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Fix A Supply Chain Disaster

January 8 2013  |   Cliff  |  All Posts, Business Tips, Supplier Management  |  Comment

Joe Donoghue, San Diego Prototyping, Patents & Prototypes, Live Web Show, Product Development, Engineering Services, Manufacturing, Entrepreneurial Product DevelopmentFix A Supply Chain Disaster

When it comes to product development, there are a lot of areas where things can go wrong quickly. Most of these problems pale in comparison to supply chain issues that can impact revenue streams and cash flow.

Properly managing the supply chain is key to delivering a product that has the quality, cost, and innovation that a proprietor set out to accomplish from the beginning. If the supply chain management is off kilter by any degree, one or more of these objectives now becomes prone to failure, possibly affecting all other areas of the supply chain and remaining product development lifecycle.

When a supply chain becomes corrupt, it is time for an intervention to correct issues quickly. At Leardon Solutions, when we are called in to fix a supply chain problem, the most common areas of failure are the following:

1) Communication


The Problem: Communication between teams and individuals is absolutely critical to a supply chain. Often, most supply chain issues stem from a communication breakdown between parties. Identifying a communication issue is first and foremost because with poor communication all other problems cannot be rectified.

Our Advice: If project/program management is not your core competency, attempting to fix supply chain issues could cause more harm than good by introducing even more confusion. Find a competent individual or team that has experience with supply chain management to help work the kinks out. This is especially true with overseas management. Someone familiar with the culture, business ethics and customs of your suppliers area will have a tremendous advantage.

2) Quality


The Problem: Shipments of product are showing up at your front door on time and at the right cost, but quality of the product is sub-par and customers are sending the item back after a short time. You can’t figure out if it’s your design, materials, factory or a combination of all three causing the issues

Our Advice: Collect data on what parts are failing and when, revisit the design with your engineering team to find the root cause of the failure and find a resolution, then look to your supply chain vendors to implement the fix. It may be necessary send a qualified engineer / manager to the vendors location to examine factory issues and propose resolutions. Remember that most manufacturers and factories do not have engineering as their core competency (though they may try to sell it that way).  Talk to your local team about performing a factory or vendor audit since they know your product best.

3) Cost


The Problem: You have selected suppliers and vendors, you are ready for product, all tooling has been built and paid for but your cost per unit is still far above what you expected and what the market will bare. You have no transparency with your vendors so you are not exactly sure what you are paying for other than the unit price itself.

Our Advice: If we had a penny for every time we have seen this problem, well……….

You need to pierce the black curtain and see what’s really going on behind the scenes with your vendors. Request a B.O.M. (bill of materials) to get an idea of what they are paying for parts and labor. It’s ok for the vendor / supplier to reasonably markup items because they need to make money as well, but to not provide a B.O.M. is unacceptable and a sure sign that you do not have a relationship that is scalable with your business and product needs.

4) Time


The Problem: Every time you place an order for more product with your vendors / suppliers, it’s a process of deciphering their excuses to uncover what the delivery date of that product order will actually be.

Our Advice: Help eliminate some of the guess work by keeping an eye on the supply chain and looking for trouble spots where slow downs may occur. These could be problems such as factory labor shortages, low global supply of core components, poor communications between the factory and component suppliers, shipping delays, regional holidays. The right experienced person on your team can address any of these issues.

For more information about how to fix a supply chain disaster, please contact us with questions.

 

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Secrets Of Crowdfunding Success

December 11 2012  |   Cliff  |  All Posts, Crowdfunding, Manufacturing, Manufacturing Tips, Prototyping, Supplier Management  |  Comment

Joe Donoghue, San Diego Prototyping, Patents & Prototypes, Live Web Show, Product Development, Engineering Services, Manufacturing, Entrepreneurial Product DevelopmentSecrets of Crowdfunding Success

Crowdfunding hasn’t been around long, but it changed the face of product development by allowing people to vote with their money and that is a powerful thing when it comes to preparing product for market. At Leardon we have had the privilege to work with crowdfunded entrepreneurs. In doing so, we’ve compiled some advice based on our experiences. 

A quick list of our recommendations for crowdfunding success:

1) For better or worse, Your product is in the public eye.

    Our advice: Attempt to lock in quotes and estimates prior to raising any funding. Once your campaign is successful, vendors and service providers will not have to look too hard to find out how deep your pockets are. Be strategic to avoid being taken advantage of. 

2) The 80 / 20 Rule

     Our advice: A fancy prototype can get you pretty far, but successfully crowdfunded entrepreneurs have told us how surprised they were to have to do an extreme amount of marketing. If your campaign is successful, it may be because you spent 80% of your time marketing it and 20% doing everything else. Don’t hesitate to reach out to every single person you know to ask them to spread the word. Make it easy for them to share the information and remember to include a call to action in everything. Social media, local TV, blogs and experts will work to your advantage, make relationships prior to the campaign launch. 

3) Design for manufacturability

     Finding out your prototype isn’t manufacturable sucks, but it really really sucks after you’ve taken 50k in orders.
    Our advice: Prototype as far you can until you absolutely need funding. Regardless if your idea is software or hardware, always consider designing for scalability. If you are unfamiliar with this process, reach out to product development teams that specialize in end-to-end product development and that can design for manufacturability.

4) Walk the Walk – Talk the Talk :

Let’s face it, until manufacturing comes back the US, chances are that you will be building your products overseas to compete with global competition. You may find yourself in a sticky situation if you do not know much about your partners overseas.
    Our advice : Consider finding service providers that have reps, project managers, engineers, ect..  in the areas where you will be manufacturing. Their ability to perform a factory audit, speak with factory managers and correct issues before you start shipping product to customers will save face and your business. 

5) Watch every cent, do what you know how to do well and get help when you are far out of your comfort zone. 

For questions related to product development, please reach feel free to contact us.

 

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Product Development – Improve Your Supplier Relationship

October 23 2012  |   Cliff  |  All Posts, Business Tips, Manufacturing, Supplier Management  |  Comment

Joe Donoghue, San Diego Prototyping, Patents & Prototypes, Live Web Show, Product Development, Engineering Services, Manufacturing, Entrepreneurial Product DevelopmentHow can I improve my supplier relationship?

We get many supplier relationship questions via our website, but one of the most asked supplier relationship questions is “How can I improve my supplier relationship?”.

Here at Leardon we are big proponents of developing a set of core supplier/partners and working with them over time to continuously improve our value to our clients. But most of the time the above question is being posed because the client is experiencing problems with their suppliers and improving the “relationship” may have little or no effect on solving the problems. So the first step is separate the problem solving from the strategic process of supplier selection and development. With your set of suppliers selected, here are a few guiding principles to help improve your on-going business relationship.

#1) Match the supplier’s capabilities to the requirements of the job.

No matter how good the relationship starts out to be it will fail if you are asking a supplier to do something that is beyond their capabilities.

#2 Increase the transparency between you and your key suppliers.

Items to consider sharing are current and future product plans, sales and marketing motion, operations processes and plans, top level cost structures, etc. The intent is to share what is necessary with your suppliers so they can plan more effectively to meet your cost, quality, agility, and delivery needs.

#3 Establish a regular review process between organizations.

These review processes should recognize the good stuff happening on both sides as well as the areas for opportunity. This is not a “pointing-the-finger” meeting but rather a significant part of a continuous improvement process both in the relationship and the business.

The great benefit of supply chain management, and developing a better relationships is that when all of the channel members – suppliers, manufacturers, distributors, and customers – behave as if they are part of the same company, they can enhance performance significantly across the board.

Do you have supplier relationship questions or product development questions? Feel free to contact us for more information.

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I Have Found a Manufacturer for My Product Idea. Now What? Part 1 of 3

June 5 2012  |   leardonsolutions  |  All Posts, Business Tips, Manufacturing, Manufacturing Tips, Product Development, Supplier Management  |  1 Comment

Leardon Solutions Product DevelopmentHow to Select a Manufacturer

One of the most common questions I receive from entrepreneurs, innovators, and start-up companies is about the manufacturer of their product. The question is typically something like “I found a great overseas manufacturer that says that they can manufacture my product for me. What do I do now?” or “How do I find a manufacturer that can make my product idea?” or “My manufacturer isn’t communicating well with me so what should I do?” Regardless of the exact question, the general topic of manufacturer management and procurement is a very important one to understand prior to venturing off into the world of product development and manufacturing. In this three-part blog series, we will discuss the steps required to ensure that you deliver a quality product to your customers and minimize the number of headaches along the way: (1) How to Select a Manufacturer; (2) How to Qualify the Product; (3) How to Manage Production Quality.

Here we focus on selecting the most capable manufacturer from the list of those identified as potential manufacturing candidates. It is expected at this point that initial communications have been made with the manufacturer and they have shown some interest in manufacturing your product. Before moving too far with one of the manufacturers, it is necessary to do some initial qualification of their capabilities to be sure they are the right fit to manufacture your product. It is also necessary to determine if they have similar working behaviors that fit well with your company’s culture and style.  Below are three recommended steps to determine if the manufacturer is the right one.

How to do a preliminary manufacturer evaluation

The list of potential manufacturers for your product could be very long or short, depending on the amount of prior research. Either way, it is necessary to perform a thorough manufacturing supplier evaluation process to be sure that the manufacturer is the best for you and your product. The overall evaluation involves a preliminary evaluation and an in-depth evaluation. The reason for doing a preliminary evaluation is to quickly weed out those candidates that aren’t capable of manufacturing your product or aren’t a good fit for your company. Based on years of experience, here is a tried and true checklist to use for a preliminary manufacturer evaluation:

  • Ask the supplier to provide the number of employees, machines, and annual product output of the manufacturer. (This helps determine if the manufacturer is willing to provide company information. If the supplier is unwilling to provide this information or any of the data seems to conflict to anything found on the web, then consider removing the supplier from the preliminary list.)
  • Ask the sales representative how long they have been with the company. (This helps you determine if the representative knows much about the company and if employee turnover is high. If the company turnover is high, you should consider eliminating the supplier from the preliminary list of manufacturers since you might be working with too many people over the span of your product life cycle.)
  • Ask the supplier to communicate their manufacturing capabilities and specialties. (This will help you understand if the supplier excels at the manufacturing processes you need to manufacture your product. If the supplier specializes in processes different than those you require, you should eliminate them from the preliminary list of suppliers.)
  • Ask the supplier if they make any products similar to yours. (This will help you understand if they specialize in making products like yours. If the manufacturer doesn’t make similar products, then it is still acceptable to keep them on the preliminary supplier list but be sure to be diligent moving forward.)
  • Ask the supplier to send you samples of products they currently have in production (This will help you understand if the product quality level matches your expectations. If any of the products you receive are of poor quality or don’t function properly, eliminate the manufacturer from the list of suppliers.)
  • Visit the manufacturing facility if possible and eliminate any manufacturers from the list if they don’t allow you to visit their factory (Manufacturers typically put their best foot forward on these first visits, so take everything you see and hear with a grain of salt.)

How to get references for each manufacturer

It is always very difficult to properly do due diligence on suppliers, especially overseas manufacturers.  Therefore, the best place to start is to ask the manufacturer to supply a list of customer references from companies who have used their services in the past to make custom products.  Be sure to get a list of at least five references and check that the references are currently working with the manufacturer, are companies similar to yours in size, and have produced similar production quantities as you are planning.  For example, it would not be appropriate to use a multi-billion dollar company producing hundreds of millions of parts as a reference for your start-up company that is expecting to make ten thousand parts in the first year.  This wouldn’t be a valid reference since chances are high that this multi-billions dollar company is being treated very well.   Ask each reference to provide insight into their experience working with the manufacturer.  Be sure to ask the references to tell you both the good characteristics and the bad characteristics of the manufacturer.  If the reference does not have anything bad to say about the manufacturer, then eliminate this reference from your list. Any customer who has worked with the manufacturer for an extended time will have some negative things to say about a supplier.

How to perform an in-depth manufacturing supplier evaluation

After the first two steps of manufacturing supplier selection have been completed, only two or three manufacturing suppliers should remain on the list. If a large number suppliers are still on the list, then go back and get more references to interview.

The final step in selecting the best manufacturer is to do an in-depth supplier evaluation. Large multinational companies have large internal teams to perform this task and some companies use consulting firms to do this final evaluation. If you don’t find it necessary to bring in external people to help you make the final supplier selection, follow the list of questions below to be sure that you address all potential issues and concerns prior to making the selection. Once each of these questions are answered for each of the remaining suppliers, it should be obvious which supplier should be selected as the final manufacturer.

  • Where will the products be manufactured? The place of manufacture will impact the costs of shipping and potentially import duties.
  • Ask the supplier to provide you with all the documentation that is followed for their internal quality processes. How do they ensure that the product is manufactured to specification?
  • How are the manufactured parts shipped? Boat, air, land? Does the manufacturer have strategic relationships with logistics companies to ensure products get through customs without any issues? What happens if the parts get stuck in customs somewhere in the world?
  • Does the manufacturer provide certifications of conformance of the products shipped including product measurement data, performance data, and raw material supplier information? Ask the manufacturer to provide certifications for products in manufacturing.
  • Does the manufacturer outsource any of the work to a third part? If so, what processes are outsourced and how is the quality managed?

Can the supplier provide any examples of product quality plans for products produced in the factory? This includes incoming inspections, quality inspections on all parts fabricated, assembly process checks, finished product testing, audits, and outgoing inspections.

  • What engineering documentation is required for the supplier to properly make the product? Typically this is a 2D dimensioned drawing done by a professional as well as a 3D CAD (computer aided design) file. Do not expect to get accurate quotations without these documents.
  • Ask the supplier to provide you with cost quotations for the product based on the engineering 2D and 3D files. Make sure the supplier quotes the quantity you require as well as multiple ranges of quantities above and below your expected production volumes. Be sure to get all costs including non-recurring expenses such as production tooling and variable costs such as the part costs.
  • What are the lead times for manufacturing the required quantities of your product?

This list provides the most important questions that should be asked when performing an in-depth manufacturing supplier evaluation. If the supplier selection process provided above does not result in a clear answer of the best supplier, then it might be best to bring in a professional who has years experience evaluating and selecting supplier.

Need more information on new product development or the manufacturing process? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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Maintain A Strong Relationship With The Supplier: Tip #4:

February 21 2012  |   leardonsolutions  |  All Posts, Insider's Perspective TIps, Manufacturing, Manufacturing Tips, Product Development, Program Management, Supplier Management  |  Comment

Product Development, Leardon Solutions, Manufacturing, San Diego, Southern California

Tip #4: Maintain a Strong Relationship with The Supplier

There is a lot of articles written about the importance of the supplier in new product development and innovation. Most of these articles focus on topics such as supply chain management, supply management, supplier relationship management (SRM), and quality control. While these topics cover important issues such as product quality and continuous improvement plans, there is a lack of research and discussion about the importance of a strong supplier relationship when it comes to new product development.

Leardon Solutions has written about how to achieve strong supplier relationships in past articles focusing on supplier capability and commitment. In order to get the necessary commitment and capability from suppliers, there are Five Vital Characteristics that must be implemented into the relationship. These are:

The relationship:

  • Encourages respect
  • The relationship is a partnership between two trusting parties
  • The relationship supports growth and development of the two parties
  • The relationship consists of managed risk taking
  • Both parties have complementary and balanced capabilities.

Each of these vital characteristics impacts the supplier commitment, capability, or both. If these improve, the relationship will improve to the point of becoming a strong relationship. There are three types of relationships, simply stated as Poor, Fair, and Strong:

POOR RELATIONSHIP: A Poor Relationship exists when the supplier does not commit to the relationship and is not a capable of performing the job at hand. In this case, the supplier must demonstrate some desire to increase their capabilities or their commitment, otherwise another supplier should be chosen.

FAIR RELATIONSHIP: A Fair Relationship exists when the supplier is either fully committed to the relationship or demonstrates good capabilities, but not both. It is possible for this type of relationship to be successful in the short term but typically the relationship will fall apart unless improvement is made.

GOOD RELATIONSHIP: A Strong Relationship exists when the supplier exhibits full commitment to the relationship as well as demonstrates excellent capabilities. This is the pinnacle of supplier management and these strong relationships will become long-term success.

Of course, the goal is to achieve a strong relationship because when this is achieved, there are many benefits including:

  • The supplier feels accountable for the success of the project and acts accordingly.
  • The teams collaborate efficiently on solving issues and defects, even when the supplier didn’t cause the issue.
  • The supplier might give preferential treatment such as payment terms, “jumping the production queue”, allowing lower production volumes, or improved pricing.

These are just a few of the benefits of a strong supplier relationship. Successful product development teams understand that strong supplier relationships are absolutely necessary for success and therefore focus on maintaining and improving these relationships.

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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8 Product Development Myths To Know

January 10 2012  |   leardonsolutions  |  All Posts, Customer Profile, Engineering, Inventing Profit, Manufacturing, Manufacturing Tips, News, Product Design, Product Development, Program Management, Prototyping, San Diego, Supplier Management  |  3 Comments

Product Development MythsMany people who hear the word “entrepreneur” or “start-up” typically think of a software team that came up with the latest and greatest app or web-based solution.  Most people don’t correlate the word entrepreneur with somebody developing hardware or physical products but the fact is that many aspiring entrepreneurs migrate towards software rather than hardware due to some false beliefs or myths.  In the next two blog posts, we will discuss eight common hardware product development myths that are commonly discussed in entrepreneur circles. Don’t believe the hype, get the facts and build something you’re passionate about.

(1) Hardware development is prohibitively expensive

Hardware and software product development are not easy and both have more similarities than differences in terms of the cost.  Both require engineers, tools, computers, time, and money, all of which are hard to come by as an entrepreneur.  If you are developing a hardware product for the first time, here are some hints on how to minimize your burn rate as you proceed along the product development life cycle .

  • Work with an engineering services company that has flexible billing arrangements such as amortization of engineering cost into product manufacturing or fixed total engineering costs. Avoid the hourly engineering rate which requires you hand over a blank check to an engineering services team.
  • There is usually no need to spend money on any expensive production tooling in the early prototyping phases. Even if a production-like method must be used to produce a part in a prototype, the cost can be minimized by fabricating only what is absolutely necessary to make the parts.
  • Only fabricate the quantity of prototypes sufficient to meet the needs of the team plus a small number of replacements. Do not fall victim to prototype companies that demand a minimum order quantity (MOQ) of prototypes. You run the risk of filling your garage with units that will never see the light of day.
  • Use the early prototypes for as much qualification testing as possible. Many times, there is no need to use production parts from expensive production tools for early qualification tests. Work with your end to end service team to map out a test and qualification strategy that allows you to test as much as possible on early prototypes.
  • Once you enter into the production qualification phase, try not to lock up cash in expensive inventory by purchasing large quantities of your product. Work with your team and supplier to get a smaller volume, say 1000 production products, that will allow you to test out the market prior to ordering more. This will also prevent expensive inventory reworks.

(2) Service providers and suppliers don’t work with entrepreneurs

Many entrepreneurs have the false believe that all suppliers only want to work with companies that have lots of money and large production quantities.  The real truth is that suppliers really just want to be involved in successful products.  Your success equates to their success.  In order to find suppliers who work with micro-enterprises or entrepreneurs, network at entrepreneur and start-up groups and ask for recommendations.   Entrepreneurs shouldn’t just try to find a service provider or supplier that is willing to accept them as a client.  The entrepreneur should strive to work with a world-class supplier who is capable of fulfilling all their end-to-end product development needs.  This includes services starting at the idea stage all the way through the manufacturing demand fulfillment.

At first, it can be difficult to get the attention of a supplier when you are an entrepreneur with a product idea and without much money.  In the end, you need to convince the supplier that it is worth their time to team up with you to help get your product onto the shelves and into the hands of customers.   This requires that you show them the dedication and persistence you have for your vision.  Show them prototypes, customer data, letters from distributors, and the business plan.  This will provide proof that you are a devoted entrepreneur who wants to team with a world class supplier.

(3) My idea will be stolen by my suppliers

There are just too many stories being told of entrepreneurs who have had their ideas stolen by service providers or suppliers.  This has created an entrepreneur paranoia that prevents open communication with suppliers and sometimes prevents the entrepreneur from developing their product idea.  As a general rule of thumb, suppliers have no desire to steal ideas.  Suppliers know just as well as entrepreneurs that executing an idea is extremely difficult.  These suppliers are focused on running a business and your product will help them grow the business.

Aside from the legal protection of non-disclosure agreements, patents, trademarks, and copyrights, the entrepreneur should follow these words of advice if they are concerned about intellectual property theft:

  • Try to avoid working with suppliers who have direct access into the market you plan on selling.  For example, don’t work with a flashlight supplier who sells to the largest retailers in the world if you have a unique flashlight design.
  • Break up the product design and manufacturing into separate suppliers who don’t work with each other.  This will prevent any one supplier from having all the pieces to the puzzle.  A good end to end solutions service can help you with this strategy.
  • Trust your vendor and develop a long-term relationship.

(4) I need to manufacture in China to be successful

There is a myth that product manufacturing must be done in China or another low wage country if an entrepreneur wants to have any chance of success.  Fortunately, this myth is untrue and there are cost-effective and technically advanced suppliers located throughout the world, serving local markets.  For example, the United States still has an extremely large manufacturing base and in particular Southern California has one of the largest manufacturing bases in the United States.  As written in the report Southern California is the nation’s largest manufacturing economy, if Southern California were a state, it would be considered the third largest manufacturing “state” with 765,000 people employed behind California and Texas.

When entrepreneurs are first starting out to develop their product, think about local service providers before picking up the phone to speak with a supplier half way around the world.  Entrepreneurs do not need to travel to China or another low wage country to successfully manufacture their product.

To Be Continued……..

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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Prevent A Supplier Relationship Disaster – 4 Tips For Success!

November 22 2011  |   leardonsolutions  |  All Posts, Product Development, Supplier Management  |  Comment

The suppliers, partners, and vendors you bring on to help you with your product development and manufacturing endeavors will determine the success or failure of your product. Don’t underestimate the importance of finding a supplier that not only is the best in the world at what they do but also fits into the culture of your organization. Follow the four simple tips to a successful supplier relationship and save money, time and prevent a supplier disaster.

1. Know Who You’re Hiring

Never get into a supplier or vendor relationship blindly without knowing the details about the team you are trusting to develop, design, or manufacture your product.

The best way to find a supplier or partner is to:

• Ask your trusted network for referrals.

• Do your due diligence on the supplier by speaking directly with them, visiting them if possible, and asking for examples of their work.

• In the case that you find the supplier through the internet, take your time to get to know them, closely evaluate how they work with new customers, and try to speak with some of their references.

• Only work with suppliers who have proven to be the best in the world doing what you need them to do. Many customers incorrectly identify suppliers that do not specialize in solving their needs. Do you need low-volume plastics molding? If so, do not approach a plastic molding supplier who normally handles large production volumes.

• Are you an entrepreneur or micro-enterprise who needs help with product design and development? Don’t hire an engineering services company whose customers include the largest companies in the world.

!! Don’t rush into a new supplier relationship until you are sure they are the right partner !!

2. Know Who’s Doing What

Supplier relationship issues will arise if the roles and responsibilities are not clearly established. Nothing is worse than waiting weeks for a supplier to provide samples only to learn that they were expecting you to provide 2-dimensional drawings for them to use. There are advanced methods of documenting and tracking responsibilities such as the responsibility assignment matrix RACI but these methods are not always required. Simply put, you should work with your vendor to document what they will do for you and what you are required to do for them.

3. Know What You’re Getting

It is extremely important to properly document what you’re procuring from your supplier or vendor so that there are no surprises when product arrives at your front door.

There are two types of documentation that should be established.

• The first is engineering documentation that specifies exactly how the product looks and feels (form and fit). This includes 2-dimension prints, 3-dimensation computer aided design (CAD) files, electrical schematics, printed circuit board Gerber files, and bill of materials (BOM).

• The second type of documentation required specifies how the product operates (function). This product specification calls out the functional aspects of the product such as basic function, acceptable operating conditions, required maintenance.

When developing your product with your supplier, you must also be sure to document and solve all issues found with prototypes and samples provided. Be clear to communicate the product issues with your supplier and work on a corrective action plan to resolve the problems. The supplier should provide new prototypes or samples with the issues resolved prior to moving into final production.

4. Be a Team Player

Finally, remember that a successful supplier relationship requires teamwork and a close relationship. Teams win and lose TOGETHER, not as individuals. Inevitably, issues will arise when working with external suppliers and vendor. When individuals start pointing fingers to blame, the trust system shuts down and everybody goes into protectionist mode. When your supplier or vendor understands that there is co-accountability to the success or failure of the product, they will be much more willing to make the extra effort to solve issues.

Related links :

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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Product Cost And The 4 Tips That You Need To Know

November 16 2011  |   leardonsolutions  |  All Posts, Manufacturing, Product Design, Supplier Management  |  Comment

One of the most frequent questions I get in my initial meetings with potential clients is “How much will that cost to manufacture?” While we understand the importance of this question, it is a very difficult question to answer before an actual design exists. But all is not lost since there are some rules of thumb, hints, and considerations that can be used to come up with a rough budget of the product cost.

1. Consider the product manufacturing volume and location. Two of the more important considerations when determining the total product cost are the total production volume and location. If you are only going to make 1000 products, the product cost will be much higher than somebody producing 1,000,000 products. Also, the product cost is dependent on the county of manufacture due to the effects of labor costs and shipping costs. Know how many you expect to produce and where you want to manufacture before estimating product costs.

2. Perform a sanity check using the product retail price. Product companies are usually very familiar with the retail price that the customer is will to pay for their product. With this being the case, you can use a rule-of-thumb relationship between retail price and product cost to estimate the product costs. For a consumer product, divide the retail price by 4, 5, or 6 to come up with the product cost budget goal. Share this goal with manufacturers and engineers to see if this is in the right ballpark.

3. Estimate mechanical part costs based on size. If you have a relatively simple mechanical product and know the general size of your product, you can work with a manufacturer to estimate the part cost. These estimates require that the manufacturer assumes the material type, material cost, and rough manufacturing labor cost for a product of that size. Again, this will be a budgetary cost but will point you in the right direction.

4. Electrical components take up most of the product cost. If you product requires electronics, you can expect that the electrical cost of your product will be the highest proportion of the product cost. Memory, control electronics, motors, and communication chip prices also fluctuate so it is important to get an expert to estimate the electrical cost. This requires a brief analysis of the product requirements, a rough electrical architecture, and evaluation of the current pricing for many of the more expensive components in the architecture. These estimates take a significant amount of time from an engineering team who understands both engineering design and manufacturing.

Remember that the product costs generated using these exercises will be budgetary estimates and should be treated as such. Allow for a margin of error in your financial calculations in case the actual prices are higher than estimated.

Here is a related link at Entrepreneur.com with some mathematical examples and further explanation regarding product cost.

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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Creating and Maintaining Successful Supplier Relationships: Part 3

August 23 2011  |   leardonsolutions  |  All Posts, Supplier Management  |  2 Comments

In the last article on supplier management entitled Creating and Maintaining Successful Supplier Relationships: Part 2, it was shown that each of the Five Vital Characteristics of a Successful Supplier Relationship has a direct impact on the supplier commitment and capability. This article also described how the supplier manager should focus her efforts on implementing the improvement techniques for each characteristic, hence improving the commitment and capability of the supplier. In the end, this leads to an improved relationship.

The table below reiterates the Five Vital Characteristics of a Successful Supplier Relationship and the impact they have on commitment and capability. These characteristics were identified by the Leardon Solutions program managers after studying dozens of supplier relationships, both good and bad.

Leardon Solutions Five Vital Characteristics of a Suppiler Relationship

Five Vital Characteristics of a Committed and Capable Supplier Relationship

This concept of supplier relationship improvement can be communicated using a matrix of capability and commitment. The matrix graphic below shows the simple connection between commitment, capability, and supplier relationship success. There are four quadrants of the matrix and three states of the supplier relationship: Poor, Fair, and Good.

Leardon Solutions Supplier Relationship Management Model

  • POOR RELATIONSHIP: A Poor Relationship exists when the supplier does not commit to the relationship and is not a capable of performing the job at hand. In this case, the supplier must demonstrate some desire to increase their capabilities or their commitment, otherwise another supplier should be chosen. If the desire exists, the supplier manager should focus on using the improvement techniques for the vital characteristics.
  • FAIR RELATIONSHIP: A Fair Relationship exists when the supplier is either fully committed to the relationship or demonstrates good capabilities, but not both. It is possible for this type of relationship to be successful in the short term but typically the relationship will fall apart unless improvement is made. Again, this improvement will come through utilizing the improvement techniques for the vital characteristics.
  • GOOD RELATIONSHIP: A Good Relationship exists when the supplier exhibits full commitment to the relationship as well as demonstrates excellent capabilities. This is the pinnacle of supplier management and relationships in this quadrant are typically prepared for long-term success.

In the end, the objective is to improve the supplier capability and commitment by striving for improvement of the Five Vital Characteristics of a Successful Supplier Relationship: respect for individuals, partnership, growth and development, properly managed risk, and complementary capabilities. Implementation of these characteristics into the relationship by using the management improvement techniques will ensure an extremely productive relationship which will result in successful programs and projects.

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Creating and Maintaining Successful Supplier Relationships: Part 2

August 19 2011  |   leardonsolutions  |  All Posts, Supplier Management  |  4 Comments

The first posting on the topic of successful supplier management entitled Creating and Maintaining Successful Supplier Relationships: Part 1 pointed out that a successful supplier relationship consists of five vital characteristics which result from a relationship that encourages commitment and capability. These five characteristics are shown in the table below.

Leardon Solutions Successful Supplier Management Characteristics

These Five Vital Characteristics of a Successful Supplier Relationship were identified by the Leardon Solutions program managers after studying dozens of supplier relationships, both good and bad. To reiterate, the premise for these vital characteristics is that the supplier manager must influence the supplier to believe that the relationship is worth the time and that their team can do what the manager requires.[1] In other words, the supplier must be committed and capable and if a supplier manager can improve the commitment and capability of the supplier, the relationship will improve.

Each of these vital characteristics impacts the supplier commitment, capability, or both. In order to improve the supplier commitment, the supplier manager should work on improving the Respect for Individuals and the Partnership. If the supplier manager focuses on creating a relationship that has Properly Managed Risk and Complementary Capabilities, then the supplier capability will increase. Finally, improvement of the characteristic of Growth and Development will improve both the supplier commitment and capability. This is better described in the simple table below.

Leardon Solutions Capable and Committed Supplier Characteristics

Five Vital Characteristics of a Committed and Capable Supplier

So how does a supplier manager influence these five vital characteristics for improvement of supplier commitment and capability? Below is a list of the improvement techniques for each characteristic that, when implemented in the day-to-day supplier management, have been shown to establish a good supplier relationship.

Respect for Individuals

  1. Create an environment where everybody has the upmost respect for people and their opinions.
  2. Provide open and honest communications regarding performance of individuals (both good and bad).
  3. Create an environment where team members have genuine trust in each other.[2]

Partnership

  1. Allow an environment of open and honest communications about the state of the business relationship.
  2. Provide consistent, stable work that enables the supplier to invest and grow.
  3. Provide an environment where the teams engage in respectful debates about critical issues.[2]

Growth and Development

  1. Provide continual development of the supplier through an active development plan.
  2. Minimize the employee attrition rate by showing commitment to supplier’s growth and development.
  3. Develop a capable resource pool at the supplier through training.

Properly Managed Risk

  1. Both the supplier and supplier manager decide what risks to take and the implications of such risks.[2]
  2. Provide a team member training program to minimize mistakes and eliminate repeat mistakes.
  3. Provide a rewards and recognitions program that motivates innovation.

Complementary Capabilities

  1. Understand supplier employee capabilities and balance capabilities of integrated teams.
  2. Continually evaluate supplier employees and ask the supplier to improve underperforming employees.
  3. Focus the team individuals on using their capabilities to achieve team results.[2]

Influencing these five vital characteristics using the recommended management improvement techniques above improves the supplier commitment and capability which results in an improvement of the overall relationship. Remember that if the supplier thinks the relationship is valuable, they will remain committed. And if the supplier thinks they can do what is required, then they have the capability to excel and improve.

[1] Influencer: The Power to Change Anything, page 132, Kerry Patterson, David Maxfield, Joseph Grenny, Al Switzler, and Ron McMillan, October 2007.

[2] The Five Dysfunctions of a Team, A Leadership Fable, Patrick Lencioni, Wiley, 2002.

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