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This blog series shares learnings from the ELEVATE program (see info below) for the benefit of the wider hardware community. Contributors to the content presented herein include: Matthew Redding - LIFX and Vela Georgiev - HardworX,
Industry experts Matthew Redding and Vela Georgiev came together to discuss managing trade-offs in manufacturing. To give a real-world example of producing a successful mass-market product Matthew Redding shared insights from the LIFX journey.
LIFX & HardworX have a long-standing association. The 2017 HardwoX Innovation Tour to Shenzhen, China, included a visit to the LIFX factory. Videos of this factory visit are included in the additional resources below.
LIFX
LIFX is the founder of the world-first energy-efficient WiFi-enabled LED light bulbs––which has sold over 2 million lights in 100 countries. Their success has come, in part, due to knowing where to make trade-offs. Through balancing trade-offs, the founders designed a product that could be manufactured to the required quality within the budget constraints of a high volume consumer product.
Why design is critical
Product manufacturing is known for being highly technical, time-consuming, and costly. To avoid common pitfalls, prioritising design is one key to manufacturing success.
Good design extends beyond user experience––it’s the biggest driver of costs too. In 1988 Sandy Munro, working with Ford, investigated manufacturing shortcomings. In doing so, he discovered traditional cost-saving tactics were ineffective. He found that, although product design may only account for 5% of a product’s cost, 70% of the total cost is dictated by design aspects. These include material selection, assembly costs, test coverage, etc. It can be said, then, that design is the most critical step in the manufacturing process. This is where the principles of Design for Manufacture, or more broadly, ‘Design for X’ came about.
Image source: Towards a Sustainable Innovation Process: Integrating Lean and Sustainability Principles adapted from Munro and Associates: Who has the Biggest Shadow?
Design for X
Design for excellence, DFX, methodologies address different issues that may occur in one or more phase of a product's life cycle: development phase, production phase, use phase and disposal phase.
| X = ManufacturingX = AssemblyX = TestabilityX = ProcurementX = ReliabilityX = ServiceabilityX = EnvironmentX = ... |
Some design for X examples are:
Manufacturing - Ease of manufacturing of individual parts
Assembly - Ease of assembly, the optimization of cost and time
Testability - Level of test coverage, ease of test, tools for testing
Procurement - Identifying and qualifying alternate parts to mitigate component shortage risk or manage component EOL transitions
Reliability - Level to which product meets reliability requirements, under its use environment, for the duration of its lifetime
Serviceability - Ease of service eg. replacing of depleted battery or worn component
Environment - Reduction of environmental impact eg. recyclable packaging, product disposal and reuse eg. use of regrind in plastics injection moulding
The trade-off triangle
To maximise outcomes in hardware manufacture, there exists a continual trade-off between cost, time, and quality. It’s possible to develop a high-quality concept quickly, but doing so will incur excessive costs. It’s also possible to develop something quickly and cheaply, but the quality will likely suffer. And so on. The question every entrepreneur must ask themselves is: where will I make trade-offs?
There are always trade-offs in bringing a hardware product to market and they normally come into play once product requirements are known. Product requirements shape and influence the design and go on to impact every stage after.
If you’re developing a high volume product, then the unit price might be the overriding design consideration.
If time to market is key, then using off the shelf, modular hardware like pre-certified modems may be the solution.
If it's a low volume, high value, complex product, then technology and features might be the overriding design consideration.
Making trade-offs is a mandatory part of hardware product development. The goal is to deliver the best possible solution to the problem within the constraints set.
Things to consider before making trade-offs include:
The type of product being developed
Stage of development
The impact of the trade-off
What’s being prioritised and how these decisions will affect the overall production and development
Below is a deep dive into each of three trade-offs: Cost, Quality, and Time.
Costs
Costs are often the most restrictive, yet essential element of the trade-off triangle. Elements such as certifications, prototyping, production, volume, and supply chain must all be taken into account to truly estimate costs.
And let’s not forget: design is a driving factor behind many of these costs. Extensive cost planning, therefore, will help manage risk.
There are three types of costs to consider:
Development costs: usually the first financial obstacle for startups, include prototyping, product development costs, and design validation. A common mistake is that people often focus on optimising this cost, without considering the follow on costs.
Scaling costs: the cost of scaling from prototype to manufacturable product can be considerable and must be considered early on.
Certifications (e.g. EMC, FCC, UL).
Manufacturing set-up including production tooling, test harnesses, jigs, and fixtures.
Pilot production, samples, trials, and inventory.
Landed cost (AKA Cost of goods sold (COGS)): means the total cost to deliver one unit of your product and includes:
Production costs as well as transportation and warehousing.
Something to keep in mind, development and scaling costs are fixed costs, whereas landed costs (COGS), are recurring costs. The distinction is very relevant when balancing trade-offs.
Development and scaling costs are fixed costs, whereas landed costs (COGS), are recurring costs. The distinction is very relevant when balancing trade-offs.
Bill of Materials (BOM) vs Cost of Goods Sold (COGS)
A BOM is a list of the materials and components––including quantities of each––required to produce the final product. Cost of goods sold (COGS) refers to all the direct costs incurred in the production of the goods to be sold. COGS include the BOM and other costs like labour costs, manufacturing overheads, freight and warehousing costs.
Bill of Materials (BOM) ≠ Cost of Goods Sold (COGS)
While a BOM is simple and easy to manage, COGS are much more complex as they tend to have lots of hidden costs.
Cost drivers
Cost drivers can be broken down into design considerations and manufacturing considerations.
Manufacturing considerations
| Design considerations
|
|---|
Ways to manage costs
Have a product manufacturing strategy.
Understand your short term and long term manufacturing options and strategy (in house vs outsourced, onshore vs offshore, new relationships or existing relationships)
Take time to understand initial and future production runs. Once you understand lead times, cost, and quantity, the key decision is cost vs risk as you scale up.
Understand your total product costs (COGS).
Know your cost levers, not just BOM, but assembly time and overheads.
Aggressively target COGS prior to pilot production during the EVT and DVT stages: this is where you can make the most impact for the least investment.
Pay attention to design for manufacturing and be mindful that total product costs extend beyond the manufacture of the goods themselves to include after-sales support. Servicing warranty, returns and repairs can be a big business cost, so designing with these in mind is not to be underestimated.
Have a compliance strategy.
Certifications can be one of the biggest scaling costs for new products.
Aim to find a way of optimising certification costs. For example: if creating multiple variants of products, certify them all together to reduce some costs. Or, consider using pre-certified modules.
Keep cash flow front-of-mind.
It takes cash to build your product, and it takes cash to market and distribute your product. The time a company takes to convert investments in inventory and other resources into cash flow from sales can make or break a business.
Payment terms with suppliers and inventory carrying costs can have big ramifications.
Actively manage the supply chain.
Work with suppliers on costs, quality, manufacturing batch size, and payment terms.
Quality
To produce products of sufficient quality, design will always be relevant. To produce quality, design is the essential first step. Which is to say: manufacturing quality will come down to the design.
Many factors affect the final quality of products and there are many ways in which to mitigate the risk of developing products that don’t fit the intended quality.
Factors that affect quality:
Design considerations
| Manufacturing considerations
|
Ways to manage quality
Have design reviews
Incorporating manufacturing inputs early (DFX)
Consider factors beyond technical execution.
Use reviews to plan iteration cycles and focus on risk mitigation.
Develop a product quality plan early
Quality is related to all aspects of product production. It’s something you plan for: it doesn’t just happen.
Quality planning includes prototype reviews, test regimes, pilot productions, production testing and regulatory requirements.
Supplier selection and due diligence
Suppliers are integral to product quality, even if manufacturing in house.
Ensure your supplier can meet required quality criteria on an ongoing basis.
Consider how/if quality might be impacted in the case of supplier subcontracting.
Time
Reliance on third parties is common in hardware manufacture, which means managing time extends beyond your own business. Effective time management takes into account every aspect of production from concept, to delivery, and everything in-between.
Factors impacting timing ways to manage them
The chosen design solution will impact the product timeline.
A common mistake is that sometimes people design a product quickly just to get the design intent fully captured in a working prototype. The expectation is that they can then do a round of design tweaks to render it production-ready and to reduce the cost of goods sold (COGS) for the product.
If you have a target for your final COGS, you need to design it right into the first full prototype (looks like, works like).
Product and regulatory requirements
Testing, certification, audits.
Third-party test house and schedules outside of your control.
Regulatory requirements can impact the choice of production processes or overheads e.g. traceability for medical.
Costly, so if you can, do preliminary testing to increase confidence that certification testing will pass
Material and component selection
Availability will affect lead times.
Purchasing parts at production volume can have extended lead times compared to small order quantities to support prototyping.
Design with every component in mind. Engage suppliers early to ensure components are compatible with the manufacturing process. This will reduce overall schedule time and impact the quality and cost of products too.
Design for X
The quickest route to a producible design for a quality product is to incorporate design-for-manufacturing (DFM) thinking into the engineering.
Processes used for prototyping and small volume production might not be compatible with high volume production methods. Avoid optimizing your design for producing prototypes and small volumes if the manufacturing method won’t be the same once you move to volume manufacture.
Manufacturing efficiency - ramping up production
Assembly time and throughput
Yield - have to over-produce to meet demand
Production processes and where defects are found - how much rework is required
Assembly and test infrastructure: these can be complex and take long periods to develop.
Scope creep
Limit the scope of the first release.
Manage feature scope creep to help keep development on track.
Effective project management
Take time to understand all relevant elements before setting realistic timelines.
Understand that there is a strong reliance on third parties.
Plan for the unexpected. For example, shipping of products with dangerous goods eg Lithium batteries, can substantially blow out timelines.
Manage the supply chain
In hardware product development, the manufacturing process is predicated on the premise that the design is frozen and well documented, to facilitate excellent execution of a quality production process.
Any design changes, no matter how small, can cause significant challenges for the manufacturer and must be carefully controlled through an engineering change order process.
Small changes can have large ramifications along the chain and take weeks to implement. Work hard to understand the constraints and concerns, limit changes and find ways to expedite critical fixes.
Balancing trade-offs
Willingness to make trade-offs between cost, quality, and time can often be the deciding factor of successful products and reductions in risk. Faster, cheaper, better - use your judgment and make these decisions based on what you are trying to optimize. There is no easy answer to balancing trade-offs and sometimes there’s no one right decision or one that pleases everyone but:
Analyse trade-offs in an analytic way.
Understand the downstream impact of design decisions.
Don’t let emotions get you carried away.
If you can’t explain the rationale behind your decision around trade-offs, you have a problem.
Document not only your decisions but also the reasoning.
Remember that what you design is as good and as cheap as the product will ever be. Design for excellence is the single most effective way to accelerate time-to-market and reduce the cost of non-recurring engineering.
The balance of quality, cost and speed shifts at different stages of the product development cycle. Ultimately, it's about understanding what you are trading off. And keep in mind, when it comes to hardware, the reality is that things take time and you are often reliant on third parties (test houses, contract manufacturers, suppliers, etc).
Remember that what you design is as good and as cheap as the product will ever be.
Additional Resources
Bolt VC four-part blog series on the hardware product development process: The Illustrated Guide to Product Development (blog post) and slide deck.
About the ELEVATE program
Elevate is an innovation education series developed and delivered by HardworX and Western BACE, and supported by LaunchVic. It’s hardware content for hardware innovators, by hardware innovators. As a community-driven event, Elevate engaged with stakeholders across the hardware innovation ecosystem to design and deliver bespoke content. Elevate consisted of meetups, masterclasses, and bootcamps to help startups scale, anticipate risk, and establish manufacturing. This blog series shares learnings from those events for the benefit of the wider hardware community.
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