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Manufacturing and Supply Chain Strategies for Hardware

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, Vela Georgiev - HardworX, Ian ReillyAgersens, James FitzgeraldLIFX, Kristy BattistaAllume Energy, Colin PotterPlanet Innovation and Mario Turcarelli & Greg KeysDolphin Products.

Having an idea for a hardware product is an exciting prospect. Going on a hardware production journey, however, can be complex, confusing, and for some: simply too hard. For startups, who lack experience engaging with manufacturers, knowing where to begin can be a mystery.

In this post, we cover the following four topics:

  1. Engaging with manufacturers.

  2. The supplier selection process.

  3. Preparing a request for quote pack.

  4. Quality control for mass production.

Whether you are thinking about manufacturing in house or outsourcing, using local or international manufacturers, this blog will provide you with the knowledge and tools to make the best decisions for your startup and product.


Part I - Engaging with manufacturers

Hardware products are not created in isolation. Hardware production requires coordination between many parties with the manufacturing partner being one of the most important. Choosing the right manufacturer can be make or break for hardware products. It’s essential then to develop a positive relationship, begin communication early in the process, and work with partners to develop a product that can be produced at scale.

In hardware, it’s essential to design with manufacturing in mind: that means taking into account manufacturing techniques, costs, and production timelines. Engaging with manufacturers, then, should occur early on, when ideation is still in progress.

According to Colin Potter, it’s never too early to begin conversations with manufacturing partners. Engaging early means learning about costs, volumes, design factors, and technical requirements that will define the end outcome.

Mario Turcarelli, managing director of Dolphin Products, an injection moulding and tooling firm, agrees that conversations should begin as early as possible.

‘A good time to begin conversations can be right after concept development. Once you have a concept and have identified your market, begin engaging a manufacturer to ensure what you’ve designed is actually possible to produce.’ - Mario Turcarelli

One pitfall for startups is to begin speaking to customers, or even promoting a product through a Kickstarter, only to find that the product isn’t possible to produce due to costs, design, or other technical factors. A manufacturing partner can help set expectations and give advice to ensure a product can be produced at scale.

Design for manufacture means taking the initial concept and designing it with the final manufacturing processes in mind. Doing so avoids costly mistakes, reworking, and possibly having to scrap a concept because it simply isn’t possible. Fortunately, manufacturers can offer insights to those with no experience and then carry out those manufacturing processes once the concept reaches that stage. Manufacturers will then give feedback and options and explain what the benefits and costs will be. ‘Experienced manufacturers can give their insight and help those new to the industry to ensure they create products fit for manufacturing,’ said Mario Turcarelli.

Finding a manufacturer to scale with

Finding the right manufacturer is one of the most important decisions any hardware startup will make. Manufacturers are not one-size-fits-all. There exist factories to create almost any product imaginable with minimum order quantities ranging from one, right into the millions. When considering factory choice, it’s important to consider scalability. And in hardware manufacturing, scalability and product volume are intertwined.

Just like prototype suppliers are not set up for large volumes, the same can go the other way too. High volume suppliers may not be able to do prototype manufacturing runs without putting them through the same quality processes as mass production adding cost or lead time, while others might have a dedicated area and custom equipment to service prototyping and new product development initiatives.

Importantly, costs between low, high, and mid-volume manufacturing vary significantly––with high volume being the lowest cost per piece, but the highest for tooling. This jump from low, or mid, can be daunting for many entrepreneurs who can’t guarantee a large market for their products and those who don’t have the capital to invest in the production setup and tooling needed to unlock lower part price.

Ultimately, scalability is one of the biggest considerations. Product volume will impact quality, price, lead time. One question to ask yourself is: can I grow with this manufacturer?

For Agersens' eShepherd, an AgTech product that enables farmers to fence, move and monitor their livestock from a tablet, there were learnings in scaling. CEO, Ian Reilly, would do things differently if he had his time over.

‘We’d plan for a longer staged transition to volume manufacture to enable learnings about the product before committing to higher quantities.’ - Iam Reilly .

Scaling too quickly has proven fatal to many startups. Instead, it’s important to ensure early adopters are thrilled with the product, to choose a factory you can scale with, and that scaling is gradual to ensure cash flow is sufficient and quality remains high.


Part II - The Supplier Selection Process

For those who haven’t engaged with manufacturers previously, finding the right manufacturer can be challenging. Finding the right manufacturer, though, is possibly the most important decision you will make on a production journey. While many manufacturers will say they can do it all: it may turn out they’ve overpromised. That’s why it’s essential to ask the right questions, consider whether the manufacturer is right for your product, and, if possible, visit the manufacturer in person.

‘Make sure you understand how the manufacturer operates. Ask questions, and ensure their skills and capabilities align with your expectations,’ said Colin Potter of health tech innovation and commercialisation firm, Planet Innovation. ‘For us, If we can’t be a value-add partner from our skills, capability, and knowledge, then they aren’t the right fit for us,’ said Potter.

Supplier selection should include assessment against the following criteria, scaled up or down depending on the product complexity, the manufacturing relationship (parts supplier, turnkey box build, etc) and risk.

  1. Risk - financial, schedule, legal, organizational and human behaviour risk

  2. Commercial - proposal adequacy, price competitiveness, contract terms and ease of doing business

  3. Quality - quality management system, process effectiveness, commitment to process performance and continuous improvement

  4. Support - responsiveness and communication

  5. Delivery - the capability to meet scheduled requirements, warehousing and dispatch support

  6. Process capability - the capability to support PCA and box build assembly

  7. Innovation and value add - additional service offering, cost reduction, innovation capability

Moving from selection criteria to a supplier selection scorecard

Choosing a manufacturer can be a daunting process, but it is a process that can be made easier and systematic through the application of some basic tools. To compare different suppliers, consider creating a supplier scorecard. Once you have a template, it's easy to score and compare different suppliers.

One of the great things about this kind of tool is that you can define a rating scale for your expectations i.e. below expectation, meets expectation and exceeds expectation. Having a rating scale and scorecard forces you to think about what you need right now from the manufacturer and what you might need in the future. For example, a factory with a single automated SMT line might meet all your requirements right now, but what would it take to exceed your needs? Thinking about what it would take to exceed your needs can give you some insights into the trades off you are making around quality, cost, etc. Asking questions like these will help in the decision-making process.

Tips for creating supplier scorecard

  • Make it a living document. Add to it as you learn more.

  • The level of detail in the scorecard should match your product complexity and manufacturing maturity.

  • Get the whole team involved in developing the scorecard. It’s a great way to capture the requirements of all product stakeholders.

  • Developing a supplier selection criteria to include the factors that matter most to the product you are developing, the stage you are currently at and your future growth plans.

Benefits of a supplier scorecard

  • Allows you to be quantitative in your approach.

  • Easier to get the whole team on a page.

  • Transparent decision making which you can keep going back to.

  • If you find a new supplier/manufacturer you can compare against the same criteria.

  • As a business, you’ve decided on the criteria ratings and priorities.

  • It’s also a good communication tool that shows your due diligence and something you can point investors towards, especially when you are outsourcing CMS, JDM, OEM, ODM.

  • The more you outsource, the more rigour is required in the selection process.

Things to consider when selecting a supplier

  • Product volumes can impact both manufacturing methods and supply chain partners.

  • There is no one-size-fits or ‘best’ CM. Consider capability, culture and commercial fit.

  • Scale the supplier selection process up or down depending on the need.

  • Use a scorecard to help you make an informed decision.

  • Make sure you are comparing supplier quotes like for like. If you ask for 4-5 quotes, you’ll get a spread. Be prepared to receive at least one or two quotations that are above or below the average. In most cases, a rock bottom price can be explained by one or more of the following reasons:

  • The product to be manufactured is not based on the same product specifications

  • The supplier did not price in your compliance requirements

  • The supplier quoted a price based on a larger quantity than its competitors

  • The supplier quoted an ex-works price i.e. no freight etc.

  • Cost - You get what you pay for. Cost is not the only consideration.

  • Consider volume, cost and quality and how the manufacturer stacks up in those respects. Remember: there will always be trade-offs and knowing where to make those tradeoffs is essential.

  • Low labour cost doesn’t mean low-cost manufacture - it’s only one factor. Make sure you choose for the reasons that align your manufacturing strategy to your go-to-market strategy.

  • Consider the total cost of dealing with the supplier/manufacturer. This might include material cost, communications methods/ease of communication (timezone, language), inventory requirement, level of knowledge, skill and engineering support, contract terms e.g. payment terms and contract length.

  • Doing due diligence including conducting a site visit.

  • Not all suppliers are created equal: capital, skills and resources available vary dramatically (think about value add).

  • Ideally, look for manufacturers which add value to your business, fit your cost model, are committed to helping you produce the best products and with whom you can create a strong partnership.

  • Recognise that manufacturing is a two-way relationship. The partnership should be mutually beneficial and it may be necessary, as a founder, to pitch oneself. (And also, be prepared for the manufacturer to do due diligence on you).

Common pitfalls in supplier selection

  • Not asking enough suppliers to quote (when it matters).

  • Manufacturing pricing aggressively to win business, followed by price increases.

  • Not knowing your trade-offs––lower prices may be being traded off against quality or lead time.

  • Not visiting the factory to understand what the factory is truly capable of.

  • Product quality criteria impacting unit cost - be careful not to overspecify or underspecify.

  • Expectation mismatch - by overall volume or being the smallest client.

  • Terms, MOQ, or an inability to ramp production up or down.

Taking the time to find the right manufacturer who adds value and provides the desired skills and capabilities can result in a successful long-term relationship and improve the chances of developing successful, scalable products.


Part III - Preparing a Request for Quote (RFQ)

Having an understanding of the business model that underpins manufacturing is an important factor in compiling a good RFQ pack. It's important to appreciate that:

  1. The Electronic Manufacturing Services (EMS) industry is a cost-plus industry i.e. costs + profit. This means, if the manufacturing costs are wrong, it erodes the manufacturer’s margin.

  2. Quotes are binding agreements to manufacture under the conditions specified - no one wants to get caught out.

For manufacturers, the biggest risk when providing a price estimate is not knowing what the customer does not tell you. This is especially true for turnkey, box build quotes where the manufacturer might not have built that exact same product before. This is why manufacturers when quoting for box build ask to see product samples, assembly instructions etc.

For manufacturers, it is very important to have an accurate understanding of the costs otherwise they may be forced to re-quote. The re-quote could happen immediately if new information is presented, or on your next order after you’ve set up with the manufacturer. Then it’s a case of sunk cost and investment and wondering whether to switch manufacturers, wear the price increase, etc.

This is why RFQs are one of the most important documents in supplier selection. The success of the RFQ process boils down to one thing: the completeness of the data provided. Remember: in manufacturing, you always get what you specify.

Creating an RFQ Pack

Examples of best practices for creating an RFQ Pack for different part types, assemblies and products can be found in the slide deck below.

Things to remember when creating RFQs

  • Quotes are binding agreements to manufacture under the conditions specified.

  • Your best safeguard against inaccurate quoting is to provide the right data. Providing the right data starts with having a complete bill of materials (BOM) and the right artefacts to describe the parts. A well-maintained BOM is the system of record for the product. Only when these details are correct, will the quote be accurate.

Image source: Dragon Innovation

  • Consider all aspects necessary for an RFQ including mechanical parts, electronic parts and box build.

  • The product specification must define every parameter. If it’s missing then it will be missed. Make it crystal clear and easy to translate (if needed).

  • If you are asking for a rapid turn time, then expect to be charged a premium for the manufacturer to expedite the order. It pays to talk to the manufacturer and understand their lead times.

  • For startups, which lack the resources to effectively analyse what the product should cost, getting multiple quotes can be very helpful. The quoting process can allow you to experiment with cost drivers e.g. cost impact of material selection or low cost vs high-cost labour country, etc.

  • There are two types of quotes: open-book and closed-book.

    • Open-book which gives a breakdown of all costs is the best for you, but not ideal for your supplier. Open-book quotes are not easy to obtain and usually reserved for high volume, low-cost products. Sometimes, local manufactures offer open-book pricing as a way to win business and show competitiveness against offshore manufacturing.

    • Closed-book exists where the quotation may consist only of a total fixed cost and a total unit cost, with no breakdown or detail. There are no advantages to this approach for you as the client as it removes your ability to analyse the quote and negotiate a lower price.

As a real-life example, for LIFX, founders of the world-first WiFi-enabled light bulb, which has sold 2 million units, criteria selection was a key component in their success.

To find the right suppliers, LIFX shortlisted suppliers, met and got to know them, completed due diligence, and had a supplier scorecard to compare and contrast the different potential agreements. LIFX also created an easy-to-read RFQ document that detailed product requirements, certifications, and their expected production testing process.

‘The RFQ is a conversation s

tarter,’ said LIFX hardware director, Matthew Redding. ‘Once discussions begin, it’s important to ask about annual volumes, target price, testing, and whether the supplier will provide firmware and software.’

‘Find a partner, not a supplier. Discuss your future plans for expansion and what business you may be able to offer them in the future.’ - Matthew Redding


Part IV - Quality control for mass production

As the saying goes, hardware is hard. It’s called hardware for a reason. Unlike the design stages where development is somewhat contained, the very act of product manufacture can result in issues and errors. Product development is a once-off effort, manufacturing is a continuous effort. You only have to design right once, but you have to build right every time.

Unfortunately, in hardware, failure can occur at any stage. That’s due to many factors like variability in the manufacturing process, operation errors, and part tolerances. Production testing, then, is essential to ensure manufacturers are continuously producing quality-sufficient products. But the later in the process issues are found, the more expensive it is to fix them. Production testing, then, is essential to ensure manufacturers are continuously producing quality-sufficient products.

Image source: Jungle Scout

According to Kristy Battista Allume Energy which delivers solar energy to apartments and businesses, it's better to be proactive, rather than reactive. Proactivity means looking for hidden issues that might be present, rather than waiting for bigger problems to occur.

‘One way to think of it: time spent now will save significant time later.’ - Kristy Battista

Testing, then, should not only be continuous: it should be rigorous too. Developmental testing, assembly line testing, and post-production are all standard and essential.


Types of product testing for hardware products

For assembly line testing, product quality is dependent on:

  • Incoming Quality Control (IQC) – the inspection and testing of components and materials supplied by other vendors. The purpose of this step is to catch any defects before assembly starts. IQC inspections are the controls you use to prevent defective materials from entering the production lines.

  • In-Process Quality Control (IPQC) - the testing, monitoring and checking which occurs during the manufacture of the product. The purpose of this step is to catch any defects that may arise during assembly. IPQC are generally integrated into the standard operating procedures for the product and every product goes through these tests i.e. 100%.

  • Outgoing Quality Control (OQC) – the last step before the fully assembled and packaged product leaves the factory. The purpose of this step is to verify the product prior to shipping.

Importantly, overall product test coverage is cumulative. That is:

Product quality = IQC + IPQC + OCQ


Quality Assurance (QA) vs Quality Control (QC)

When developing production testing, it’s important to understand how quality assurance (QA) and quality control (QC) fit into the manufacturing context. QC is used to verify the quality of the output, while QA is the process of managing for quality.

​Quality Assurance - Process focused

​Quality Control - Product focused

  • Procedures that focus on being proactive, preventing defects before manufacture of part or product

  • Examples: quality planning, process checklist, audits

  • Focuses on the inputs of the processes i.e. process management

  • Procedures that focus on being reactive, identify defects after the product has been manufactured

  • Examples: in-process inspection, first article, functional testing

  • Focus on the outputs of the process, verifying implementation meets requirements

​Preventative tool - A strategy for prevention

Corrective tool - A strategy for detection

Example of QA & QC on SMT Manufacturing Line

Failure prevention, that is Quality Assurance, is in-process whereas failure detection, that is Quality Control, is an end of line test verifying the product has been manufactured to requirements.

Image source: PCBWay


Tools for quality control

There are many quality control tools and frameworks available to manage manufacturing quality. We’ve highlighted a few here and to encourage you to seek out further information when you are at this point in your journey.

Process Failure Mode and Effects Analysis (PFMEA)

PFMEA focuses on potential failure modes of the process that are caused by manufacturing or assembly process deficiencies. PFMEA is a prevention-based, risk management tool that focuses systematically on:

  • Identifying and anticipating potential failures

  • Identifying potential causes for the failures

  • Prioritising failures

  • Taking action to reduce, mitigate or eliminate failures

One of the key benefits of a PFMEA is that it helps to prioritise failure modes. As a risk-based quality approach, PFMEA provides the opportunity to adapt the time and effort spent on quality management to reduce risk, which is especially important if you are resource-constrained.

Images source: ASQ

Process control plan

A process control plan (or control plan) is a document describing the process step, the process's quality control items, responding control methods, and reaction plans. The process of developing a control plan consists of:

  1. Identifying each process step, and indicating whether it’s critical (i.e. likely to cause serious quality issues if improperly handled) or not.

  2. Defining the process controls: what to check, how often, using what methods, and what to do if issues are found.

The control plan can often include a mix of process controls and product controls, especially if for full box build.

Mistake proofing

Mistake proofing, sometimes referred to as PokaYoke, is quality built into the process. There are six mistake-proofing principles or methods.

  • Elimination - seeks to eliminate the possibility of error by redesigning the product or process so that the task or part is no longer necessary.

  • Replacement - substitutes a more reliable process to improve consistency.

  • Prevention - engineer the product or process so that it is impossible to make a mistake at all.

  • Facilitation - employs techniques and combining steps to make work easier to perform.

  • Detection - involves identifying an error before further processing occurs so that the user can quickly correct the problem.

  • Mitigation - seeks to minimise the effects of errors.

Remember that opportunities for defects occur each time a product is manufactured. Mistake proofing either by good product design and/or good test fixture design and design for manufacture can significantly eliminate defect opportunities.

Image source: Mobius

Production quality plan

A Production quality plan is a high-level document that calls out PFEMAs, process control plan documents, standard operating procedures, etc.

  • Identifies critical control points and requirements for maintaining satisfactory product quality in manufacturing.

  • Identification of critical components for approval bodies.

  • Identification of incoming inspection requirements and standards.

  • Defining critical test points and acceptance criteria.

  • Key calibration and maintenance requirements.

  • Special handling and storage considerations.

  • Special traceability requirements.

Quality for mass production - things to keep in mind

  • It’s important to remember: every time a manufacturing process occurs there is a risk of a defect.

  • Manufacturing is subject to process variability, operator error and part tolerances.

  • Think about your product quality holistically. Remember, overall product test coverage is cumulative.

  • Product quality = IQC + IPQC + OCQ

  • Product level coverage = system test coverage + sub-assembly test coverage

  • The right test at the right time => catch defects at the origin not downstream

  • Suppliers are integral to product quality, even if you are manufacturing in-house.

While many hardware startups do fail––they don’t have to. There are many ways to avoid common pitfalls and create successful, scalable products. Creating positive partnerships, scaling at the right pace for your company, spending dedicated time on finding the right supplier for your product and implementing the right levels of production quality controls are just some ways to increase the chances of succeeding.


Additional Resources


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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