The next Design for Manufacturing course will be about COGS, BOM, and cash flow, which is the sort of the very boring but absolutely vital part of a functioning business.
We deal with a lot of start-ups here at Dragon Innovation: a lot of new entrepreneurs who are very smart, technical people, but this is one of the areas where they can really run aground. They are completely shocked when they finally get a product to the point where it can be manufactured and discover that one of the things that will kill them faster than anything is if a retailer says, “they’ll buy 100,000 of them and get them to us in 10 weeks.” If they request 100,000 units and the COGS is $30, then that’s $3 million right there that you need upfront. If it ships 12 weeks later, then it takes five weeks to get across the Pacific, and the retailer does not pay for 90 days, it’s now been fives months and you’ve had to carry that $3,000,000. If it’s a big success and you have more orders, you have now got to come up with millions of dollars just to carry your inventory.
A consumer’s product company that makes 10% before taxes is a really well run company by 10% is not enough to grow your business just for the cost of growing inventory. The reality of your business is that this is the time where you’re hiring sales people, buying bigger office space, and hiring more engineers and customer support. It’s all about the cash flow.
You can view the full lecture and the accompanying slides below: