What Every Contract Manufacturer Needs to Know About Product Development
In the landmark HBR article The Four Things a Service Business Must Get Right, by Frances X. Frei, the author contrasts a product business from a service business. The author opines that in a service business, unlike products businesses, the customer is a key part of the product realization processes. His research leads him to the conclusion that truly great service companies recognize this difference and create strategies that focus on “managing the customer”. Great service companies know they need to be very much involved in helping their customers be successful; they cannot become successful by simply offering “great service” alone.
“Managing the customer” strategy
This “managing the customer” strategy is particularly true in the EMS business. Customers provide the key input into the manufacturing process– the design. The old adage “garbage in, garbage out” is a reality for CMs.
How do you “manage the customer”? For larger CMs, the trend has been to take over the design process entirely (or nearly so). This strategy can be effective because the customers (usually large companies themselves) have the means to fund these efforts and there is enough scale within the CM to justify a large development team. For smaller CMs, adding even a small team of engineers to the fixed cost is not viable and getting customers to fund such efforts is often tenuous at best.
For smaller and mid-size CMs, managing the customer necessarily evolves into helping them to manage their own processes. The following list of tips is a good place to start.
1. Form relationships with outsource product development companies. Not only are they a good source of leads, but they are also great assets in helping the customer to produce better designs. Small and mid-size companies tend to benefit the most by adding “brains” to the team.
2. Get involved as early as possible. Smaller companies often do not think about manufacturing until after the design is complete.
3. Start small. Encourage your customers to slowly build up quantities. The easiest way to kill a good product is to build it before it is ready.
4. Follow up on red flags. Poor yields, lots of returns and large manufacturing variances are all signs that there is a design problem. Don’t let your customer ignore these problems. Get them fixed before increasing build quantities.
5. Go beyond a quote and make sure your customer understands the cost “possibilities”. In order for you to be successful, your customer’s product has to be successful. If a design change can cut the product cost in half, it does not matter how good your quote is, your customer’s competitor is going to get the majority of the market share.
6. Make sure your customer understands compliance engineering. Not having UL, CE, FCC, etc. when it is required can be an expensive lesson.
7. Do not let customers skimp on documentation. Small companies are famous for the “excel spreadsheet and Gerbers” documentation. This leaves a lot to the imagination – the so-called “tribal knowledge”. Contractually, you are only responsible for what is in the drawing package, but practically, any significant rework cost is going to be a problem that no one can afford. Help your customer understand what good documentation looks like and the value it brings.
8. The key to being a great service company is having great customers. You can either find them; make them, or some combination of both. Whatever path you take, it is important that your company culture is one of understanding what good input looks like, and is ready to tell the customer what they need to hear, even if it is not what they want to hear.
About the author: Steve Owens, Founder, and CTO of Finish Line Product Development Services has over 30 years of successful product development experience in many different industries and is a sought-after adviser and speaker on the subject. Steve has founded four successful start-ups and holds over twenty-five patents. Steve has worked for companies such as Halliburton and Baker Hughes. He has experience in the Internet of Things, M2M, Oil and Gas, and Industrial Controls. Steve’s insight into the product development process has generated millions of dollars in revenue for start-ups and small businesses.
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