In the first of a multi-part guest series by Elaine Chen, we explore sourcing components for building 2000 units of a product. These posts are meant for new hardware teams going through the process for the first time.
There are many phases of engineering development before you get to a looks-like, works-like prototype. At this phase, the product looks like and works like a final product. Hopefully it has been designed with the final manufacturing techniques in mind. Like many modern day hardware companies, you probably went the extra mile in validating your market before scaling up your operation. You have probably run a successful crowdfunding campaign. You now have a 1000-2000 unit preorder that you now need to fulfill. How do you go from the prototyping techniques you have been using to date to sourcing and building a small lot of this scale?
At 1000-2000 units, this is considered a low volume production run. This is a very tricky quantity to build, especially for consumer electronics products with a low cost-of-goods-sold (COGS). In fact, Ben Einstein of Bolt VC famously calls this quantity the “uncanny valley of manufacturing” in his awesome talk about prototyping (see Slide 41).
What’s involved in a 2000-unit build?
Let’s first look at what is really involved in getting 2000 units built, starting with the components.
First, you must source all your components. There are two kinds of components you need to buy.
- “COTS parts”: These are parts you can buy off the shelf. M2 hex screws are COTS parts. Standard metal gears are COTS parts. Standard switching power supplies can be COTS parts. 6′ USB-A to micro-USB cables can be COTS parts.
- Some parts are commodity items – fasteners, for instance, are low cost, and there are many places you can buy them from.
- Some parts are critical components that can make or break the performance of your product. For instance, a Coretex M3 microprocessor is a critical component. A specific Bluetooth low energy chip is a critical component. A specific motor designed into your drive chain is a critical component.
- “Custom parts”: These are parts that are unique to your design. You will need to find a supplier to create them specially for your product. There are two main categories of custom parts:
- Electrical / electronic parts: these include custom printed circuit board assemblies (PCBA), cable harnesses (i.e. custom cables with connectors on either side made to your specifications) and the like.
- Mechanical parts: these can include plastic parts and metal parts, which can adopt a variety of sizes and shapes and have a variety of performance requirements.
Let’s do a deep dive into COTS parts.
Sourcing commodity COTS parts
Sourcing the commodity COTS parts is not so difficult. Having someone on your team who has buying experience in the mechanical or electronics space certainly helps, because they can leverage their relationships with suppliers to get faster service and better prices. Also, multiple vendors frequently carry items of similar specifications, so you have considerable flexibility in selecting vendors who can work well with you and your business.
Sourcing critical components
Sourcing the critical components takes more skill and strategy. You would need to consider the availability and pricing of the component in the architecture/design phase. You would also need to consider whether the supplier will be easy to work with before you create a design with that specific component. Why? Because once you design, say, a specific microprocessor in (based on brand and model, footprint, pinouts and other specifications), you are single-sourced to one specific manufacturer. You need to thoroughly understand the available development tools for that chip, the distributors, any minimum order quantity (MOQ) requirements, as well as the typical lead times before you bake in the chip.
By the way, there is no cookie-cutter guidelines for selecting the right supplier. It all depends on the specific circumstances of the project. A project that is going high-volume from the get-go would have cost as the top priority. You might choose a component with a lower price, even though the minimum order quantities (MOQ’s) might be higher, and the supplier might have more established processes in place, are less nimble, and may take longer to fulfil your order. A project that requires significant flexibility in timing of production lots might point you towards a supplier with a component at a higher price, but with lower MOQ’s and shorter lead times.
That’s a start about sourcing COTS parts. We will discuss custom parts in our next post.
About the Author
Elaine Chen is a startup veteran and product strategy and innovation consultant who has brought numerous hardware and software products to market. As Founder and Managing Director of ConceptSpring, she works with executives and leaders of innovative teams to help them set up and run new product innovation initiatives with the speed and agility of a startup. She is also a Senior Lecturer at the MIT Sloan School of Management and the Martin Trust Center for MIT Entrepreneurship. Follow her at @chenelaine.