Dragon Innovation -- Cost, quality and schedule

This post originally appeared on the Dragon Innovation Blog.

Manufacturing companies face any number of hurdles and issues on the path from an idea to a viable product. The success of your manufacturing company depends very much on how fundamental these issues are, and how you address them. Situations vary, of course. But over the years, I’ve found that most of the issues that derail manufacturers tend to fall into three categories: Cost, Quality and Schedule

Cost: “Cash flow is king”

Running out of money is the number one killer of hardware companies. Cash flow is much more complex for hardware companies than it is for software companies, so managing it well is essential to the success of a manufacturer. The company must first understand the true Cost of Goods Sold (COGS), or how much they will pay for each unit they sell. In addition, they’ll need to factor in fixed costs such as tooling, engineering services, safety compliance, and more. Knowing these values is important, but one issue can put you at a distinct advantage as you move forward: payment terms. By negotiating better terms, you can significantly reduce the working capital requirements. Tools like Dragon’s Product Planner and support like Avnet’s financing terms can make this process more seamless, allowing you to focus on other parts of your business while still maximizing your output.

Don’t forget: Bill of Materials (BOM) does not equal COGS. There are a host of other costs (labor, scrap, factory overhead, shipping, other fixed costs, etc.) which can be significant. Be sure to factor these in.

Dragon Innovation - Product Planner - Cash Flow

Quality: “Nothing is more valuable than reputation”

You can make your product efficiently, at a minimal cost, and deliver it right on time, and none of it will matter if you’ve brought something substandard to the market.  Many companies end up fixing issues identified at the end of the NPI (new product introduction) process, which can be quite costly. Even worse, the problem could be identified after shipping, which increases the cost – both in real dollar value (the money spent rectifying the issue) and in a significantly more important metric: Consumer trust. Products can be fixed, but reputations are brittle: there is a long list of companies who have been brought down because their brand was irreparably damaged.

The key is to build plenty of time into your schedule for testing — after all, quality testing takes time, and rushing it can be a disaster. There will always be some level of uncertainty — even the most prepared teams will always have to make decisions based on limited data — but building in ample time to test your product will likely pay dividends in the long run.

Dragon Innovation_Manufacturing Delivery -- Cost, quality and schedule

Schedule: “It’s all about timing”

Manufacturers often have a certain time of year that makes or breaks the business. In consumer electronics, for example, the product sales cycle is often driven by the winter holiday season — many companies make the majority of their income in the last month of the year. That means that being late to market can be devastating, since it would mean waiting a full year before realizing any profits. A year is a long time to wait, especially as competitors grow stronger and you burn through the company’s cash every month.

That’s why it’s vital to factor in lead times when establishing your production schedule. In high volume (as opposed to prototyping) quantities, many components have lead times — and some can be over a year.  For fabricated parts, such as injection molding tooling, it often takes up to eight weeks to make the tool.  If a company has not factored in these lead times, they run the risk of missing their sales cycle or paying a fortune in expedited shipping.

Deftly navigating these three areas (Cost, Quality and Schedule) can help your company on your path to manufacturing. In this industry they say typically you can only choose two of these key areas to focus on. However, if you have the acute awareness of all three, and the understanding of the consequences of the decisions you’re making based on cost, quality and schedule then you will be well on your way to success.