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The right way to discover the perfect producer to your shopper electronics machine

September
22, 2020

8 min read

The opinions expressed by the entrepreneur's contributors are their own.

If you plan to make your own hardware product, you need to find a factory. There are different classes and types of factories that manufacture consumer electronics. If you plan to work with an existing brand like Samsung or LG, the factories you work with are known as original equipment manufacturers (OEMs). Such factories usually make their own branded products and partnership options are in most cases limited to co-branding.

Typically, hardware project developers prefer Original Design Manufacturer (ODM) services. In addition to their manufacturing capacity, these factories have their own development teams who can assist you with assembly, circuit board wiring, firmware coding, and component ordering. Most importantly, they do all of the test cycles on your prototypes to discover any bugs. Of course, this doesn't remove the need to be vigilant at all stages of development and production, or to hire engineers for your team.

When you've designed everything yourself, designed the circuit boards, housing, prepared software and documentation, made the first working prototypes, and just need to start mass production, you can partner with an EMS (Electronics Manufacturing Services). This type of factory has production capacity but without an engineering team. This option can be useful if you already have experience in introducing products from the ground up and if you are convinced of the maturity of the developed solution and know which features need to be tested in the mass production phase.

The list of top EMS companies is no secret. There are many open reviews for different categories of devices.

You might want to consider American EMS giants Sanmina and Jabil. They are among the most expensive contract manufacturers, but have enormous production capacities that are sold worldwide. In the case of Jabil, there are dozens of plants. If you plan to produce millions of devices with global distribution (congratulations if so) these giants should be considered.

How to choose a manufacturer for your device

When choosing a factory, consider the following:

Relevant specialization and technological equipment

What are the parameters for choosing the right factory? Of course, they must be experienced in making the type of device you want to make.

Experience in manufacturing on the required platforms (chipset, SoC) is essential, but the licenses for chip manufacturers required for development also play a decisive role. If your product uses a platform from vendors like Mediatek, Ambarella, or Qualcomm, you should consider that these require licenses. They have to pay fees to access the developer documents, request development kits, and develop and ultimately produce a product using their platform.

Because of this, it's much easier to find an ODM partner who already has a license for the required platform and delegate some of the PCB design and low-level coding to them. Otherwise, you will have to compensate the ODM for the license fees or purchase it yourself. The price can vary from $ 20,000 to $ 80,000 for each chipset model / version. You should also remember that large chip vendors are typically unwilling to partner with startups and small businesses. They often have minimum requirements for the number of components, in most cases several hundred thousand items.

When you work with ODMs, multiple customers share these license requirements and you can negotiate to start with a lower minimum order quantity.

You should also remember that unscrupulous factories can easily copy your product or even "borrow" your secrets. Therefore, you should evaluate your partner's potential interest in bringing a similar product to market. If there is such an interest, you should raise this issue in advance and understand the terms and conditions of your representation in specific areas i.e. H. China, discuss. Decide what proportion of the profit your partner will receive if your product is successful or offer to introduce it to potential customers / customers. This agreement should be attached to the contract.

Size is a sign of stability. Typically, large factories implement better manufacturing processes and quality control practices. At the same time, large factories are less flexible and often more expensive. Questions will take longer to discuss with them and will be difficult to sign a contract with small or medium-sized minimum orders less than 100,000-200,000 items per year.

Related: 5 Questions Business Owners Should Ask When Choosing a Manufacturer

Specific equipment for your project

Check that the factory has all the necessary equipment, such as: B. acoustic cameras, dust-proof stations for the assembly of displays or camera modules, radio test devices, etc.

Factory financial viability

Don't overlook the manufacturer's financial indicators. You can request information on sales from previous years from your potential partner. If the factory is a public company (their shares are sold on a stock exchange), you can find the reports or key financial indicators online: public companies must publish this data. This information will aid in assessing the reliability and stability of the plant and in choosing the right negotiating position to discuss the terms of trade. Incidentally, many Chinese manufacturers are public.

When choosing the factory, it is important to consider feedback and recommendations from your industry peers about the network. Companies that have had successful or unsuccessful business with your prospective partner in the past will give you the most valuable feedback.

You should review the facility's ability to produce the quantities of product required, the availability of the required production capacity, and the actual load.

How do I communicate with a factory?

After you have selected a contractor, there is a common process with certain phases and documents: RFI – Request for Information; RFP request for quotation and RFQ request for quotation.

RFI or information request

First, you create an RFI document disclosing information about yourself and providing a brief description of the project requirements. Usually the RFI does not contain confidential information and the customer sends a document to several potential partners, usually from 5 to 10. The main goal of this phase is to find companies that may be interested in manufacturing your product, and obtain brief information about their factories, their portfolio and available resources. As a rule, the manufacturers respond with a company presentation.

For companies that have passed the RFI phase, consider creating an RFP – a more detailed document that describes your product, preferred interaction model for the factory, roles and responsibility points, required production capacity, key principles of business collaboration, i.e. open Describes the parts list and the necessary warranty obligations.

Related: From Prototype To Production: 3 Things You Need To Know

Let's explain what the open parts list principle is. Bill of Materials, or "Bill of Materials", contains the list of all of the components and materials required to manufacture the product. Open bill of materials means that you have access to the entire list of parts in your product, down to the smallest screw. You will receive information on costs, manufacturer, serial numbers and estimated lead time.

You should sign an NDA prior to the RFP.

Related: 5 Situations That Require a Nondisclosure Agreement

The RFP usually gives the ODM / OEM the freedom to propose its solution or vision for some system elements. The package of documents in the RFP is not complete. For example, if you are making your own smart speaker, you can highlight that you are not sure about the microphone matrix configuration and ask the ODM / OEM for a solution. For this reason, the RFP is an essential part of communication with an ODM or OEM partner. However, if you are developing your product entirely yourself and are looking for an EMS partner, you can go straight to the RFQ phase and skip the RFP.

At the end of the process, the plant should send you a preliminary offer with possible variants of the product composition, the cost assessment, the preliminary parts list and a viable business model.

RFQ or request for quotation

The inquiry is the final stage of the commercial proposal process for the project and its details. The result of the inquiry is the basis for your production contract.

Traditionally, RFQ requests are directed to factories whose proposals looked attractive in the RFP phase. Usually the number of candidates is reduced to two or three. The RFQ request contains the full product description, including detailed technical and product requirements, PRD, CMF specifications, blueprints, and QA requirements. However, at this point, or before signing a contract in general, you should not provide the factory with circuit diagrams such as 3D case models and Gerber files of printed circuit boards. Properly prepared documents are usually enough to evaluate the product. In an RFQ request, you should also include your expectations for the terms and conditions, the list of required design assignments, the estimated product launch plan, and the target price for the final product.

If you don't have enough time, don't have a lot of good candidates, or have already worked with a particular factory, two or even a single phase is possible.

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