Choosing a manufacturing service model: What every startup should know

Why does it seem so difficult to find the right manufacturing partner?

As a startup founder, you expect your manufacturing partner to turn your working prototype into a well-polished product, delivered on time, at the most competitive price. Is that too much to ask?

In theory, your expectations may sound perfectly sensible. In reality, you’re probably badly underestimating the complexity of manufacturing.

The fact is, most hardware founders are blissfully unaware of all the underlying, potentially fatal issues with their design. As a result, they tend to over-romanticize the manufacturing process.

Any responsible manufacturer will immediately see a dozen issues that can stop you from shipping. It’s not just ethics either. It’s common business sense — they need to identify all the potential challenges (and how to solve them) before signing you on.

Is your circuit design done properly so that it doesn’t overheat after an X amount of time? Will your design cause high failure rate (low yield rate) at mass-production level?

You might be very proud of your product design. But do you know how challenging (or expensive) the moulding can be just for that beautiful curve you had in mind? Or how problematic your grand design is gonna be for the assembly line?

The more complex your design, the more labour-intensive the assembly will have to be. Are you willing to pay for the extra workforce?

I can go on for a while here.

For manufacturers, the iteration process is much more complex than what you think

They need to consider software, electronic design, mechanic design, components, manufacturing efficiency, yield rate, major vendor support and testing. If one thing goes wrong, it can affect everything else. Is it any surprise, then, that 84% of all kickstarter projects end up getting delayed?

I’ve come to realise the main cause of frustration between startups and manufacturers lies in these blatantly false expectations.

Startups underestimate the intricacies of taking their product to mass production. Manufacturers feel like startups don’t know what they want. Their specifications are unclear and change all the time.

[Yes, I hear you shouting about the innate uncertainty of the startup world. However, every change you make here is bound to cost you dearly, both in money and time. Hardware world is very different from the software world. It’s not about revising a few odd lines of code anymore.]

So, what should you expect from your manufacturer?

When you know exactly what you want from your manufacturing partner, things are gonna go much smoother — for your product and your wallet.

To that end, it’s important to illustrate the 2 main manufacturing service models:

EMS (Electronics Manufacturing Services)

“Electronics manufacturing services (EMS) is a term used for companies that test, manufacture, distribute, and provide return/repair services for electronic components and assemblies for original equipment manufacturers (OEMs).” Wikipedia

Imagine your company is a mobile phone giant. Let’s call it… Pineapple.

You are about to release the next generation of your flagship phone, PPhone 8. Your internal team has done all the tedious R&D work.

You ask your contract manufacturer to make 5 million PPhones for the Q4 launch next year.

The manufacturer will check your specifications. They will clarify things with you using the comprehensive Product Requirement Documents (PRD). Upon your approval, they begin making 5 million PPhone 8’s.

If anything goes wrong with the phone, who is responsible? You, Pineapple.

Why? Well, they followed your specifications to make the phone. It’s your job to make sure all the details are 100% accurate.

ODM (Original Design Manufacturers)

“An original design manufacturer (ODM) is a company that designs and manufactures a product as specified and eventually rebranded by another firm for sale.” Wikipedia

Now imagine your company is a leading mobile operator. We’ll call you… O3 (I know, where do I come up with this stuff?).

You tell your manufacturer you also want to make a phone. You aim to ship 1 million units at Q4 next year.

Unlike Pineapple, however, you do not have an internal engineering team to design and make a new phone.

Instead, your manufacturer tells you they can design the phone — based on your requirements — and then manufacture it for you, as your ODM partner.

An ODM will have their design and engineering team build the phone for you, design the product requirement documents (PRD) with you, walk through the whole design-for-manufacturing process and drive manufacturing to ship 1 million units as agreed by Q4 next year.

If anything goes wrong with the phone, who is responsible? Your ODM partner.

Your ODM is designing the product for you. It’s their responsibility to make the product work as agreed — not yours.

Everything in between is called joint design manufacturing. I’ll leave that for another post to avoid confusion.

Liability is all manufacturers care

I’ve learned a lot from my veteran Foxconn colleagues since I’ve joined Koobe in May. Among other things, they taught me that liability is the single most important thing they need to consider.

Once you fully understand their key service models, that’s hardly a surprise. When dealing with the level of complexity they do on a daily basis, the ability to always pinpoint the exact cause of the problem is paramount.

So please, when interviewing your manufacturing prospects, do not be put off by their initial pessimism (I prefer ‘healthy scepticism’ myself). This is how a decent manufacturing professional is trained. They need to manage and mitigate risk.

Instead, be very alert of the firms that promise they can do everything, in record time and at record price. In manufacturing, such optimism is a liability.

Doing your DFM right

Most startups we know are not manufacturing experts. And why should they be?

As long as they understand that designing your product for manufacturing (also known as DFM) is a delicate, strenuous process. You’ll need a good partner, one you can trust will make sure you’re 100% DFM-ready.

The first step to finding the right partner, then, is being crystal clear on whether you’ll need an EMS or ODM-type of service.

A typical ODM manufacturer will work on the DFM as well as drive the manufacturing for you. This way, you only need to manage one party, which will be liable for everything.

Unfortunately, top-tier ODM companies still avoid directly working with startups due to the low volume. As a result, startups might have to get one partner to help with the DFM, and choose another to drive the manufacturing. In such an arrangement, it can get very tricky for a startup to track and manage liability issues.

EMS or ODM? Nailing your manufacturing needs

From our experience, most startups think they only need EMS services from a manufacturer. In actuality, their product is usually nowhere near ready for mass production. If that’s the case, what you really want is a reliable ODM partner to get you there.

After contrasting the EMS and ODM models, hopefully you’re more clear on the kind of service you’ll need from your manufacturing partner.

When you set up the right expectations, the rest of the manufacturing process can be surprisingly simple. Your invention, just like those PPhones, will be taking over the globe in no time.

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