The secret to choosing a reliable factory that won’t steal your intellectual property.
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If you plan to produce your own hardware product, you will have to find a factory. There are different classes and types of factories that manufacture consumer electronics. If you plan to partner with an existing brand, such as Samsung or LG, the type of factories you will be working with are known as OEMs (Original Equipment Manufacturer). Such factories usually produce their own branded products, and partnership options are limited to co-branding in most cases.
Usually, hardware project developers prefer ODM (Original Design Manufacturer) services. In addition to their production capacity, these factories also have their own engineering teams, which can help you with composition, PCB wiring, firmware coding and ordering components. Most importantly, they will perform all the testing cycles for your prototypes to discover any defects. Of course, this doesn’t eliminate the need to be attentive at all stages of development and production or hire engineers for your team.
If you have developed everything by yourself, designed the PCBs, the case, prepared software, and documentation, produced the first viable prototypes, and you just need to start mass production, you can partner with an EMS (Electronics Manufacturing Services). This type of factory has production capacity but without an engineering team. This option may be good if you already have experience launching products from scratch, and if you are confident in the maturity of the developed solution, and you know which functions need to be tested at the stage of mass production.
The list of the top EMS companies is not a secret. There are a lot of open ratings for different device categories.
You may want to consider American EMS giants – Sanmina and Jabil. They are some of the most expensive contract manufacturers, but they have huge production capacities distributed worldwide. In the case of Jabil, there are dozens of plants. If you plan on producing millions of devices with global distribution (congrats, if so), you should take these giants into account.
How to choose a manufacturer for your device
While picking a factory, you should pay attention to:
- Relevant specialization and technological equipment
What are the parameters for choosing the proper factory? Of course, it has to have experience in manufacturing the type of device you want to produce.
Experience in manufacturing on the required platforms (chipset, SoC) is essential, but the necessary chip vendor licenses for development also play a crucial role. If your product uses a platform from such vendors as Mediatek, Ambarella, or Qualcomm, you should consider that they require licenses. You will have to pay fees to access the developer docs, request dev kits, and to develop and finally produce a product using their platform.
That’s why it is much easier to find an ODM partner who already has a license for the needed platform and delegate a part of the PCB design and low-level coding to them. Otherwise, you will have to compensate the ODM for the licensing fees or purchase it by yourself. The price can vary from $20,000 to $80,000 for every chipset model/version. You should also remember that large chip vendors are usually not ready to work with startups and small businesses. Often they have minimum requirements for the number of components, in most cases, several hundred thousand items.
When you deal with ODMs, several clients share these licensing requirements, and you can negotiate to start at a lower minimum order quantity.
- Chance of intellectual property theft
You should also remember that unscrupulous fabs can easily copy your product or even “borrow” your secrets. So, you should evaluate your partner’s potential interest in launching a similar product on the market. If there is such an interest, you’d better address this issue in advance and discuss the terms of them being your representative in certain territories i.e., China. Decide what share of the profits your partner will receive in case your product is successful or offer to introduce them to potential clients/customers. This agreement should be attached to the contract.
- Factory size and the number of employees
Size is a sign of stability. Usually, large factories implement better manufacturing proсessess and quality control practices. At the same time, large factories are less flexible and often more expensive. It takes more time to discuss any questions with them, and it will be difficult to sign a contract with small or medium minimum order quantities that are less than 100,000 – 200,000 items per year.
- Specific equipment for your project
Check if the factory has all the necessary equipment, for example, acoustic cameras, dustproof stations for displays or camera modules assembly, radio testing equipment, etc.
- Factory financial viability
Don’t overlook the financial indicators of the manufacturer. You can request information about turnover for the previous years from your potential partner. If the factory is a public company (its shares are sold on a stock exchange), you can find the reports or the main financial indicators online: public companies must publish these data. This information will help in evaluating the reliability and stability of the factory, and in choosing the proper negotiating position for discussing commercial terms. By the way, many Сhinese manufacturers are public.
When you are choosing the factory, it is vital to consider networking feedback and recommendations from your industry colleagues. Companies that have made successful or unsuccessful deals with your possible partner in the past will provide you with the most valuable feedback.
You should check the factory’s ability to produce required product volumes, the availability of necessary production capacity and the actual load.
How to communicate with a factory
After you choose a contractor, there is a common process with certain stages and documents: RFI – Request for Information; RFP – Request for Proposal and RFQ – Request for Quotation.
- RFI or Request for Information
First, you compose an RFI document, where you disclose information about yourself and provide a brief description of the project’s needs. Typically, the RFI doesn’t contain any confidential information, and the client sends a document to several potential partners, usually from 5 to 10. The main objective of this stage is finding companies potentially interested in manufacturing your product and getting brief information about their factories, their portfolio, and available resources. Usually, the manufacturers respond with a company presentation.
- RFP or Request for Proposal
For companies that have passed the RFI stage, you should prepare an RFP – a more detailed document describing your product, preferred factory interaction model, roles and responsibility points, required production capacity, key business collaboration principles, i.e., open BOM and required warranty obligations.
Let’s explain what the open BOM principle is. BOM or “bill of materials” includes the list of all components and materials required to manufacture the product. Open BOM means you will have access to the entire list of parts of your product, up to the smallest screw. You will have information about the cost, manufacturer, serial numbers, and estimated lead time.
Before RFP, you should sign an NDA.
The RFP usually gives the ODM/OEM some freedom to suggest their solution or vision for some system elements. The pack of documents within the RFP is not complete. For example, if you are making your own smart speaker, you can highlight that you are not sure about the microphone matrix config and ask for a solution from the ODM/OEM. That’s why the RFP is an essential part of communication with an ODM or OEM partner. But if you develop your product totally by yourself and look for an EMS-partner, you can pass directly to the RFQ stage, skipping the RFP.
At the end of the process, the factory should send you a pre-offer with possible variants of product composition, cost evaluation, preliminary BOM, and a viable business model.
- RFQ or Request for Quotation
The RFQ is the final stage of the commercial offer process for the project and its details. The result of the RFQ will be the basis for your manufacturing contract.
Traditionally RFQ requests are aimed at factories whose proposals looked attractive during the RFP stage. Usually, the number of candidates narrows down to two or three. The RFQ request contains the full product description, including detailed technical and product requirements, PRD, CMF specifications, blueprints, and QA requirements. But at this stage or before signing a contract in general, you shouldn’t provide the factory with schematics such as case 3D-models and Gerber files of PCB. Properly prepared documents are usually enough to evaluate the product. In an RFQ request, you should also include your expectations on the commercial terms, the list of required design jobs, estimated product launch schedule, and the target price for the final product.
If you don’t have enough time, or there are not many good candidates, or you’ve already collaborated with a specific factory before, two or even just a single stage is possible.
Source: https://www.entrepreneur.com/article/355450