Should I keep my design and manufacturing partners separate?
Collaboration is often key to successfully turning your idea into a product and then manufacturing it.
If you have a large, experienced engineering team covering the full range of technologies you need, matched with professional production facilities in-house, stop reading now….
As you are still here that may be because you recognise a need for external assistance for design, manufacturing or perhaps both. You may be wondering whether the convenience and ease of a one stop shop which combines design and manufacturing is a good approach. Or is it better to work with experts for design and then take the finalised design to candidate manufacturing partners to tender instead?
This dilemma isn’t unique to the world of electronics design and manufacturing. It can be seen in other industries too.
Architects and builders
If you want to extend your house or do a loft conversion you are met with the same problem.
You can approach a builder who will design and build the extension, or you can employ an architect to create a set of plans and then use the plans to get builders to quote on the same set of plans.
The one stop shop builder is more likely to design the extension to fit their ways of working. They may not have the depth or breadth of experience to create the best solution for your needs. The builder may only design extensions a few times per year. Design for them is a means to an end only.
The architect will encounter numerous different build and modification projects every week. This gives them more knowledge of the latest materials, regulations and techniques.
Which approach do you think would make the best use of space, efficient use of materials and ensure that the homeowner is in control?
What do product designers do?
In the world of tech products, the engineering teams work with you to fully understand your product needs. This can include:
- Detailed specifications
- Feasibility studies to make sure areas of risk are addressed early
- Compliance support
Good design teams will consider:
- Battery life
- CE and UKCA marking needs
- Bills of Materials optimisation
- Component obsolescence
- Long term support
The outputs that you ultimately need are design files that fully define how the electronics is made, how the software is programmed and what testing, calibration and setup is needed for each item.
Our designer engineers are experts in their field, have good degrees from reputable universities and often have hobbies closely related to their profession. Engineering and technology isn’t simply a job, it’s a calling. The products they design are an end in themselves. There is a sense of responsibility and pride to achieving the best solution for each client’s needs.
What do contract electronics manufacturers do?
Electronic Manufacturing Services providers have a different focus and skillset. They take the designs produced and then make hundreds, thousands or even more in the same way each time. They are the manufacturing plant replicating the finalised product repeatedly.
The focus in manufacturing is on efficiency and quality. Typically contract electronics manufactures are involved with purchasing to ensure components and printed circuit boards are available just before they are needed. Goods inwards checks are made, production lines setup both with materials and with quality control measures and first off boards are verified before a batch of products are made. These often are then built up into enclosures, packaged and even drop shipped to end customers.
Do I get the best of both worlds by using a combined design and manufacturing partner?
Yes,..and no. And it depends.
Having design and manufacturing under one roof should make it easy to hand over designs into production, make changes and improvements and ultimately be faster and more responsive than two separate businesses working on your product.
The combination can also ease your cash flow pressures during the uncomfortable time where you are paying for design work without having an associated revenue stream to cover the design investment. Manufacturers can heavily subsidise the design costs and deliver a compelling commercial offering.
Sounds great, is there anything else to consider?
Well, since you’ve asked, there are quite a few questions that you might want to ask your partners and yourself before you can form a clear picture to decide. There is no one size fits all approach.
Who owns the design?
Many design and manufacturing partners will own some or all of the Intellectual Property for your design. The subsidised design is an investment at the start of the project. This investment only makes sense if you are tied in to manufacturing with them.
Subsidised design is therefore a part of the manufacturer’s sales process. You pay for a design that you don’t truly own, one which you can’t take to other manufacturers. If you want to drive down production costs, expand beyond the current manufacturer’s capacity or experience quality issues you may well need to start from scratch.
Only you can decide, if owning the design you have paid for, is more important than the cash flow benefits that subsidised design brings.
What is the impact on product costs, tendering and negotiation?
The cost of manufactured product or Cost Of Goods Sold can be a key factor in a businesses’ success. The ability to shop around, negotiate and identify areas where costs can be reduced can have a huge impact on long term profitability.
You lose the ability to shop around where design and manufacturing is combined, especially where design is subsidised to be paid for later.
The subsided front-end product design costs must be paid for eventually. The most common way of recouping the costs is to inflate the costs of each unit and be contracted for a minimum order quantity. The inflated cost however often continues well after the design has been paid for.
If you take the cheaper option whilst on low volumes then what about when your product grows?
Eventually you offset the extra design cost through manufacture. But by then you are tied to the manufacturer. Like staying on an old mobile phone contract and paying more when you have already paid off the phone.
Over time your product will become more successful as sales grow. You often move from low volume manufacture to high volume manufacture. Two things can happen.
- You outgrow your partner – They may have been perfect when you were small but now they can’t offer you the same gains.
- Product unit costs matter more – If you are making 3000 products per annum you will lose less. Profit margins matter more if you are making 300,000. See our smart technology case study on how c$7 a unit made a huge difference.
The right choice for phone contracts depends on your needs. Similarly, you may have a product that generates a high enough margin for the additional lifetime costs to be outweighed by the cash flow benefits at launch.
What should I know about Minimum Order Quantities?
Minimum Order Quantities or MOQs often feature in contracts where an up-front investment needs to be recouped. These contracts tie you in to manufacturing and paying for a certain volume of products in a defined timeframe.
MOQs are an effective guarantee of sufficient order volume so that the design and manufacturing setup are covered and an acceptable profit level is certain.
Where the product you are developing is an evolution from an existing and successful product line, that you already have experience selling, there is very little risk with agreeing to Minimum Order Quantities that are similar to existing production rates.
Predicting sales forecasts for new products and overestimating
Launching a new product where you have no historical evidence for market acceptance is different. Sales forecasts for product launches often have something in common. The forecasts are usually wrong and often initially over-optimistic. This could lead to you developing a product that flops and doesn’t achieve enough sales, but still having contractual obligations to order a good deal more product than you need.
The cashflow pressure here can be much higher than if design and manufacturing were separate. The combined design and manufacture route has included the design costs together with costs for producing lots of unwanted product. Separating these out and having no MOQ means that just the design costs are wasted.
Is the design resource 100% dedicated to product design?
Manufacturers only make money when they are manufacturing product. The engineers designing your product may be the only technically competent staff on site. They could be regularly needed to solve production line problems that are stopping the manufacturing or to debug test problems on their other customers products. These other customers may even be your competitors, especially if that manufacturer operates in a narrow niche.
The same can happen where another customer or competitor, with high volume manufacturing needs, appears. Who gets priority when the up-front design isn’t profitable but the manufacturing is?
Try to find out how intertwined production and design is. If they are under one roof the chances are high that engineering is regularly interrupted.
These interruptions delay your product development which shows as lost revenue and potentially market share. The interruptions can also mean that the designers train of thought is broken which affects both the quality and speed of product delivery.
A second issue can arise too. Manufacturing itself is a complex process with training needed on equipment, best practise, new processes and efficiency ways of working. Are the engineers on the design team spending their Continuous Professional Development time (CPD) on manufacturing or on design? Perhaps they must be a jack of all trades?
Manufacturing often subside their expertise as it is split between the design and manufacture side of the business. Sometimes they use outside agencies to achieve this meaning you are not actually working with one company after all.
Design teams that focus purely on that element of product development day in day out gives them more exposure to designs, more variety, new innovative ideas and more focus.
They are also used to getting products through compliance and testing thoroughly.
Being tied to the manufacturer – Aka putting your eggs all in one basket
This doesn’t all come down to money, having a good relationship and getting the right manufacturer is key.
See our related article on optimising your supply chain
However here are some of the risks to tying yourself to one company for the duration of your product.
- They could go bust– Losing a design partner or manufacturing affiliate is never a good thing. So losing both at the same time is not what you want!
- They can’t supply capacity – Manufacturers will always have to balance their customers. Sometimes new clients end up waiting. This is because a high-volume customer has an extra demand. There could be an issue with production. Can the manufacturer grow with your needs?
- They focus on other customers – A new company could come in and take their attention. And in this case this could affect not just the manufacturing side but the design side too. If you don’t have back up options it gives you far less power. If your project gets pushed back, or if they have production problems you need to have options.
- The emergence of poor quality– Manufacturers often work to great quality standards. But sometimes quality issues arise. Sometimes you can go years with the perfect quality outcome but then run into problems. So in the same way that you know not all employees will be around forever, have options for your suppliers too.
By not being heavily reliant on one supplier there is less risk if there is a problem later down the line.
The power to adapt
Things are likely to be unpredictable and volatile over the next few years. So the power to adapt will continue to play a huge part in this. Which brings us onto….
Being adaptive to change
Less cross over with competitors
Manufacturers often specialise in a sector. This means the engineer working on your product may be working directly on a competitor’s project too.
Whereas dedicated electronics design consultancies tend to see more variety.
Some consultancies will avoid working on similar projects. This is the case at Ignys. Because we want our customers to succeed and develop their next products with us.
Avoid conflicts of interest
In the same way that competitors can cause a conflict of interest so can product unit costs
There is the potential for missing value engineering opportunities. Pressures to complete projects rapidly due to the design activity not being fully funded and potential conflicts of interest are plenty. Especially where higher component costs are passed through to you, with a margin on top, bring little incentive to drive down bills of material costs.
Related articles: Starting small? We’ve designed test fixtures for PCBs especially for low volume manufacture.
Design consultants often work in close collaboration with several manufacturers. This means they can often advise on the right partner for your specific needs, even though they don’t offer the facilities in-house.
A note of caution
Make sure your partners are cohesive
Ensure there is cohesion between your design and manufacturing partner.
Good work relationships between the two is crucial.
For example at Ignys we work closely with chosen CEM’s and nearly always visit their premises (in pre and post pandemic worlds) to check quality before we refer customers to them.
Some top tips on choosing the best manufacturing partner
- Set out some good terms and conditions on what both sides expect.
- Consider the supply chain and logistics of getting products from the manufacture to your target audience. Look at the impacts of Brexit and the pandemic. Overseas suppliers may be right for you just way up the risks and rewards.
- Check they are right for your size, some manufacturers are more geared to high volume instead of low volume or visa
- Ask about quality procedures so you can assess if it is worth investing in extra measures such as test jigs.
- Speak to trusted design partners or other trusted product developers.
- Ask about contingency measures during lockdown or Chinese New Year
We work with some great CEMs. Call us for a chat so we can help you chose one to suit you.
Some top tips on choosing the best design partner
- Check their case studies– Ask about other projects they have done. Do their areas of expertise measure up with what you need? Have they got domain experience for the type of product or original thought idea that you have?
- Ask for a video call- Get to know them face to face. Are they easy to speak to? Do they dismiss your ideas? Or do they act as Yes Men without helping you ask the difficult questions?
- Make sure you can come back to them – Choosing a design team over an individual means you aren’t reliant on one person. They are more likely to be there for you in the long term.
- Ask for estimated timescales. Products can vary, what you don’t want is someone taking your product and then leaving the design on the shelf for a few months.
- Check if they are agile – Do they have procedures in place for lockdown? Are they set up well remotely?
Have you got questions?
We’re transparent and happy to answer any questions about the right partner for you. Whether you are just testing the waters, looking at options for product development and manufacturing, or perhaps looking for a new partner get in touch.
Our discovery calls are a great way to see if we are a good fit and discuss manufacturing options for you through our great network of partners.
This article was written by Richard Fletcher Ignys MD, supported by Hannah Ingram Marketing Manager at Ignys. Richard is a qualified electronics engineer, project manager & electronics design business owner with 20 years’ experience. Hannah has 6 years experience working in the manufacturing sector and has worked in technical areas for over 10 years.ASK A QUESTION