FROM A WORKING PROTOTYPE TO YOUR FIRST BATCH

101:

SCOTT N. MILLERCEO

MARCH 12, 2015IMPERIAL COLLEGE LONDON

www.dragoninnovation.com@dragoninnovate

No need to take notes

HTTP://BIT.LY/HS-LAB-LONDON150312

AGENDA

http://en.wikipedia.org

• Survey

• Our Journey

• Cost

• Schedule

• Quality

• Q&A

Quick Survey

MIT RoboTuna

Agenda

Robotic Corvette Powered Dino

Agenda

Initial iRobot Expertise (Revenue)

Journey from $100,000 to $100 Price

My Real Baby ~ 100kVelociraptor ~100k

+

Roomba and Scooba

We are going to take something as insanely

complex as manufacturing consumer electronics and

make it feel easy.

VISION

BOLT

BOLT

DRAGON INNOVATION HAS HELPED LAUNCH AND SCALE OVER 100 COMPANIES SINCE 2009

Why is Manufacturing Hard?

Hint

GOING FROM THE PROTOTYPE TO PRODUCTION IS A LONG JOURNEY WITH MANY “UNKNOWN UNKNOWNS”

• 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

STEP 1: Decide Where to Manufacture

EXAMPLES TO TALK THROUGH

CHINA?

YES! MANUFACTURE IN CHINA IF YOUR PRODUCT...Is COGS (Cost of Goods Sold) sensitive

YES! MANUFACTURE IN CHINA IF YOUR PRODUCT...Requires higher production volumes (>10k units)

YES! MANUFACTURE IN CHINA IF YOUR PRODUCT...Requires significant manual labor to manufacture and assemble

YES! MANUFACTURE IN CHINA IF YOUR PRODUCT...Uses existing manufacturing technology (i.e. injection molding, etc)

http://berkeleysg.com

YES! MANUFACTURE IN CHINA IF YOUR PRODUCT...Is tolerant of variations in supply chain and logistics

http://berkeleysg.comhttp://kilterpulse.com

YES! MANUFACTURE IN CHINA IF YOUR PRODUCT...Can benefit from low cost Design for Manufacturing (DFM) Non-recurring Engineering (NRE)

http://berkeleysg.comhttp://kilterpulse.com

http://plasticstoday.com

YES! MANUFACTURE IN CHINA IF YOUR PRODUCT...Has “physically” protectable IP

http://berkeleysg.comhttp://kilterpulse.com

USA?

YES! MANUFACTURE IN THE US IF YOUR PRODUCT...Requires low volumes

YES! MANUFACTURE IN THE US IF YOUR PRODUCT...Can be manufactured and assembled through automation

YES! MANUFACTURE IN THE US IF YOUR PRODUCT...Is sensitive to shipping time and expense

http://berkeleysg.com

YES! MANUFACTURE IN THE US IF YOUR PRODUCT...Has difficult-to-protect IP

http://berkeleysg.comhttp://kilterpulse.com

http://www.independent.co.uk

YES! MANUFACTURE IN THE US IF YOUR PRODUCT...Requires non-standard capital equipment

YES! MANUFACTURE IN THE US IF YOUR PRODUCT...Is part of a government contract

STEP 2: Select a Factory (RFQ)

OVERVIEW OF THE CM SELECTION PROCESS

http://en.wikipedia.org

1. Talk with trusted network connections who have manufacturing experience.

2. Create a differentiated list of 5 - 10 CMs.

3. Down select to 3 - 5 factories based on your product category (why?)

4. Create a Request for Quote (RFQ) Package.

5. Visit!

6. Analyze Results.

7. Negotiate Big Items.

8. Talk with the CM’s customers.

9. Select the winner, and leave the others on good terms.

RFQ PACKAGE

http://en.wikipedia.org

• Company Overview- Team overview- Funding- Product- What’s done- What needs to be done- Factory Criteria

• BOM- Canonical format (A2A) in Excel- Transparent and Formula Driven- Separate Std, Special and Consigned Margins/Markups- Include all costs to Ex-Factory- Fill in the blanks

• Schedule- Gantt chart (Cloud)- Fill in the blanks

FACTORY VISIT CHECKLIST

http://en.wikipedia.org

Do you like the team? Are they experienced and friendly?

Do they have the right manufacturing capabilities?

Does your intended volume match their volume capabilities?

Are they financially stable?

Do they have enough working capital to get going?

Do they have favorable payment terms?

Are they transparent in their costing?

Do they take IP seriously? Did they show you something they shouldn’t have?

Are they ethical in their treatment of their workers and otherwise?

Do you have access to upper management?

Are they excited about working on your product?

CM COMPARISON (A2A DECISION MATRIX)

• Total Material Costs

• Labor

• Margins/Markup (Std, Special, Consigned)

• Pareto of Top 5 Most Expensive Components

• Fixed Costs (tooling, fixtures, NRE)

• Schedule

• Fit Criteria

MANUFACTURING TRIANGLE

COST OF GOODS SOLD (COGS)

• Direct costs for goods produced.• Does NOT include Tooling.• Actual price depends on where a company takes

ownership:- Ex-Factory (XF)- FOB (add overland transport to XF)- Landed (add shipping to FOB)- Inventory (add warehousing)

• Price will vary by date depending on running changes, transportation costs, currency exchange, commodity costs, etc.

Very Simple Retail Costing Model

$

Sell-Through Price(Retail Price)

Sell-In Price(Wholesale Price)

COGS

RetailerGross Profit

CompanyGross Profit

COGS

YOUR DESIGN• Material and Component Selection• Fabrication Method• Manufacturing Efficiency (First Time

Yield, machine tonnage, assembly labor, number of operations, etc.)

• Quality Requirements (driven by requirements / Voice of Customer)

• Packout (replaceable vs. rechargeable batteries; packaging; spares, etc.)

MANUFACTURING PARTNER• BOM Transparency• Profit Margin• Labor Rate• Currency• Geographic Location (shipping,

tariffs, etc.)• Capability (in-house vs. outsourced)• Supply Chain (Purchasing Power,

volume (piggy back), Consigned vs Purchased, etc).

COGS DRIVERS

CONTROLLING COSTS

1. Deconstruct the BOM.2. Separate special components.3. Transparency4. Compare to standards.5. Negotiate Inclusions

ADDITIONAL COGS STRATEGIES

Cost

•Bill of Material Transparency: Require factories to provide an item by item costed BOM. No mysteries or hidden formulas.

•Calculate labor rates. Pop Quiz – How???•Build a “Standard Cost” database. Price out cost reductions.•If time permits, develop relationships with multiple vendors

to avoid single source suppliers. Leverage is a beautiful word.

•When manufacturing in volume for a CE product, it is critical to understand and control COGS. Focus here! Because of the volume, every penny counts ($10k @ 1M units)

1

19

34

14

11

1328

20

221721

36

30

37

10

24

1812 23

5

25

2915

166

897

2

35

34

13

26

33

31

ITEM NO. PART NUMBER DESCRIPTION QTY.

1 100132 Heatsink, Aavid 60520 12 PCB 1

100104 Circuit board blank 1 100015 LED, Luxeon LXHL-LW6C 1

3 GATE 1 100110 Film Gate 1 100011 Backgate 1 100024 Film Spacer 1

4 Bottom 1 100144 Bottom Plate 1 100029 Leaf Spring 2

5 Knobreel 2 100106 Cover Bush 1 100151 Dowel .125 dia 2.000 long 1 100009 Driver 1 100153 Gripring .125 dia 1 100149 Knob bush 1 100007 Clutch, one-way, Torrington RC-02 1 100152 Washer, ss .125 id, McMaster 98019A310 1 100017 Knob, plastic McMaster 7354K15 1 100045 Felt washer 1

6 Reel 27 condentube 1

100031 Condenser lens, small Fisher Price 1 100105 Condenser Tube 1 100154 O-ring Buna -120 1 100035 Retaining ring, internal 1.062 dia 1 100031b Condenser lens, large, Fisher-Price 2

8 100162 Spacer, condenser lens, short 19 100136 Spacer, condenser lens, long 1

10 100163 Spacer, projector, short 111 FHMS Phillips M4x20 812 PHMS Phillips M4x8 613 PHMS Phillips M4x6 514 PHMS Phillips M5x16 815 FHMS Phillips M4x12 616 PHMS Phillips M4x12 117 PHMS M4x8 618 100150 Endplate, Right 119 100160 Endplate, Left 120 100100 Front Plate 121 100138 Projector Lens Housing 122 100148 End Spacer 223 100145 Top Plate 124 100158 Window Edmund R39-773 125 100146 Handle 126 100161 M5 Acorn Nut 127 100147 Half Bridge 128 100012 Focus Screw McMaster 92558A170 129 100143 Spacer, .25 dia, .19 long 430 100156 Spacer, projector, long 131 FHMS Phillips M4x8 232 100150 Washer, Nylon, MSC 05401757 133 100159 Detent 134 100101 Bumper, rubber McMaster 9540K35 835 100039 Switch, SPST rocker Carlingswitch 136 100155 Projector lens, concave 137 100157 Projector lens, plano 1

D

C

B

AA

B

C

D

12345678

8 7 6 5 4 3 2 1

APPLICATION

DIMENSIONS ARE IN MILLIMETERSTOLERANCES: 0,1MM ANGULAR: 0 30'

MATERIAL

FINISH

DRAWN

APPROVED

DATENAME

TITLE:

SIZE

BDWG. NO. REV

SCALE 2:5

UNLESS OTHERWISE SPECIFIED:

KINKAJOU DELTA100141

DO NOT SCALE DRAWING

REMOVE ALL BURRS AND SHARP EDGES

allen 21july04

ANATOMY OF A BOM

• Plastic• Purchased Parts• Electrical Components• Consigned Components• Deco• Packaging• Assembly Labor• CM Profit, Overhead and Scrap• Overland Transportation

• Does it matter that it is a gear???

• Components (3)1. Material Cost

= Part Weight * Resin Cost

2. Machine Overhead: = Hourly Cost * Cycle Time (sec) / (3,600 sec / hr)

3. Factory Mark-up, Scrap and Overhead (%)

• Total Part Cost: = (Material Cost + Overhead Cost) * (1+Factory M/U)

How to Calculate Plastic Costs

HK Resin Prices (USD/Ton)

Reference: http://www.nhh.com.hk/eng/trading/price_trend.asp(you will need to create a login)

Item Cost (USD)

280 Ton / hr $15.48

220 Ton / hr $10.96

180 Ton / hr $8.38

140 Ton / hr $7.09

100 Ton / hr $5.80

80 Ton / hr $5.16

EXAMPLE PRC MOLDING RATES

How to Calculate EE Costs

• Cost = Component * Usage• Separate high cost components over a certain

threshold. Apply a lower mark-up.• Apply Factory M/U

Typical PRC CM Margins(Profit, Scrap, Overhead)

PCBA6–8%

Toys12%

Consumer15%

Medical >40%

• Deco (Tampo, Paint, etc.)• Labor (PRC $2 – 6 / hr)• Packaging (Gift + Master)

Other BOM Costs

Add It Up

• Plastic• Purchased Parts• Electrical Components• Consigned Components• Deco• Packaging• Assembly Labor• CM Profit, Overhead and Scrap• Overland Transportation

SCHEDULE

SCHEDULE

• Many consumer products are driven by the Christmas (which has a fixed date).

• Plan contingency in your schedule. Things never go according to plan.

• Have an onsite presence.• Track schedule carefully and take corrective actions

early.• Avoid: “There is never time to do it right the first

time, but there is always time to do it again. ”

THE ROAD TO PRODUCTION

‣ Hand Over / Kick-Off- Form CM Team- Contact Lists / Roles and

Responsibilities- ME and EE File transfer- Works Like / Looks Like Samples- CM trip to the US if possible (access

to models and team, relationship building).

- Factory Input‣ Components

- Engineering- Quality- Production Planning (interface with

Sales)- Sourcing / MA / Costing- Logistics- Process / Procedure- Financial (modeling and payments)

‣ Pre-Production Milestones- Tool Release- Tool Start (TS)- First Shots (FS)- Engineering Pilot 1 (EP1)- EP2- EP3- Final Engineering Pilot (FEP)- Production Pilot (PP)

‣ Production- Production Start (PS)- Ramp

‣ Engineering Change Notice (ECN)‣ Sustaining (Quality Up / Cost Down)‣ Sunset

DETAILED MILESTONES

QUALITY

• Definitions:• Quality = Customer Satisfaction = Performance – Expectations• “Fitness for Use”

• Incoming Quality Control: Use good ingredients.• Build and test along the way. Use sub-components.• Statistical Process Control (SPC) / Yield. Find out now, not later.• Sample Testing: Temp/Humidity; Transportation; Drop; T/T; Small Parts;

Heavy Metals; Compliance; Functional; Life. How do tests match reality? ISTA-3A.

• Final Inspection / Acceptable Quality Levels (AQL)• Walk the line. Get your hands dirty.• It is much easier (and less expensive) to make changes before Production Start.• What happens if something fails?• Will make or break a product … and a Company!• Quality is rarely considered in the engineering phase by startups due to

schedule, cost and technical pressures.• Watch out for the Unknown Unknowns.• Strong indicator of long term success, etc.• Can you answer the question “How do you know the product is good”?

QUALITY

RECOMMENDED READING

"Factory Girls", Leslie Chang:  W.S.J. Reporter Who Lived In China Interviewing Migrant Factory Workers In The Pearl River Delta.  Great Insight Into The Workforce.

"Poorly Made In China", Paul Midler:  Light, Humorous, And Scary.

"Mr. China", Tim Clissold:  Older Humorous Memoir Of One Of The First Westerners To Do Modern Work In China After Mao.

Questions?