Strategy for tech startups: Product contract manufacturing and design outsourcing strategy

Startup company executives would be remiss not to consider evaluating a contract product design or contract manufacturing partner during the early stages of developing their company. Startup and early stage companies outsource many services to conserve the rate at which they burn cash while on the path to reaching break even or becoming cash positive. Startup product portfolio companies are often encouraged by venture capital investors to increase scope and depth of expertise but not to put much of the required investment to do so ahead of earning revenues. Typically, by the time Series B funding occurs, many portfolio company executives (focused on the objective of bringing a manufacturing product to market) have finished most of their product prototype work and are beginning to think about product manufacturing and related production issues. Below is a tech product startup company rolling operations plan. While not comprehensive, the plan does include many startup company product manufacturing activities and components for executives to consider when bringing a hardware-based product to market. (See also, Outsourcing Calculator) Startup executives can refer to this plan to help them review internal depth and scope capabilities against anticipated company capability requirements so they may then determine at what point it may make sense to consider evaluating and engaging a contract product design partner or contract manufacturing partner. Startup company inception to first three months (critical period)

1. Determine cohesiveness of startup's product development teams
2. Gain clear understanding of startup executive team and what near and long-term goals are
3. Weekly status-to-plan review (followed by setting up monthly budget-to-plan review)
4. Coordinate product assurance group strategy to ensure field requirements are met
5. Ensure printed circuit board assemblies (PCBA) are laid-out efficiently for integrated circuit test (ICT) with clearly-defined test points (can the test software do troubleshooting?)
6. Ensure startup is well-positioned to sell its operational capability to startup customer base

I. Manufacturing infrastructure needs (mid-term):

• Establish product manufacturing and operations strategy a. Review current outsource contract manufacturing contracts / relation structure for alpha, beta, and new product introduction (NPI) requirements Identify product quality control strategy
• Establish component tracking system, including determining what components need to be tracked and how they are tracked; create and learn to manage an approved vendor list (AVL)
• Identify startup support needs; align startup strategies accordingly to ensure timely implementation of manufacturing and quality control strategy
• Define and help install document control system and engineering change order (ECO) system
• Budget planning process to help establish the correct basis budget for startup operations
• Identify additional team members required against startup company needs
• Guide testing strategy for product printed circuit board and module and systems level (where applicable)
• Develop product quality focus group
• Review existing suppliers and target alternate suppliers - to establish supplier fit
• Identify list of strategic suppliers for the product (meet with each, where appropriate, to evangelize the product to establish ‘mind-share' with strategic vendors)
• Review current contract design or contract manufacturing partners low-volume contract service agreements
• Define twelve to eighteen month timetable more clearly

II. Long-term manufacturing needs: (all long-term needs in parallel)

• Begin relations with contract design house or contract manufacturing providers (Use the EMS Resources Directory to located potential EMS / ODM partners)
• Begin request for proposal and request for quote (RFP and RFQ) process; developing quote kits for contract design and contract manufacturing providers to be considered
• Begin on-going development of scope and depth for program management activity (for efficient management of eventual program migration)

Startup to within six months

1. Heavy activity with product assurance processes, product test, product field service group
2. Parallel activity evaluating a contract manufacturing partner for mid-term and long-term needs
3. Set up order entry and enterprise resources planning (ERP) integrity
4. Capture manufacturability and design for manufacturing (DFM) of product

I. Mid-term manufacturing needs:

• Implementation of final and mature product manufacturing plan close to completion (review of final documentation for preparation for volume manufacturing)
• Determine the structure of bull of materials (BOM) and product cost model in conjunction with finance
• Product-test plan in place (including working with vendors to build test fixtures
• Discuss developing cost-reductions program with current contract manufacturing partners
• Depending on production build requirements, oversee transition to alternative mid-term and long-term contract manufacturing partners to enhance Company's ability to execute internally and in anticipation of increased product demand in the marketplace

II. Long-term manufacturing needs:

• On-going evaluation and development of company scope and depth for product program management activity
• Contract manufacturing and contract design company site visits (determine proper fit of management teams and service offerings with startup Company business model)
• Send current revision (generation) product packages to contract design and contract manufacturing companies for quoting and to better illustrate the product's design for manufacturing needs; while simultaneously communicating the Company's business model to contract design and contract manufacturers deemed appropriate

Startup to within nine months

1. Ensure robust program management group has scope of understanding and depth relative to managing an outsource model
2. Ensure program management can model and rely on other cross-functional groups, forecasts, and has sound relations with contract manufacturing partner (with proper tools to manage the program and relationship effectively)

I. Mid-term manufacturing infrastructure needs:

• Establish plan to enable scalable and reliable manufacturing volume ramps
• Increase production levels to limited volume production approaching general customer availability
• Complete product reliability packaging
• Establish supply chain management requirements and inventory levels and logistics strategies
• Work with product marketing on product launch and packaging needs

II. Long-term manufacturing needs:

• On-going work with development of scope and depth for outsourcing contract manufacturing program management activity
• Continue contract design and contract manufacturing facility visits as needed. Determine proper fit of management teams and service offerings with Company desired business model
• Select contract design and contract manufacturing partners that allow realization of desired business model
• Begin transfer of processes, procedures, and internal Company cross-functional department product knowledge

  Startup to within twelve to eighteen months

1. Startup products built, tested and delivered to marketplace
2. Determine second sources for product components
3. Resolve product parts-availability issues
4. Review product logistics plan