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Going It Alone Part 3: Inside the Factory Walls

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Part III of the Going It Alone series will answer the question: What is a factory and how can I tell one from another?  I will answer the question from a consumer electronics perspective and I will assume an audience that has little or no prior knowledge of manufacturing.  The purpose of this article will be to try to introduce the burgeoning entrepreneur to the basic components of electronics manufacturing in China.

I will do this in the context of manufacturing the simple electronic product shown below – a digital kitchen timer that we call the Klip!.  This is an item that we sell at The Container Store chain and at gourmet stores across the United States.  I chose this product because, while relatively simple, it still encompasses all of the major facets (noted in the white boxes) of manufacturing a mass-produced electronic item of greater complexity.  I’ll start with a little background, then I’ll give a very basic overview of each manufacturing sub-process and I’ll conclude with a summary that will serve to make your first visit to a third-party manufacturing facility more effective and productive.  Armed with the knowledge from this post you should be able to walk into an Asian plant for the first time and have the basic working knowledge that you need to converse intelligently about the creation of your item.

American Innovative Klip Kitchen Timer - Dissected

American Innovative Klip Kitchen Timer - Dissected

Although the scope of my company’s products is fairly narrow, my personal background in manufacturing is more broad.  I have visited upwards of 50 plants both here in the United States and in China which include facilities as diverse as the GE Locomotive factory in Erie, PA to the Dunlop Tire plant in Buffalo, NY to the massive VTech Electronics factory in Asia.  I am knowledgeable of lean manufacturing techniques, Poka-Yoke and Kaizan events just to name a few.  I mention these subjects only to give you a taste of how deep the topic of manufacturing can get.  As someone who is planning to contract with a third-party rather than build a factory of your own, these subjects are more academic in nature than you need to know about for now.

Origins of a Factory

Outside The Factory

The Exterior of a Plant. While Not Gorgeous to Look At, This Is One of AI's Best Partners

One of things that I like about working with the factories in China is that big or small, I am typically interfacing directly with the owner and director of the facility.  I like these people because they are, like I am, entrepreneurs.  I respect these people because as difficult as it is to start and run a company in a country that encourages and embraces capitalistic activities – try doing it in a country like China.  Many a long car-ride I have spent trading war stories with these factory owners – one entrepreneur to another.  I know that many of you who read my first two posts draw your line between America and China, but I draw it between the entrepreneurs and the corporations.  We live in a global economy.  These individuals work as hard as anyone I’ve ever met, put people to work and make a life for their employees and their families.  To me, that is as honorable a pursuit in China as it is in this country.  More on this topic at a later date – for purposes of this article I plan to focus on the mechanics and leave further discussion of the culture for another post.

Assembly

Take a moment to put modern-day electronics in perspective.  If you’re under 20 years old, you may feel like inexpensive electronic gadgetry has always been as ubiquitous as it is today.  However, I’m 34 and I still remember the mechanical alarm clock that my parents had which displayed digital-like numerals on a series of “leaves” which “flipped” by gravity, as a mechanical gear-train churned away to keep the time.  This product predated the advent of the inexpensive, mass-produced integrated circuit (IC) and related display technologies (7-segment LEDs).

Of the factories that American Innovative works with, the oldest ones are a mere 25-30 years old and the youngest one is no older than American Innovative itself – about 7.

Admittedly, the young factory is not as sophisticated as the older factories but, much like the older factories, it began primarily as an assembly house.  Over time this factory has (and will continue) to acquire machines and technology that will allow them to bring more and more functions in-house, that are currently performed outside.  Perhaps other functions will never be brought in-house.  While we tend to view in-house injection molding (see below) as a sign of a more mature facility, we work with at least one very high-quality facility that continues to outsource this, presumably by design.

Assembly Line

Assembly Line - Notice the instructions behind each worker which outline the detail of that step.

Assembly is what most of you probably think of as the heart of the factory, and it is.  All related components have either been acquired from outside sources or manufactured elsewhere in the facility and they come together in long rows of moving conveyor belts and – yes – young, predominantly female, wage-workers which perform a solitary function on the line (more on who these people are in a future post).

The lines are setup such that each worker performs a very specific task, which is carefully planned and designed in advance.  The details of that tasks are outlined on a sheet of paper which hangs alongside the station.  More recently I’ve seen a more sophisticated setup in which flat screen monitors replace the papers that you observe in the photo here.

A single assembly line step might be to use an electric, torque-limiting screwdriver to secure a PCB (Printed Circuit Board) to a plastic, injection molded base.  Another worker might then solder two wire leads to a speaker and a third might be an in-line QC (Quality Control) person which uses a harness to connect power to the partially-built product and test the speaker.

SMT PCB Manufacture

So where does said PCB come from?  Printed Circuit Boards are obviously the lifeblood of any electronic product and, not surprisingly, the technology used to create them has come a long, long way.  There are two common types of PCB – through-hole and SMT.  If you’ve ever assembled a circuit board from a kit using a soldering iron then you’re familiar with through-hole technology.  Wire leads from individual components are hand-fed into the PCB (etched previously).  The leads are then soldered and snipped.  Some components are still done in exactly this manner today but more recently newer, less manual-intensive, technology has replaced this process.  SMT stands for Surface-Mount Technology.

American Innovative Klip! Timer PCB

American Innovative Klip! Timer PCB

Look closely at the photo above.  This is the PCB that is the core of American Innovative’s Klip! kitchen timer.  The board above is an example of an SMT PCB.  On the far right you see a shiny metal cylinder which contains the quartz crystal responsible for running the clock.  This is the lone through-hole component on this board.  Next to that you can see two white wire leads which run to the speaker.  There are a couple of wire jumpers and the battery contacts on the left but other than that the remaining components are surface-mount technology.  The small, rectangular boxes are various resistors, transistors or diodes which comprise the circuit.

SMT Machine

SMT Machine - Notice that many small PCBs are being assembled all at once. They are later separated.

These special SMT components are placed on the PCB using a machine which literally grabs the components one at a time and places them on the board using a guided positioning system or in some older machines I’ve seen (like the one picture at right) by moving the PCB itself around, with the feed mechanism stationary.  As an aside, I’ve even been to a factory that makes these machines – there happens to be one in upstate New York.  If you ever wanted to know what the machine is that makes the machines that make the machines?  Well … it’s us.

There are countless videos on YouTube that will allow you to see an SMT machine in action.  Here’s one that I located randomly.  Next the boards are run through a machine called a wave solderer that essentially solders every lead all at once, thereby replacing the extensive manual labor that used to go into the creation of a similar board made using through-hole technology.  The SMT boards are smaller and more reliable.

IC Bonding

IC Bonding Machine in Action

IC Bonding Machine in Action - The Finished Item Will Be a Walkie-Talkie

Looking at the photo of the PCB again, you’ll notice that I haven’t mentioned anything about what that ubiquitous little black blob is.  That is a blob of epoxy.  Beneath the epoxy is the board’s MCU (Micro Controller Unit).  The MCU is “stitched” to the board in a process that looks not unlike sewing with a sewing machine.  A worker aligns the IC bonding machine with the receiving area of the PCB using a high-power digital magnifier and then the rest of the process is completely automated.  Finally a blob of epoxy covers the delicate MCU pins to prevent damage and deterioration.

Injection Molding

“One Word: Plastics”.  Injection molding is the process by which hot, liquefied plastic is injected into steel (or sometimes other materials) cavities called moulds, under high-pressure.  There is a real art to injection molding that includes proper design of the parts themselves, the moulds that form the parts and the various parameters that can be tweaked during the injection process itself.  For now, suffice to say that all of the plastic components of your product are made – one at a time – using this process.  In the photo at the very top of this post, this would include the white housing components, black belt clip and battery door, translucent LCD cover, rubber buttons and even that tiny, little white spec which is the “Set” button from the rear of the unit.  One or two workers typically operate the station.  A first worker runs the injection molder, removing each newly molded part by hand.  A second worker removes flash – excess unwanted plastic – from the finished part using a knife.  The final parts are carefully stacked in bins for transport to the assembly area mentioned above or, if injection is an outside process, for shipment to the main factory.

Tool & Die Making

Steel Tools

Steel Tools - These Massive Steel Tools Are Inserted Into The Injection Moulding Machines

Closely related to injection molding is the tool shop.  Again, not every factory has injection molding in-house and even those that do may outsource the creation of the steel tooling to an outside specialty house.  Creation of the steel tooling is one of the longest stages of the product design process – typically taking 6-8 weeks from beginning to end.  Steel blanks are machined using CNC (Computer Numerical Control) Machines or by another process called ECM (Electrochemical Machining).  In another post perhaps I’ll talk a little about the design of plastic parts which, in addition to serving their intended purpose in your product, need to be designed in such a way that they can be easily injected.  Smart design of your plastics will allow you to avoid features that are difficult to mold, resulting in mechanical apertures called “actions” which make your tools more complex and more expensive.  A basic understanding of plastic part design is important for this reason.  As someone new to this world, you may have a state-side company design a basic CAD database and they may not do it well.  The Asian factories you ask to quote your part will typically not question your design and you may get back extremely expensive quotes (thereby deflating your entrepreneurial spirit) for a part which, if designed, slightly differently may have resulted in tooling charges a fraction of the cost.  Even slight knowledge – “talking points” type of knowledge – of every aspect of the design of your specific type of item will go a very long way.  This is akin to the consumer who gets ripped off by the local garage because they don’t understand that cars no longer have carburetors, distributors or batteries that need refilling.  A basic knowledge of your car may save you a lot of money at the repair shop.

Painting & Deco

Painting of plastic parts that are not molded in color is typically done using masking and spray booths.  One of the nice touches that we added to the Klip! timer is a rubberized paint on the rear housing, belt clip and battery door.   This rubberized paint makes the product nicer to hold and gives it a higher-quality appeal.  It is worth noting, that this rubberized paint is not without a cost.  I believe the upcharge is something like 10-12 cents, which by the 4x rule, is approximately forty cents at retail, but we felt it was important.  Determining your target retail price point and understanding whether or not you can make your item for a cost that will allow for that retail price is extremely critical and should predate any discussion with designers or factories.  Alas, this subject is again a topic for another day.

“Deco” refers to lettering or other graphics which are applied to the product using processes known as pad-printing or silk-screening, to name two.  I won’t get into the details of these processes but typically the results from silk-screening are better but the shape and size of your part may limit your ability to use this process in some cases.  Pad printing is a more flexible alternative in that case.

Quality Control (QC)

Quality Control is such an important topic that I can not possibly address it in a paragraph or two.  Suffice to say that QC is not a single “station” – it is a thought process, a way of factory life and something that takes place (or should take place) throughout the plant.  There’s inbound QC, in-line QC, outbound QC and third-party QC.  For today, your take away should be that if you visit a potential manufacturing partner you are going to want to grill them on what their QC process is and any good factory will want to show-off their attention to this aspect of the manufacturing process.

What To Look For

Welcome Sign At Entrance To Factory

Welcome Sign At Entrance To Factory - We Have Arrived!

The day of your visit has arrived!  Above, I’ve outlined the major processes that go into the manufacture of your garden-variety consumer electronic product.  So what does all this mean to you?  How are you going to apply this knowledge when you walk into that Asian facility for the first time.  The key is to think about the steps that I’ve outlined below.  Think of assembly as the hub of the factory.  How many assembly lines are there?  More importantly, what percentage of them are actually in use during your visit.  If there are a lot of idle lines that may be a red flag.  Find out why.  Ask the representative who is giving you the tour how many workers the factory has.  They will give you a range.  The reason for this has to do with the seasonality of the business and should not be cause for alarm.  Dig deeper – ask how many of the total workers are on the line, in QC, in the engineering department, or in other disciplines.  A mid-sized factory (say 400-700 total workers) is probably a good size for a first project – not too big and not too small.  That said, there are large factories that are willing to invest in small, new companies and there are new, smaller factories that are destined for greatness.

As the tour continues, make a note of which of the sub-disciplines mentioned above are present and which are not.  Ask questions about this.  If there is no injection moulding present, ask why.  Ask who they work with (they may not tell you).  Ask if they plan to bring it in-house in the near future.

Ask for numbers.  One easy way to compare factories (even without visiting) is to ask things like:

  • How many injection molding machines do you have?
  • How many SMT machines do you have?
  • Is IC bonding in-house and, if so, how many of those machines are on-hand?
  • How many assembly lines are there?
  • How many shifts do you run?
  • What percentage of the year are the lines occupied?

Believe it or not, the marketing managers are used to being asked these things and will typically have the answers to these questions at their fingertips.

If examples of the factory’s items are not in the conference room where your visit will begin, be sure that you tour their showroom.  Look at the items and the name brands (if they are visible – they often will be).  Observe the complexity and quality of the items that are on display.

Try to meet one or more of the product engineers, if the engineering offices are adjacent to the factory.  See how well the engineers speak English, if at all.  Try to get a sense of who you will be working with from day to day.  One single face-to-face meeting goes such a long way in a relationship that will take place over e-mail for months to come.

Finally, make sure you look around.  How clean is the factory?  How well organized is the layout?  How happy do the line workers look?  Observe how the director and the mid-level managers interact with the engineers and even the line workers.  These sniff-tests will all serve to give you a sense of what the factory culture is like and whether or not this factory is a good fit for you and your project.

The factory will take you out to lunch and pay for it.  Try everything except for the chicken feet.  They may kid you but the factory reps know that Americans won’t eat the chicken feet and they’re ok with that – you will not offend anyone.  I heard on the radio just this week that chicken feet go for 40 cents a pound in China and 2 cents a pound in the United States.  Can you say arbitrage opportunity?  Now you know what to pack in the available corner of your suitcase, before you depart.  Good luck!  You’ll do great.

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Written by designtheatre

May 1, 2010 at 2:00 am

Posted in China

25 Responses

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  1. About how much does it cost per part for injection molding tooling? Looks like you have six parts, say one of average complexity. What are other non-variable costs?

    How many factories did you try before picking your current one?

    Jon Smirl

    May 1, 2010 at 6:31 pm

    • Jon, the cost of tooling has to do with the quantity of parts but also the size/depth/complexity of the moulds and the number of cavities. For example, a small part that is made in great quantity (think a checker, for example) may have one tool but four identical cavities such that four of the same part are made at once. It’s also likely that several small parts are made in from the same tool (i.e. that small “Set” button is not it’s own tool). It’s difficult to generalize, but I’m happy to try per your questions – for a single part of average complexity I’d say $2-3,000.

      Other non-variable costs used to be wrapped into the “Tooling Charge” so you won’t necessarily see them. More frequently, these days I am seeing some of these items broken out. LCDs have their own tooling. If the MCU is masked there will be a masking charge and factories are also charging development fees more frequently then I’ve seen in the past.

      Finally, in answer to your last question – AI works with about six different facilities for all of our various products and projects. For a first project, I’d recommend speaking seriously with at least three.

      designtheatre

      May 1, 2010 at 11:23 pm

      • $2-3000 is the same as we have been quoted state side. But electronics assembly is 1/3 the cost in China.

        I’m Boston based too.

        Jon Smirl

        May 2, 2010 at 3:55 am

  2. I’ve been reading your TechCrunch posts – brings me back a few years. I’ve experienced some of the same fun you have with ‘going it alone’ – including months in China manufacturing ‘alarm clocks’. In my case the alarm clock in question reads your brainwaves and teaches you how to get a better nights rest – Zeo. We are also based in Boston – would love to get together some time to chat, swap tales, and see if there could be ways to work together. You could email me – b e n at myzeo.com

    Ben Rubin

    May 2, 2010 at 12:32 am

  3. Thanks for the solid articles. I’ve been researching overseas manufacturing, specifically plastic injection molding for a while, and learned more, or relearned from your articles what took months of research to learn otherwise. There is a lot of information out there, but much of it assumes industry knowledge. Anyway, I have a CAD model of my product and have quotes from several overseas plants. However, not knowing any of them, and not budgeting a trip over there, I would prefer a stateside, independant recommendation. Would you be willing to share your factory recommendations? I am looking for a tool manufacturer and production company for a single piece of food-safe injection molded plastic.

    Kyler N.

    May 2, 2010 at 8:24 pm

    • Kyler, our factories specialize in electronics and are not suited to what you are looking for. One option I’d suggest to you is to do the best due diligence you can and then pay a third-party company to do a factory audit before proceeding. We work with a firm called AsiaInspection.com that will do this for you for around USD $300, if I recall. Good luck!

      designtheatre

      May 3, 2010 at 2:45 pm

  4. You own a “start-up” venture in Boston MA and you’re outsourcing to China??? That’s great – there’s no need to help stimulate the US economy and help provide jobs in MA and/or other states. Then of course you want the same Americans you dismiss in a misguided assessment of business costs to buy your products. Yet another example of “penny wise, pound foolish.”

    pov

    May 3, 2010 at 2:12 am

    • To my mind, creating any job here is better than none. We employee back-office people (engineering, sales, etc.) here in Boston and I am proud of that fact. I wish we could manufacture here in American but we can’t. I’ll copy/paste a comment that I made in response to a post at CrunchGear.com. I was asked why I thought it was not “practical” to manufacture our type of item in America and this is what I said, “M. Standard (and also a85), it is a good question to inquire what I mean by “practical” and the answer is simple – the consumer is not willing to pay what it would cost to make (relatively) inexpensive electronic items like ours in the United States. There is a lot to be said on this subject and I would like to do a real comparison some day in a future post either here or at DesignTheatre.net. I have tried in the past and have recently gotten 4-5 stateside quotes for a forthcoming, low-volume AI product and even I was shocked at how non-competitive those quotes were. Ultimately I am pleased that this product will have wood and metal parts for the housing made in American and final assembly also done here but I still resorted to China for the internals. The power ultimately lies with the consumer, and to a lesser extent with the retailers (who are unwilling to forgo margin) – the day that Joe consumer is happy to pay $60 for the item s/he is accustomed to paying $25-30 is the day that we may be able to move more of this back to the USA (for items at this price point). Expensive, high-end equipment (such as McIntosh – that someone else mentioned) may not be as subject to such constraints although we still see companies across the board trying to cost reduce in order to remain competitive. As a final point, China happens to be well equipped to make items of this sort. Other types of manufacturing does and will continue to exist in the states.”

      designtheatre

      May 3, 2010 at 2:49 pm

    • I agree with Adam, building consumer electronics in the US will simply result in our companies failing too. That $100 iPod you own would cost $200 if it were manufactured in the US and nobody would buy it. The cost differential is so large that even small companies are manufacturing in China.

      About ten years ago I employed Indian software developers. Back then I read a study about programmers in India. There is no income tax in India, housing is 1/10 the price of the US, there is no Social Security or Medicare tax. You pay as you go to the doctor and don’t have health insurance. Indian programmers earning $30,000 actually ended up with more usable take home pay than US workers earning $70,000.

      The problem in the US is taxes, health care and housing. Our costs on those items are 20x what it is in India and China. Most of the money we spend on those items is wasted or unneeded. PS – the Indian programmers I have talked to are happier than their US counterparts.

      Of course I would prefer to manufacture locally, but it’s simply not an option.

      Jon Smirl

      May 3, 2010 at 3:09 pm

      • Hi. I’m rather late with my comments, but still would like to point out some inaccuracies in your statements Jon.

        To say that there is no income tax in India is entirely false (even 10 years ago). There is a minimum salary, above which you are not exempt from tax. Most s/w developers consequently end up being tax payers. However, taxes are not as high as in the US. Regarding health insurance, yes it exists but is not enforced or as prominent as in the US. This however is slowly changing much to the chagrin of the people as hospitals adopt the US model resulting in what you characterize as unneeded expenses. Housing would typically set you back by 1/4-1/6 of your salary depending on the city you live in.

        The exchange rate of the USD to INR proves advantageous when it comes to labour. Also, Indians being conservative with their finances end up spending a lot less than people I have observed in the US or EU with similar income.

        MIH

        November 4, 2010 at 11:36 am

  5. What a great series, entrepreneur from all around the world thanks you for this!

    Regarding PCB design and MCU programming do you feed the factory with your own plan and software or is it something that they are doing themself?

    Tom

    May 3, 2010 at 11:06 am

    • Tom, thank you. For relatively simple items (such as a kitchen timer), typically this is a service that the factory provides working against our detailed functional specification. We’re now working on more complex devices that are pressing the limitations of this approach. For products of “greater complexity” (a subjective assessment), I would recommend to do the circuit design and programming in the United States. This is going to be significantly more expensive, of course, but what you pay up-front you may save in headaches down the road. This has mostly to do with the practicality of communicating and problem-solving over phone/e-mail for the long periods required of a very complex project.

      designtheatre

      May 3, 2010 at 2:59 pm

    • The best solution is to bring an engineer into your company as a partner. If that doesn’t work there are hundreds of microcontroller consultants available in the US. Start off at http://www.sparkfun.com and buy some cheap prototyping hardware. I agree that this design work should be done in the US where you can keep an eye on it. India will look cheap, but you will get ripped off if you don’t know what you are doing.

      If you are bringing on an engineer as a partner, look at things from his perspective. He will have to do all of his work up front. Pay him some salary to make thing fairer if the product fails. Very few engineers will deal with you if you don’t do this.

      Jon Smirl

      May 3, 2010 at 3:19 pm

  6. I’d be curious to learn about the prototyping you do with your contract manufacturers and how you structure payments, i.e. pay for one round of samples then finalize a design. I am building a physical device and will be taking the plunge soon so the list of questions to ask factory representatives is really helpful.

    Stephen

    May 3, 2010 at 7:21 pm

    • Stephen, that’s not really the model. Typically you will need to pay for 50% of development charges (if these are explicitly called out) to begin a project. 50% of the tooling charge is paid upon approval to begin mould creation. 30% of the first inventory run is paid upon confirmation of the first PO (components will now be ordered by your factory). The balance of all charges is paid on delivery of the goods. It is unusual (but not impossible) to negotiate creation of a working prototype without a commitment to produce.

      designtheatre

      May 5, 2010 at 3:35 am

  7. Hi. Thanks for this. I’ve been following along and have benefited from your insights. I think I will actually go to China this time round.

    STEPHEN Re “Prototypes”…In my experience, when I have wanted to produce a true working “prototype”, it was produced locally via SLA (Stereolithography) and other on demand low volume custom services (like machine shops, programmers, PCB designers). Costs are not as crazy as you might think.

    By the time I am looking for a manufacturer I need to have confidence in the design and functionality of the device that I want to make. Cant be indecisive or tentative at that stage so prototyping (a design process rather than a manufacturing one…for me anyway) has to be over.

    I have to be able to present a specific design to the potential manufacturers. If they are able to (and agree to) produce my design, and state a cost/MOQ that fits my plan (and financial capabilities), then I have to be willing to pay them to make the tooling in order to see what it is they come up with. That is why you need to have seen some samples of the factory output. Hopefully something in the same vein as your own product. They will put those samples forward as a representation of what they can do for you.

    At this step (before tooling is fabricated) I casually invite the manufacturer to propose design changes (parts joinery for instance in my current sheet metal device) that might suit their capabilities better (without affecting function)…and maybe save them and me money. They are often willing to provide this free engineering help because they may be able to tweak the thing to fit their preferred mfg methods.

    When the tooling is done, samples produced from the tools I paid for are sent to me. I have to approve the tooling output (what will actually be made in production/inventory phase) so that problems can be identified and adjustments can be made before I pay for actual volume production.

    You will be unable to move closer to production than conversation and quotation without spending money. Anything that the factory might do (beyond convincing you to work with them via the quotation process) will consume their labor and that labor will need to be paid for.

    No one believes in your product as much as you do.
    No one will be willing to risk much (if anything) to help you to bring it to market.

    While most of my previous projects have involved the outsourcing of components required in the production of specialty devices here in the states….I have developed a couple of independent things, one of which has actually been produced, and another of which is about to be (both independently, by me, out of pocket). So far, I am still in the red on the first. But the things I learned in that effort have enabled me to be much more efficient this go round and I hope to get out of the hole more quickly this time.

    Now…if only I liked selling stuff as much as I like making stuff. That would be sweet.
    Good Luck.

    Mike Porter

    May 31, 2010 at 11:58 pm

  8. Mike, nice insights. Thanks.

    designtheatre

    June 2, 2010 at 12:49 pm

  9. Adam,

    Given that the factory has your tooling and electronics, how easy is it for them to re-brand your product and sell it via a covert side channel?

    What do you look for in a vendor to prevent this?

    Tholomew

    tholomew

    October 26, 2010 at 11:08 am

    • Tholomew, this question comes up a lot. My feeling/experience is that what prevents factories from doing this is not so much that it’s difficult, but that “selling” is not what these factories excel at. It’s not their core business and, ultimately, if they get a reputation for being unscrupulous it will hurt what is their core business. What I look for in a vendor is the same thing that I look for in a friend, an employee or any other judgment call that I might make. You need to talk to them, feel out their strengths/weaknesses on the phone and over e-mail. Ideally the best way to get a “warm” feeling about your potential partner is to go out there and visit. There truly is no substitute for a face-to-face meeting. -Adam

      designtheatre

      October 28, 2010 at 3:35 pm

  10. Dear Adam,

    I cam across your article in crunch magazine while researching factories in China. It seems I am in the same position, and age, as you were when you started your company. We have a lot in common as I am also a ME and coincidentally an e36 enthusiast (your blog came up when I googled you), and I was hoping you could provide some insight in regards to choosing a manufacturer in China.

    Specifically, how the hell do I keep them from competing against me? The product I want to make already exists, however my design will be used for a different purpose and market (a lot like your alarm clock). Do you think it is worth it to take a risk, and show them my idea? I have sent NDAs but I don’t have much faith in their effectiveness.

    I sincerely hope you have a chance to read this and respond.

    Thanks for your time.

    Best,
    Max Neu

    Max

    March 11, 2011 at 8:16 pm

    • Hi Max,

      The short answer I usually give to this question (disclaimer: this is not advice – you have to make this decision based on what you know about your product/market) is that Chinese factories are good at manufacturing things, not selling things. Know what your target market is and ask yourself if (a) the factory you’re going to reveal your idea to really has the capability/desire to compete against you in that market and (b) if you really care (for now) if they put that product in some other market that you probably don’t have access to anyway.

      Factories knock off really successful products once they’ve been proven in the market, not new boutique ideas. Furthermore, you probably don’t have an alternative. Generally speaking, if you’re looking to Asia to manufacture then you probably don’t have a business model that supports using US-based firms.

      Visit the factory you plan to work with. It will give both parties more comfort and set the tone for establishing a trusted, long-term relationship. Good luck!

      Adam

      designtheatre

      March 12, 2011 at 5:35 am

  11. Hi Adam – love your stuff and find the comment & reply section provides heaps of depth to your articles.

    I’m about to go down this road with a idea for a widget. I am going to do the design (virtual prototyping) locally (I’m in Australia) before going to China to do the chicken feet shuffle with a few factories. Your advice and tips are invaluable and will be put to good use – in fact, I feel like flying you over there to be my consultant/advisor….hmmmm.

    Anyway, what I’d like to know is the shipping and stock side of things. Do you manufacture a set amount of products and have it delivered to your local (US) warehouse then ship as ordered? Can the manufacturers arrange shipping direct of your products? Do you have the products delivered to a separate facility in China where they ship direct as orders come in?

    Having stock balance so you don’t have too much capital ‘out there’ or not enough so you are telling your customers ‘sorry the item you want won’t be available for 6 weeks’ is an old issue with many management books written about it.

    Can you provide your take on how you deal with these issues?

    Cheers
    Andrew

    Andrew

    March 8, 2012 at 10:32 pm

    • Hi Andrew,

      Thanks for the kinds words. For a new product with modest quantity you are going to need to arrange discreet productions that you import in one shot and warehouse local to your customers (i.e. in Australia). There are some sophisticated operations that drop-ship from China directly but this is only practical for small, high-value (and possibly customized) products. You will want to find what is a called a “freight forwarder” to handle your importing, deal with customs and logistics on both ends, etc. This is largely a “black box” process for you. If the terms of your order are “ex-factory” then your forwarder will arrange pick-up from the factory door and take over from there. More frequently the terms of your order will be “FOB China” in which case it is the responsibility (and expense) of your supplier to get the goods to the port (Yantian or Hong Long, for example) where the hand-off takes place.

      In terms of initial quantity. For your first run, do as few pieces as you can. This will allow you to shake out any initial problems with minimal exposure. Depending on the size/cost of your item, 2-5k units is probably a reasonable expectation.

      Hope this helps!

      designtheatre

      March 21, 2012 at 2:29 am

  12. Hi Adam, what a fantastic article! can’t thank you enough for posting in such depth and giving all us budding entrepreneurs the belief that thay can do it!

    The reply sections and posts are also a great resource.

    I’m trained as a Product Designer, but designed packaging for 15yrs and now find myself living in China, but with an idea that I want to take to market, and finding your post has given me the belief to give it a go!

    I hope to keep you posted & hopefully can put back some of the generosity of knowledge that you & others have posted.

    Look forward to reading more articles.

    Best regards, Matt.

    Matt Pavitt

    March 29, 2012 at 7:13 am

    • Hi Matt, really appreciate this very kind note – thank you. My hope with these articles was that readers would find encouragement to pursue similar endeavors. Moving to China is a bold and exciting thing to do. I am sure that in no time flat you will have a similar wealth of information and knowledge to share. Do touch back in a couple of months (it sounds like you have arrived recently?) and let us know how things are going.

      Kind regards,
      Adam

      designtheatre

      March 30, 2012 at 4:52 pm


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