If your product sells well, you might be in big trouble!
Have you ever heard one of the most popular sayings of Mark Cuban: “Sales cures all”? No doubt this is true as long as you find out you are out of stock. Is this even possible in the 21st century, given all that warehouse and project management software? Sure, it’s possible! Moreover, there are two available scenarios: the supplier of the product has stopped manufacturing it, or you are the one manufacturing the product but one or more of its components are no longer manufactured or supplied. In the second scenario, you become the supplier from the first scenario and you can drag down your whole network of partners and go out of business while blooming. In this article, I will tell you about my observations from the last 12 years in the electronic hardware industry and about the problems our clients have faced in the heyday of their success. If you own a manufacturing company or you are an employee of such a company, you should definitely carefully read the text through. You might have encountered some of the issues, while others not, or you might be totally aware of everything. In such a case, I will appreciate if you share the content in social media. So, let’s begin … Have you ever happened to like a product but decide to buy it later? The moment you decide to do it, it’s already out of stock. You might be waiting for a week or two, sometimes even a whole year, but the product is still not available. As unlikely as it seems, it happens quite often. You might even be in a similar situation with your own product right now, but in the position of the supplier, instead of the buyer.
Why is that?
The answer is simple but not at all obvious, and it hides in the evolution of product companies. In order to come up with a conclusion, let’s dwell into the essence of this kind of business. At first, each product company is in euphoria about the creation of the product. These are the sleepless nights for the team, when it creates the first prototypes, fixes bugs, makes finishing touches, checks functionality, etc. It much resembles the welcoming of a baby in the family. The baby has all the attention. And if during this initial stage, the company manages not to go bankrupt, sooner or later it comes up with a production version of its product and launches the manufacturing process of pilot series, and thereafter of larger quantities. If the market welcomes the product, the sales and the development of a distribution network are initiated. Before we move on, let’s discuss two very important terms: product and component.
What does a product (material product) mean?
It is the aggregate of different components, processed and assembled in a particular way to deliver a solution to a certain problem. Sometimes, a non-material part is added to the material product in the form of a service or software. Smartphones are a very good example of this since they wouldn’t serve a purpose without their operating system and applications, appropriate for the user. Another less trivial example is when the coffee served with a charming smile could cost much more than the one bought at the road vending machine.
What does a component mean?
supplied by a hired supplier instead. Thus, for example, if you are an automobile manufacturer, you have probably focused on the most important, i.e. the engine, which is entirely your development. And due to the specifics of the development, you cannot afford to supply the different components, such as pistons, crankshafts, valves, etc., but you need to produce them instead. Let’s say your expertise is engines and you know nothing about multimedia systems. In such a case, you will have to use another manufacturer’s system for your vehicle. Thus, you don’t have to worry about how it works, what’s inside of it, where it comes from, and so on. The very multimedia system, on the other hand, is also an aggregate of components, some of which manufactured by other external manufacturers. Such components also contain other components, manufactured somewhere else, where … This is where I’m going to stop since I wouldn’t like to break things down to atoms, and I guess you already get the idea. The conclusion is that your production depends on a long supply chain, which is, in most cases, beyond your control. Since there are still things within your control, let’s discuss the main processes in each manufacturing company and what could be done at any time to avoid the above situation. The best thing about components is competition, which also imposes standards, thus making components exchangeable. My experience is mainly in the field of electronic hardware products so the advice here concerns mostly such items, which in no way means that it cannot be applied elsewhere.
1. Design and selection of components
Design is one of the most important things. Apart from being definitive for the product functionality, the design also determines the components used and the interaction between them. Selection must be very careful. Where components with performance close to the limit load values are chosen, this might lead to early wear or burn down (when talking about electronic components), resulting in more defective items to replace within the warranty period. To solve this, engineers must play it safe when making calculations, making sure they don’t go too far, which could boost the price too much. Another point to be careful with is whether the chosen component is not scheduled for end of production or replacement. The lifecycle of electronic components is usually mentioned in their specification or on the manufacturer’s website. In most cases, at the end of a component’s lifecycle, manufacturers gradually increase its price, making engineers drop it down from new designs in a completely natural way; this in no way means that price should be a sign. The good thing is that in most cases there are substitutes for electronic components. Substitutes are components from different suppliers but with an identical, standardized body, and a very close specification. Though sometimes substitutes might be out of stock, these components are not to be worried about, since many manufacturers produce them. Specific components, such as sensors and microcontrollers, are another story. Our advice, when it comes to them, is to carefully select them during the design and to check whether they are supplied in the country, where you are going to produce. The best solution is to accumulate stocks but this also has its price and risks and even big companies avoid doing so.
2. Supply of components
This stage also hides risks of its own. If you are not manufacturing several thousand devices per month, most probably you don’t communicate directly with the manufacturers but with their local distributors instead, or you buy from catalog distributors, such as Farnell, Mouser or Digikey for smaller quantities or AVNET for larger quantities. A good practice is to regularly check on their websites the information about stocks of the components that you use and about their current price. I know it sounds tempting to keep no stocks and order right before production but you might find out that a particular component is out of stock or at a price several times higher than the standard one.
If you don’t have your own assembly line and rely on partners instead, it might turn out that at the time you want to make production all your partners are busy on other orders, thus resulting in delay. Note that your business cycles are also applicable to others, examples of this being the summer months, Christmas holidays, and by no means should we forget the Chinese New Year!
4. Packing and distribution
If you are already selling a product on the market, you probably won’t have any difficulties here. Yet, I would recommend keeping track of legislation and regulatory changes in the countries that you intend to sell. You may complete a big order for your distributor and suddenly find out that the plastics that you currently use for packing are already banned in the relevant country. Since this concerns your partners too, you may ask them to keep track of these regulations for you. But remember, responsibility is yours at all times!
5. Marketing, sales, support
What I have been noticing recently is a permanent trend. Product companies tend to leave innovations behind and shift their focus from the product to marketing, advertising, customer service, etc. Nothing bad about that but if you are on the same track you should never forget that it is Its Majesty The Product that has to solve customers’ problems and in order to do so, it must first exist in the physical world. As recognizable as your brand may be, if you fail to supply your product in time, sooner or later your success will collapse like a house of cards. So will your network of partners.
No innovations and new design
What mostly causes troubles for companies in supplying their products is the fact that infatuated with the market and sales, they tend to forget where they have started from. They put a hold on the process of creating innovations and new products to replace the old ones. If you are facing such troubles, your R&D is probably insufficient or completely missing. Your engineers and designer might have resigned a long time ago and you haven’t even noticed it. This is a common mistake in companies mostly found by tradesman instead of technical experts. The totally opposite mistake is admitted in companies found by technical experts. If you have sufficient capital, the best solution is to rebuild your team of engineers by hiring new people. This might take a considerable amount of time and funds. The reason is that several engineers hired overnight can hardly be called a team until they start working together for several months. The important thing here is to not admit the same mistake and ensure that this team is constantly busy creating new products. Otherwise, once the interesting part of the job is done, many will leave the company in pursuit of new challenges. An alternative solution is to hire an external team, which you will treat as a partner and which will be interested in working with you in the long run. Both sides will benefit from such a solution: An already developed and ready team Established processes Lower costs as compared to hiring and training an own team Shorter periods for project completion Outsourced team management. No matter which approach you choose, it’s important to take actions before it’s too late! Good luck!