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Manufacturing
your Idea
by Mike Marks
The difference between an idea and a product is manufacturing. A great idea makes no money until it is produced and sold in multiple units. Understanding the options of how your idea can be manufactured can put additional money in your pocket. The knowledge can make it easier to license your idea. It can enable you to get a higher royalty. It is invaluable for finding investors. As your idea is engineered for manufacturing, you may find new ways to patent and protect it. Finally, knowing the manufacturing process for your invention can help you increase your idea's chances for market success.
Outsourcing
Manufacturing doesn't need to mean setting up your own factory. You can
do what Fortune 500 companies have been doing for years: outsource. A
simple product such as a paper clip might have a single source. Most products,
however, use multiple sources. When a product uses multiple sources, one
of those sources may even agree to put all of the pieces together for
you and possibly even warehouse inventory. The brand name selling a product
may have little to do with who's making it.
Manufacturing sources tend to specialize. The PowerShot
staple gun uses zinc die cast parts, plastic injection molded parts and
stamped steel parts. Zinc, plastic and steel represent three different
technologies and three or more different manufacturers. Specialization
can go quite deep. The steel parts might come from various fabricators
that specialize in using different machines that form steel in different
ways; finish coatings on those parts can come from still other sources.
Doing your homework to find out how much it would cost to make a product
requires communicating with each source.
Design Assistance
In order to communicate effectively with manufacturing sources you will
need a set of manufacturing drawings and/or a well made prototype. Unless
you are an engineer or an industrial designer, you will want to hire someone
to help you. Two great resources are:
-
Thomas Register: The Thomas Register lists firms specializing in engineering, prototyping, industrial design and manufacturing.
-
IDSA: The Industrial Designers Society of America: Most industrial design firms are members of IDSA. The on-line database of members is a good way to find a design firm in your local area.
Before
disclosing your idea to engineers, industrial designers and contract manufacturers,
it is good business practice to ask them to sign a non-disclosure agreement.
Part of that agreement should specify that any idea they have while working
on your idea becomes your property. They should also agree to help you
in filing patents that might emerge from the work they are doing on your
behalf. (Please note that while engineers and industrial designers commonly
sign strong non-disclosure agreements with provisions of this sort, large
corporations that might license your product generally do not. Corporations
will typically ask you to sign their own disclosure agreements. Corporate
disclosure agreements commonly say that the corporation agrees only to
respect your issued patents.)
Design Input From Sources
It is helpful to visit manufacturers before a design is complete to try
and learn alternative, lower cost, higher quality ways to make your product.
This must be done with the utmost respect. Manufacturers tend to be very
linear in their thinking. Ask them to make a widget that looks like a
widget and they'll give you a clear answer based on precisely what you
are showing them. They will not tell you that if your widget looked like
a wodget it could be made for 1/2 the price (you might be equally happy
with a wodget). They will probably not tell you about the new manufacturing
process a competitor is using that could make your widget for less money.
This is not because they are bad people; they are simply very focused
and work on tight margins. Manufacturing sources tend to have little time
for conjecture. However, if you are well prepared with a good prototype,
you may be able to get some manufacturers to answer questions that begin
with the words, "what if...?"
As you learn more about the best way to make your product you may discover
additional things that can be patented. Protecting the way a product is
manufactured and assembled, perhaps a notch in a wall that holds a plastic
plate, may be the only patent protection you can get. It may give you
long term protection on the lowest cost way of making your product. It
could give your product the advantage of higher quality.
Explore Different Methods For Making Your Product
Different manufacturing processes may meet the same goal but have very
different effects on a budget. For example, you believe that the market
for your new widget is 50,000 pieces a year. Someone tells you that the
way to go is to make it in ABS plastic in an injection mold. Now, if you
invest in a 4 cavity high production steel mold it could cost you $50,000
and the parts would cost $0.25/unit. A simple one-cavity aluminum mold
might cost only $10,000 but the parts would cost $0.40/unit. For the first
five years, the total cost for mold and parts for each option in this
example is as follows:
Steel Mold ($50,000) + Parts (50,000 X $0.25 X 5 years) = $112,500
Aluminum Mold ($10,000) + Parts (50,000 X $0.40 X 5 years) = $110,000
Direct Savings from Aluminum Mold = $ 2,500
The savings from using the aluminum mold is, in fact, greater than $2,500.
With the aluminum mold you have the benefit of earning interest (or other
investment income) on the $40,000 you didn't spend in advance! Even though
the unit cost is lower with the steel mold, you save money by using an
aluminum mold. Beyond that, the odds are good that soon after production
begins you'll have an idea for an improvement or two and want to change
the design. Scrapping or modifying the aluminum mold is far less expensive
than scrapping or modifying the steel one.
Remember, however, that our assumption was 50,000 widgets per year. If
we assume 500,000 widgets per year, the math changes:
Steel Mold ($50,000) + Parts (500,000 X $0.25 X 5 years) = $ 675,000
Aluminum Mold ($10,000) + Parts (500,000 X $0.40 X 5 years) = $1,010,000
Additional Expense from Aluminum Mold = - $ 335,000
In this case, using an aluminum mold for full scale production would be
an expensive mistake.
On the other hand, it may be that the market for your widget is less than
1,000 pieces per year - maybe it's used in a medical application. In this
case you might want to explore casting technologies and possibly even
consider using a different material such as aluminum.
Forecast The Quantities You Might Need, and When
In seeking sources for manufacturing it is important to know what quantities
you're expecting to sell in the beginning stages and what volumes you
anticipate selling if the product is a huge success. In addition to learning
the costs you should be sensitive to lead times. A small one-cavity injection
mold might take 10 weeks. In addition to the lead times for getting the
first sample parts, you should consider that, invariably, something goes
wrong. The 10 weeks for one injection mold will almost certainly become
16 to 20 weeks. If you have multiple parts that must fit and work together,
the problems are compounded and the lead times get longer. As a basic
rule, relatively simple products with multiple parts like a PowerShot(R)
staple gun, take about one year to get into production
from the date when the design has been finalized.
Sources Overseas
I love the USA and aspire to make all of our products here. However, one
of the greatest assets to the world of inventing and product development
is the country of Taiwan. In the past, Taiwan earned a bad reputation
for copying patented products. (Even today, as I write, two of WorkTools'
products are being knocked off illegally in Taiwan - we're working with
the legal system to stop them). There is no country in the world with
such a large population of eager and entrepreneurial small businessmen.
A good Chinese partner is hard working, loyal and trustworthy beyond the
imagination of most western business people. WorkTools has benefited from
such a relationship: at one point our Taiwan partner lent us $300,000
on trust; we had nothing in writing until many months after the money
had been spent! Companies in Taiwan are comfortable working from prototypes
and can put together all of
the sources for getting a product made. The costs for engineering, tooling
and labor are lower in Taiwan. If a Taiwan manufacturer believes in your
product, he will often volunteer to become your partner and may invest
his own money in the necessary manufacturing tooling.
In Asia, relationships are said to be everything. If you have a friend
who has a friend who knows a manufacturer in Taiwan that is trustworthy,
you may wish to use those relationships to make inquiries. But relationships
are not the only thing. WorkTools met its Taiwanese partner by sending
out 30 blind letters to a list of manufacturers obtained through the equivalent
of a Taiwan Ministry of Trade, an agency officially called the Coordination
Council for North American Affairs. A better way to find a manufacturer
in Taiwan is now available on-line. Go to AsianSources.com.
As in the USA, it is a good idea to have a signed non-disclosure agreement
before sharing your ideas.
Today in Eastern Europe, in countries like Slovenia and the Czech Republic,
companies similar in spirit to those in Taiwan are emerging. China too
is becoming more and more accessible (however, the best way to access
China at the moment is probably still through a company based in Taiwan
or Hong Kong). In the years ahead, India seems poised to become an excellent
source country. Surprisingly, Mexico has yet to become a great source
for new companies making new products.
Benefits To Made In USA
There are minuses to having a product made far from home. The lead times
for everything are longer. Additional costs for freight and duty are incurred.
Made in USA products tend to command a premium at retail, both in the
US and internationally. Communication can sometimes be difficult (not
just because of language and culture but also because of time zones).
And consistent quality control is harder to maintain.
Controlling Quality With Good Design Saves Money
Maintaining quality is a large factor in the long-term success of a product.
No matter how good the idea, if the product quality does not meet a customer's
needs or expectations, the product will die. Quality begins with design.
A good manufacturing design allows for some errors and reduces the likelihood
of other errors occurring in the first place. Parts that can tolerate
errors also cost less than parts that need to be perfect. For example,
automated manufacturing machines such as plastic injection molds and metal
stamping dies will produce parts of varying thickness with varying surface
properties depending on how fast the machines are run. Running the machines
faster means that the parts cost less. Unfortunately, running the machines
faster also means that the parts
will have more variation: they will tend to be thicker or thinner or sharper
or less flat than ideal. If your design can tolerate variation from what
is considered ideal, more money will be available for your pocket!
Likewise, if your product is easy to assemble, the opportunity for error
is reduced and labor costs are lower. In the same way, if it is easy to
inspect your product for quality problems, costs are lower.
Profits Begin With You
It is tempting to think that by licensing your product, all of the manufacturing
issues become someone else's problem. Unfortunately, this is not true.
The selling price for your product is ultimately determined by the market,
and not by how much it costs to make. If your product costs less to make
than competitive or alternative products, then more money is available
for your royalty, whether through a higher royalty rate or increased sales
(through lower prices and/or a bigger budget for marketing).
Finally, knowing how your product can be made helps to give you control
over your own destiny. You add value to the product you bring to a licensing
negotiation and possess the knowledge that, if negotiations fail, you
can move the project forward yourself.
Invention City will obtain quotations from 3 US and/or Asian manufacturing sources for a fee of $495. Click here for details.
Mike Marks is President of Invention City and has been active in the field of product development since 1987. In conjunction with WorkTools, Inc. he has brought numerous products to market directly and through licensing agreements with others.
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