The PCH guru on how to grow your manufacturing business on a global scale
PCH is an Irish custom design manufacturing company that works with Fortune 500s and hardware startups to develop, manufacture, package, and distribute products as well as manage supply chains. The company was founded in Ireland in 1996 by entrepreneur Liam Casey, and now employs 2,800 people around the world.
Casey came to Second Home to talk about how he has seen the production and distribution landscape of tech manufacturing evolve — and also to offer up some tips on how to successfully ride the sea-change.
“Most people have a product that PCH has touched somewhere along the way. We’ve worked with large tech companies and at the moment we’re working with a lot of the bigger brands. We work mostly with companies that are passionate about design, they’re passionate about brand, and they’re passionate about the consumer experience. That’s where we add value, that’s where we differentiate.
If a big box retailer with no brand or no desire to have a great consumer experience comes to us, all we do is add cost, we don’t even engage. So it’s really looking for people that really care about making beautiful products and doing great work — that’s what we do.
More recently we started working with start-ups and that’s been an amazing experience. One of the sayings we have in the company is, ‘Inexperience is a great innovator’, because people are not afraid to ask questions. If you have the experience and you know all the things that can go wrong, you’re not going to ask the questions, you’re not going to try something different.
For us, inexperience is something we look for in people — people with great ideas, we help them to bring those ideas from concept right to a consumer.
I think we have about 1,000 factories on our database. We actively work with about 100 factories, and then with those there’s very different levels. Again, people come to us with a concept — we’ll pick the best in class factory, we’ll work with them to come up with the solution. We put a lot of focus on the factories.
From 1996 to 2003 if you could find our factory you were in business — you didn’t need to worry about it because nobody else would find it [laughs]. We’d say to our customers, ‘You win and lose on the high streets of the US, we win and lose on the backstreets of China’, and the backstreets of China was our knowledge-base. It was crazy.
“We’d say to our customers, ‘You win and lose on the high streets of the US, we win and lose on the backstreets of China’, and the backstreets of China was our knowledge-base. It was crazy.”
In 2003 that all changed because you had alibaba.com, globalsource.com, madeinchina.com, so now if it’s no longer a knowledge-based challenge, it became an execution-based challenge, which was fantastic because that’s what we have — fantastic people on the ground that execute every day, that’s what they do. That’s the differentiator, so you take the power away from the knowledge by giving away the knowledge.
There’s nothing more daunting for a brand that comes into our office in China and we tell them, ‘These are the factories we’re going to use’, because they come in thinking that’s the secret. When you give them the secret they kind of say, ‘Whoa, how do you do this stuff?’ [laughs], because that’s the difference — it’s how they execute. The secret to that is just working for factories, enabling the factories to do great work.
I still don’t speak Chinese. It takes a huge amount of energy to interact with China. The energy it takes to interact is huge, and the language is a big part of it. When I went to China first, I didn’t have the time to stop and learn the language, but I also found that because I didn’t’ speak the language I was able to build much better relationships with the people. People think, ‘What do you mean?’, but it’s because all of the people in the factories that spoke English were usually the senior people — so it was usually the owner of the factory, or it was somebody very senior. So you got great access, and because you didn’t speak the language, they all looked after you. So they’re very caring in how they look after you.
So it meant that I built great relationships with these people and you built a great trust. Because you had to trust them, and they could see your vulnerability that they looked after, which to me, that was a massive secret. Whereas if I had gone and interacted by speaking the language or bringing translators, you wouldn’t build a relationship or trust. That’s been a huge part of it.
That’s the other thing about China, for me it’s always been better to focus on the EQ not the IQ — just building relationships with people. The whole emotional intelligence connection has been hugely important. A lot of people miss that — they approach China very legally- or text book-focused — it doesn’t work. And you have to be comfortable with being uncomfortable there.
“Whether it’s software or hardware, the big challenge is always distribution. The reason why Instagram is a success is because of smartphones, because of the App Store. In the hardware world there’s nothing different, it’s the same thing.”
Whether it’s software or hardware, the big challenge is always distribution. The reason why Instagram is a success is because of smartphones, because of the App Store. In the hardware world there’s nothing different, it’s the same thing. If you can create the App Store for hardware, if you can create a distribution model that gets a product to a consumer in the shortest time possible with the least amount of inventory possible, then you will build successful companies.
You look at the ones that are most successful today, it’s the Chinese companies like Xiaomi or OnePlus, DJI is another one. It’s interesting, you look at their models, the difference between what they do and what a European or US company will do — their last mile delivery. Chinese companies’ last mile delivery is up to 8,000 miles of those companies.
[That] means they have zero inventory. If you look at when Amazon launched the Fire phone last year, the first thing they did was they built the phone, they put it into 55 warehouses across the US — crazy number — so they filled the channel with inventory. Within two weeks of launching the product, it wasn’t selling, they had to write off all the inventory. So they were off something like $380m. There’s no way a start-up can do that.
If you look at something like Xiaomi, they have, like, zero inventory. They put the product on the web, and it sold out immediately. Then it comes off the production lines and it’s shipped to consumers that have already paid with a credit card for the product.
We operate on the basis that we’re three hours from all the factories we work with — our fulfilment centre — 90% of the consumers on the planet that buy the product. So you don’t need inventory sitting in warehouses around the world. That’s a huge challenge for traditional supply chain managers. But if you can send a parcel to the International Space Station in six hours then you don’t need warehouses on this planet [full of] inventory.
“If you can send a parcel to the International Space Station in six hours then you don’t need warehouses on this planet full of inventory.”
The risk that’s tied up in the inventory is what prevents venture capital from investing into Harvard companies. When we set up Highway1 — our accelerator in San Francisco — the goal for us was, ‘How do we ensure that on a Monday morning when the venture capitals on Sandhill Road that — ’ when a company comes in to pitch, whether it’s hardware or software, they shouldn’t care. That’s the challenge because when a hardware company walks in, the first thing they’ll worry about is inventory, the risk, and the working capital required to do it. That’s a big challenge — that’s the one that we spend a lot of time focusing on.
Before I started PCH I spent 10 years in the fashion business. I’d go to Première Vision, which is a fabric firm in Paris. You select fabrics, you bring it to a contract manufacturer, CMT, and you actually decide what garments you’re making right there on the production line with the designer. Last minute you can change the garment that you make — ‘Don’t make a jacket from that, make a shirt from it, make a suit from it’.
When I went to the technology world, what blew me away is you had two-year product road maps and three-year technology road maps, that was just crazy. It killed any innovation or creativity that was out there.[Around] 2007/2008 we saw engineers getting much more creative, so we built a product called Chumby, which was probably the first product that we saw had personality. Then we saw — the products that we used, Arduino, Linux — today it’s Raspberry Pi, Android, 3D printing, crowdfunding. These fabrics of technology have changed, and they’ve actually created this prototyping renaissance. Everyone says there’s a hardware renaissance, which there is, but that’s coming from the prototype renaissance. There isn’t a manufacturing renaissance, you can’t 3D print any of the products that we ship today.
“Everyone says there’s a hardware renaissance, which there is, but that’s coming from the prototype renaissance. There isn’t a manufacturing renaissance, you can’t 3D print any of the products that we ship today.”
It’s amazing, when you work with any creative person — designer, engineer — once you give them that first prototype, that’s the moment of truth for creativity, and it’s one of the most exciting ones. I’ve seen it so many times, when you hand them that first prototype you will not get it back, and that’s when the creativity happens, and that’s when they get excited, that’s when you make improvement. That’s what’s coming from the whole prototyping renaissance, which is great.
Xiaomi in China has 12 million beta testers — every Friday at three o’clock they release an update of their software on their phones, and 12 million people test it. The following week that to 220 million people. So you can engage a community, and every company in the future is going to have a community of some sort — interacting with that community, creating great product experiences for that community, and trust, is hugely important.
In today’s world you can communicate with that community in a very good way. By continuous communications and update to a community, you can actually bring them on a journey with you. It’s amazing the feedback that they will give you.
“In our world, time is the number one currency, dollar is second. If we had to go to one of our larger tech clients and say that there was going to be a delay in the ship schedule, which potentially could take 5–10% off their ship price if it’s a major product — that’s billions of dollars. So focusing on reducing the time to market is huge.”
In our world, time is the number one currency, dollar is second. Getting a product to market is — if we had to go to one of our larger tech clients and say that there was going to be a delay in the ship schedule, potentially could take 5–10% off their ship price if it’s a major product — that’s billions of dollars. So focusing on reducing the time to market is huge.
Design for air freight is huge for us. The last thing we want — everyone thinks you have to put product on the sea and put it into a warehouse it’s more environmentally friendly than putting it on the belly of a white-bodied plane. We don’t think so because we’ve seen warehouses all across the world that are full of products that will never sell and they should never have been made in the first place. The energy that was used to produce the products, transport the products to where they are today and they’re still sitting there, is a waste of energy. If you can reduce that by producing less of the products and shipping it only when there’s real demand for the product, that’s far more efficient.
If you work directly with a factory, a factory manager or owner, what they look for is one skew running on every production line, six days a week, with 99.9% yield. Once you start bringing variety into a factory, you create confusion and challenge. So they look for a huge amount of standardisation and efficiency on their lines.
In our world consumers want something completely different — they want demand, they want their product when they want it and they want it the way they want it. If you introduce that right down to a production line, you’re going to create huge chaos. So we run packaging and fulfilment centres which are separate from the production lines — in some cases we call them our flavouring lines, because we bring in vanilla from a factory and then we flavour it based on where it needs to go.
For us, getting access to the entrepreneurs and designers that actually have ideas for products very early was really important. Because that’s where the innovation comes from and that’s where the entrepreneurship is — if you work with just large tech companies, road maps can be two/three years, whereas with the start-ups they just push, and they have no understanding of the barriers, which, again, goes back to the inexperience.
A couple of years ago one of the very first Kickstarter products we shipped — we’d seen this Kickstarter thing, had a lot of interest in the company, we were asking questions about it and we were trying to ask more. So we had one company that had made their product and they just wanted to ship it, and we were going to help them with the shipping. If we work with a large tech company when you’re doing shipping usually they’ll do a roll-out, and from when it goes to the first country to the last country can usually take between six months and a year.
“We worked with an early Kickstarter start-up and asked them then question, ‘Which country do you want to start with?’, and there was a pause. The next thing, someone said, ‘Let’s go alphabetic’. I put the phone on mute and said, ‘Unless we have a great reason why we can’t do this, we’re shipping alphabetic’! Three days later we were shipping to over 80 countries. That’s where we came up with the term today, ‘Geography’s history’.”
So this start-up, we asked the question, ‘So which country do you want to start with?’, and there was a pause. The next thing, someone said, ‘Let’s go alphabetic’ [laughs]. I put the phone on mute and said, ‘Unless we have a great reason why we can’t do this, we’re shipping alphabetic’ [laughs]. Probably about three days later we were shipping to over 80 countries — there was no reason why we couldn’t. That’s where we came up with the term today, ‘Geography’s history’.
It was amazing because a couple of weeks later we were going through another one of these shipments which was a global roll-out as well, and one of our large tech companies were in the facility. They walked through the facility and said, ‘What the hell are you doing here?’, we said, ‘We have a roll-out’, ‘But how are you doing it?’, we said, ‘Going to all countries over three days’, they said, ‘Wow’. They couldn’t even give a good reason why they couldn’t do it.”