qualcomm, Mediatek etc. have strong influence on OEM/ODMs and the complete EMS ecosystem. Sometimes they are even willing to invest in a start-up or SME hardware project to promote their own technology. Their investment can be money, development funds etc.
Alternative Option: Small Volume Manufacturing
Alternative Option: HWTrek Programs for Creators
HWTrek has partnered with leading experts to provide special manufacturing and service programs customized for hardware creators worldwide.
Download presentation: How To Find Reliable Manufacturers In China Part 1: How To Find A Factory
HWTrek is a platform that provides hardware startups with direct access to manufacturers and supply chain experts, as well as online project management tools to take a product from idea to delivery.
Originally published at blog.hwtrek.com on March 15, 2016.
