“Manufacturing or production risk can make or break a startup”
-Samson Mutisya (Founder of Tracopay)
Whether you’re aiming for local manufacturing or using a large Chinese firm, manufacturing risks exist at every step of the process. Identifying and minimizing these risks is essential to keep your manufacturing and supply chain functioning and your business thriving.
##1. Choosing a Supplier
This is where many founders lose their way. They develop an excellent product only to make mistakes in choosing a supplier. For Samson, manufacturing his smart card locally wasn’t an option. The technical sophistication of the boards he needed to create - in this case, 6-layer PCBs - was simply beyond local capacity. That meant looking to suppliers in elsewhere. In his case, he looked to China.
“You should select components from reputable suppliers.”
-Samson Mutisya
There are several considerations here:
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Cost. This is the simplest metric, but it can’t be viewed in isolation.
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Time. This is another form of cost, if a supplier is cheaper but takes 30 extra days, it might actually lose your money.
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Reputation. You may have found the perfect supplier, but if they go out of business in 3 years and you can no longer access the components they supplied, you’re facing a product redesign and halted production. Samson found that if spec-sheets weren’t available in English, that indicated the underlying supplier wasn’t well-established.
“When you’re at a young level you don’t see the monetary value of time.”
-Nzambi Matee
Separate from these issues, you’ll also want to limit your number of suppliers and the number and complexity of components in your product. The fewer potential points of failure in your product and your supply chain, the more reliable and cheap both will be.
##2. Production Considerations
When choosing when and how your product will be produced, many of the same considerations you had for suppliers come into play, but with a few extras. The first major point is to be absolutely sure of your prototype and its components before you begin tooling. That process can cost up to $200,000, if you change something mid way through, you’ll have to begin again. Once again, it’s essential to make your prototype less complex, with fewer components and types of materials.
You’ll also face the big question of quantity. Nearly all manufacturers have minimum orders, and larger orders always come with a discount, but you need to consider how larger orders will impact your working capital.
You’ll also need to consider the terms of your agreement with any manufacturer. Will they work with you to help you spot any problems or will they simply do what they’re asked? Will they give you access to the firmware created for your production or will they keep it for themselves and thereby limit your ability to switch?
This was a major reason for Philip Walton of BRCK to choose a facility in the US for his production. It may have been slightly more expensive on a per-unit basis, but this didn’t amount to a big difference given his low order volumes. The reduced risks in production errors was worth it.
##3. Minimizing Risk in Your Supply Chain
Samson starting thinking about his supply chain from the beginning. These questions are integral to thinking about your suppliers and manufacturers as well. As with everything in this lesson, a major concern is reducing failure points. Here’s what you should consider:
- How will you transport your products, by air or by sea? Sea transport is very cheap but slow. Once again, consider what time is worth in your cost calculations.
- What duties will you need to pay? Here you can also look towards the future as more trade agreements and new laws might shift this landscape.
- What are the relevant regulations which might prevent you from importing or exporting? Ensure you aren’t surprised.
- As always, think about any way you can reduce potential failure points.
Peer-support exercise
If you’re in production, or preparing to be in production, can you list your individual manufacturing risks separate your risks into these 3 categories? Press reply and share your lists here, and see if you have any advice or insight for others who’ve shared their list.
Can you relate to the stories we told here? How is your experience different? We’d love to hear from you. Your questions and comments are what will help us make better lessons in the future.
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