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The Winning Manufacturing Formula for Hardware Startups

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As you may have heard already, building hardware is hard. To help young companies understand (and avoid) the common pitfalls of building physical products Dragon Innovation has put together a comprehensive breakdown of the manufacturing process.

Published in: Devices & Hardware
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The Winning Manufacturing Formula for Hardware Startups

  1. 1. The Winning Manufacturing Formula for Hardware Startups
  2. 2. Manufacturing is Continually Evolving ● New Technologies New Locations ● New Tariffs ● New Competitors
  3. 3. ● COGS, tooling and manufacturing costs ● Lead times ● Permanence of Quality ● Iteration cycles ● DFMA ● Factory Selection and Management ● Team Scalability ● Schedule & Project Management ● Specialized skills (ME / EE / SW/ Q / SC / Logs) ● Retail Channel Manufacturing has many “Unknown Unknows”
  4. 4. Early Decisions Cast Long Shadows
  5. 5. Bi-Directional Information Flow Design Product Send Data to CM Build Tooling Mold Parts Assemble Product Inspect & Ship Communication is a Big Deal
  6. 6. 1. Review Manufacturing Process 2. Understand Power of a well structured Bill of Materials (BOM) 3. Deep Dive on the Manufacturing Triangle • Cost • Schedule • Quality 4. Unlock Manufacturing Insights Learning Objectives
  7. 7. The Journey to Dragon
  8. 8. ● Provide transparency and education on how the process works ● Reduce costs and increase efficiency via a manufacturing platform ● Simplify communications and bridge gaps ● Create high value connections throughout the ecosystem Dragon’s Approach DFM Videos on blog Factory RFQ App Factory Selector
  9. 9. Some of our Customers “Dragon helped us take our crowdfunding success and translate it into shipping more than 100,000 Pebbles in just over a year.” ERIC MIGICOVSKY FOUNDER of PEBBLE “Dragon’s depth of institutional knowledge about manufacturing accelerated our planning efforts.” STEVE CHAMBERS CEO of JIBO “We've been working with Dragon from the moment we had a prototype and wanted to begin the manufacturing process” JONATHAN FRANKEL FOUNDER & CEO of NUCLEUS AND MANY MORE
  10. 10. Why is Manufacturing Hard?
  11. 11. 1 10 100 1K 10K 100K 1M 10M Mech EE/SW Prod Tools/BOM COGS Quality Plan Schedule Hand CNC Rubber Mold 3D ProtoLab CNC Arduino/PI Pre- Certified Module Local Shop Optimized for speed & Ease of development Primitive or Absent Blind Spots Domestic CM PRC-CM Owned Factory Optimized for cost & stability Mature Mature New HW starts here Apple starts here OEM Existing RelationshipNeed to find & Vet & Match Tool(1) Tool(N) ASIC Chip w/ Cert EnterpriseExcel How the Process Works from 1 to 1M If you’re not Apple
  12. 12. 1 10 100 1k 10k 100k 1M 10M Mech EE/SW Prod Tools/BOM COGS Quality Plan Schedule Hand CNC Rubber Mold 3D ProtoLab CNC Arduino/PI Pre- Certified Module Local Shop Optimized for speed & Ease of development Primitive or Absent Blind Spots Domestic CM PRC-CM Owned Factory Optimized for cost & stability Mature Mature New HW starts here Apple starts here OEM Existing RelationshipNeed to find & Vet & Match Tool(1) Tool(N) ASIC Chip w/ Cert EnterpriseExcel Scaling is Complicated and Dangerous Spend Risk
  13. 13. 1 10 100 1k 10k 100k 1M 10M Mech EE/SW Prod Tools/BOM COGS Quality Plan Schedule Hand CNC Rubber Mold 3D ProtoLab CNC Arduino/PI Pre- Certified Module Local Shop Optimized for speed & Ease of development Primitive or Absent Blind Spots Domestic CM PRC-CM Owned Factory Optimized for cost & stability Mature Mature New HW starts here Apple starts here OEM Existing RelationshipNeed to find & Vet & Match Tool(1) Tool(N) ASIC Chip w/ Cert EnterpriseExcel Simplify and De-risk Manufacturing Spend Risk
  14. 14. The Manufacturing Triangle
  15. 15. Manufacturing Triangle
  16. 16. The Thing you Designed
  17. 17. The Thing People are Going to Buy
  18. 18. What’s a BOM ● Complete, detailed precise list of ingredients required to build finished product ● Organized hierarchically into sub-assemblies ● Includes fabricated & purchased parts, electrical components, manual & packaging
  19. 19. What to Include? 1. General a. Part Name b. Internal Part Number c. Vendor d. Vendor Part Number e. Usage (Quantity per Unit) f. MOQ g. Lead-Time h. Price i. Extended Price 2. Mechanical Parts a. Fabrication Method (and relevant specifics) b. Material c. Part Geometric Volume d. Bounding Box Dimensions 3. Purchased Parts a. Specs 4. Electrical Parts a. Tolerance b. Package c. Ref Des d. Sourcing Requirement (Consigned, Assigned, AVL, Open) e. Compliance (RoHS) 5. Manual and Packaging a. Giftbox b. Tray c. Manual d. Polybags e. Master Carton f. Tape g. Shipping Label
  20. 20. Why a BOM is Important FACTORY SELECTION PRODUCTON PLAN COGS SCHEDULE CASH FLOW VENDOR SELECTION VERSION CONTROL OVERAGES SUPPLY ROBUSTNESS SYSTEM OF RECORD / IP BOM
  21. 21. Hierarchical Structure for Manufacturing
  22. 22. Flat BOM for Supply Chain
  23. 23. Costs (Fixed & COGS)
  24. 24. COGS Company gross profit Distribution Costs Materials Labor Markup/Profit Scrap Packaging Warranty Customs/Shipping Model Price Break Down Retail markup, factoring, 3PL logistics, etc. Apple ~50% Laptops ~25% 5% of sales $0.3 to $2.00 1.5-3% of Material 9% - 25% of Materials/Labor $0.50-$5 Accessories $0.50-$5 Saleprice 10% of total
  25. 25. Engineering Pilot runs/samples Tooling Testing/testing equipment Production line fixtures and test fixture Certifications Non-Recurring Engineering (NRE)
  26. 26. TOOLS TO ANALYZE & ITERATE WITH FUZZY DATA COGS Estimates, Cash Flow Planning, Supply Chain Robustness Analysis, etc.
  27. 27. Scenario 1: Baseline Initial Tooling Long-Lead Components at MA Profitable Revenue Working Capital Required 100% at MAR COMPONENT TERMS XF (Net 0) CM TERMS Net 30 from Delivery CUSTOMER TERMS Sea (5 Weeks) SHIPPING WORKING CAPITAL: $250k
  28. 28. Scenario 2: Improve Component Payment Terms 0% at MAR COMPONENT TERMS XF (Net 0) CM TERMS Net 30 from Delivery CUSTOMER TERMS Sea (5 Weeks) SHIPPING WORKING CAPITAL: $250k
  29. 29. Scenario 3: Improve Factory Payment Terms 0% at MAR COMPONENT TERMS Net 30 Days CM TERMS Net 30 from Delivery CUSTOMER TERMS Sea (5 Weeks) SHIPPING WORKING CAPITAL: $232k
  30. 30. Scenario 4: Improve Customer Payment Terms 0% at MAR COMPONENT TERMS Net 30 Days CM TERMS On Delivery CUSTOMER TERMS Sea (5 Weeks) SHIPPING WORKING CAPITAL: $123k
  31. 31. Scenario 5: Air Ship 0% at MAR COMPONENT TERMS Net 30 Days CM TERMS On Delivery CUSTOMER TERMS Air (2 Weeks) SHIPPING WORKING CAPITAL: $96k
  32. 32. Cash Flow Comparison SCENARIO 1: BASELINE SCENARIO 5: AIR SHIP WORKING CAPITAL DIFFERENCE: $154k
  33. 33. Schedule
  34. 34. Product Development from PoV of Entrepreneur Ideation Design Engineering Design Validation Startofmass production CMengagement
  35. 35.  Cost estimate & cash flow  DFM review  RFQ and factory selection  MSA  Quality planning  Custom part sourcing  DFM and tooling  Part sourcing  Test equipment/plan  Durability and life testing  Production forecast  Material planning  Packaging development  Shipment audits  Cost reductions  Renegotiating MSA  Quality improvements  Warranty analysis  Factory audits Startofmass production Planning Pre- Production On going production CMengagement Three Phases of Manufacturing Activities
  36. 36. Manufacturing Phases EP1/EVT - Engineering Pilot / Engineering Validation Test: • Build and test several units that function as expected • Learn about new requirements from users EP2 -> FEP / DVT - Design Validation Test: • Fix items from prior phase • More testing • Achieve final aesthetic PP / PVT - Production Validation Test: • Build and test a lot of units that that function as expected • Final ID • Move from engineering to production floor
  37. 37. 8 Kickoffproject SelectCMandaward MSA Projectkick-off 4 RFQreleased FactoryVisit RFQnegotiations Toolmodscomplete Toolingrelease Toolingstart Firstshots 7 45 EP1/EVTcomplete EP2/DVT1complete FEP/DVT2complete PVT/PPcomplete 5 3 2 Productionstart Shipmentaudit/Exfactory ShipmentarrivesUS Inthehandsofcustomer 4 Typical Manufacturing Schedule 46 weeks CompletePre-ProdEng 4 DFMactivities Long MSA negotiations Late design release Custom designed components Certification, MA, Late design changes, Life testing, Packaging Material shortages
  38. 38. Quality
  39. 39. Types of Quality Use/abuse • Dropped • Vibrated • Tension / Torque • Pressed • Actuated • Heated • Frozen • Rubbed • Handled • Spilled coffee • Used in new & unique ways Production • Miss-assembled • Failed parts • Programmed wrong • Packaged wrong • Wrong color • Old parts • Testing equipment failures • Obsolete parts Legal • Shipping • EMF • Safety • ITAR • Rohs • California Prop 65 • CE • UL • Recall risk
  40. 40. Serious HW chops Best customers Big vision About to stomp on gas What Did We Learn • Manufacturing Process • Bill of Materials • Manufacturing Triangle • Cost • Schedule • Quality • Manufacturing Insights
  41. 41. Q&A
  42. 42. @DragonInnovate /DragonInnovationDragonInnovation.com Scott@DragonInnovation.com
  43. 43. Approachable software and support to start you on the right path PRE-MANUFACTURING SOLUTIONS The Dragon Standard BOM Free Google Sheets Add-on for a complete starter Bill Of Materials Product Planner Software that provides a BOM-centric framework for structuring and storing your product data plus estimates and insights about your manufacturing costs and schedule Cost Estimate A detailed BOM analysis to estimate your total cost of delivery. Perfect for earlier stage companies establishing a budget Design for Manufacturing A detailed Design For Manufacturing assessment of the 3D model, CAD files, or prototype, with an emphasis on manufacturing process, materials, and assembly. Great for companies looking to finalize their prototype design Dragon Certified For teams getting ready to launch, a rigorous review by an experienced set of eyes. Includes DFM Review, Cost Estimate, Analysis of Domestic and China Manufacturing Options and more Pre-manufacturing Engagement Customized engagement includes mix of above + general manufacturing strategy and support Manufacturing strategy and planning for earlier stage products
  44. 44. Process, connections, and expertise to support production MANUFACTURING SOLUTIONS Solutions for companies ready to manufacture in high volume Request for Quote / Factory Selection A proven process for choosing a factory combining easy to use software, unmatched expertise, and our database of qualified & vetted Contract Manufacturers Manufacturing Services Agreement Template Created based on our experience with hundreds of companies to enable negotiation for the best possible outcome Factory Production Oversight Visibility and control over your manufacturing with on-the ground support from NPI through high volume production. Quality Plan Review & Development Dragon's Standard Quality Testing Protocols tailored to your product's specific requirements and translated into an actionable plan Regulatory Certification Support A roadmap and guidance for obtaining certifications economically and on time Independent Factory Audits Inspection and evaluation of a factory's manufacturing framework across key vectors including quality, materials handling, and overall capabilities Quality Control & Shipment Inspections Unbiased third party quality review of your finished product before shipment

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