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.
Manufacturing does not 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 is 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.
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:
- ThomasNet - Find companies 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 will 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 will 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 is 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 expect 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.
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 China. China has earned a bad reputation for copying patented products. But the fact is that China is no better or worse than others when it comes to making knockoffs. On the other hand, 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 China 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 China, and if a Chinese manufacturer believes in your product, they will often volunteer to become your partner and may invest their 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 China that is trustworthy, you may wish to use those relationships to make inquiries. But relationships are not the only thing. Trade shows are great places to meet potential partners face to face. And even emails can work. In the days before the Internet 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 China and elsewhere in Asia is now available on-line. Go to AsianSources.com and Alibaba.com. As in the USA, it is a good idea to have a signed non-disclosure agreement before sharing your ideas.
Countries like Slovenia and the Czech Republic also have small entrepreneurial companies that are easy to work with. When it comes to finding sources for projects that require software and Internet technologies India and Pakistan have great people too. If you need an engineer to help you take a project tho the next level you can post a request at UpWork.com and receive responses from all over the world. Surprisingly, Mexico has yet to become a great source for start-up 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.
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