Transitioning From Product Trading to Product Development
Background:
Alibaba is by far the most extensive open public database of suppliers in the world. Cementing itself as China's e-commerce giant, Alibaba supplies a list of suppliers that can produce products with very little uniqueness at very affordable prices. This has led to a market saturated with similar products and very low margins.
A study from Deloitte states launching new products is the number one strategic objective for product based companies. There are two main reasons why creating new products is essential:
Differentiates yourself from the competition - Only you can sell that product
Higher Margins - Because only you can sell that product, you can charge a premium.
Successful product development requires a fusion of two different information parts:
Need Information - Comes from the person(s) who developed the idea.
Solution Information - Comes from the engineers or development company contracted to create this product.
After the idea is conceived, there are a several primary steps to bring your idea to reality.
Step 1: Product Design & Engineering
Product engineering is the first and most critical step in your development process. A product can only be as good and as functional as the engineered product allows it to be. This step sets the course for all of the following steps.
The best way to proceed is by contracting the work to a product design company, industrial engineer or contract manufacturer. The key components of your search should be:
Have they designed similar products before?
Is their lead time acceptable?
Can they make the prototype or does a different company do that?
Are they reasonably priced?
Step 2: Proof of Concept
The purpose of the PoC (Proof of Concept) is to check the functional aspects of the product. Most importantly to ensure the product works as it’s intended. A number of functional tests are done to emulate how the product will be used in a real-world scenario.
Step 3: Product Design & Renderings
Sometimes renderings can be made prior to engineering to give a general idea of how the product will theoretically look. However, if the product isn’t functional based on the renderings, then the design will need modifications to meet the functional requirements.
Product design usually begins after the functional part is completed. Once the product works, you may start to design it for its intended look.
Step 4: Golden Sample
The golden sample is the final sample used to assess mass production by serving as an exact copy for comparison. The golden sample should be highly accurate in terms of materials, finishes, colors, and function compared to what you will produce in mass production.
With a golden sample you will start to confirm the costs of your product, including packaging and shipping. With this information, you can refine your pricing strategy.
With a golden sample and price in hand, you can start to market to distributors, retailers, launch a crowdfunding campaign and build marketing materials to begin driving awareness and hype. Based on the feedback you receive, you should have an understanding of the number of units you’ll need to produce.
While you will need samples for marketing, don't neglect to provide your supplier with samples so they can develop the necessary documents to document your products quality.
Step 5: Tooling
At this step, you have already developed a relationship with your contract manufacturer. We didn’t put sourcing as a step because you may have developed your product with your CM, or you have been vetting manufacturers through the previous four steps.
If you have traded products before, you most likely used tooling owned by the supplier. If you are developing your own product, you will likely need to invest in your own tooling for production. Some suppliers are flexible with tooling so you should speak with them about tooling amortization and factoring it into the product price, or you may ask if your supplier offers an investment program.
Depending on the raw materials needed, tools will likely be required to ensure production consistency. The primary contributors to the costs of tooling are:
1. Production line
Plastic injection molding and die-cast are the two highest investment processes needed on the tooling side.
Other processes may require tooling, but they are not as expensive.
2. Type of steel used
Different types of steel used to create tools will affect the number of shots, which affect the overall life-expectancy of a tool.
You will need to plan for certain lead times, including those for tooling. As a general rule, plastic injection molding and die-cast tools take roughly 30 days to complete, while other tools take 2-3 weeks.
Step 6: Production
The first round of production will likely take longer due to tooling and raw materials testing for the first time, which is known as the pilot run. During the pilot run, a small percentage of the first PO is made to ensure production runs smoothly. The products made will first be shipped to the customer for final approval. Once approved, mass production may begin.
The first round of production can be extended anywhere between 2-3 weeks. A good CM will tell you this, unfortunately, not all CMs are transparent. As a rule of thumb, if your lead time is four weeks, expect six weeks for only the first shipment. The following later shipments should be four weeks.
It’s best to consult your CM about your lead times for the first order, so you can adequately plan your distribution.
Current Breaks in the Chain
If you are making the transition from trading to developing a new product, then you should pay attention to the “Breaks in the Chain” that will lead to delays, increased investments, and overall confusion.
To avoid breaks and delays, speak with the company responsible for each step and ask how they manage each step. What is their handover process to the next step? The most common breaks fall within:
1. Poor Engineering
By far, poor engineering is the number one product development factor which leads to failed parts. Strong engineering dictates the success or failure of your product
If the product isn’t engineered correctly, then it doesn’t matter who the CM is because it won’t be manufacturable.
Find a CM with a strong engineering team that can offer support in this area. They should be able to provide DFM and engineering services to ensure your product is functional and made correctly.
2. Poor Handover Between Steps
If you are developing a product, then you will know that the success of the previous step is correlated with the success of the later steps.
Withholding of information can kill a project in its crib. Lack of transparency will will cause delays and potential quality issues.
To avoid this, some companies can provide a one-stop shop or product management services for the entire product development process.
3. Overall Budget Management
With each step, there is a cost associated with it. Make sure you understand the costs associated with each step before starting.
Poor financial management of the development process is the primary factor why projects are delayed or abandoned.
You can also present your product idea to investors.
4. Overall Time Management
In a fast-paced economy, your idea to market needs to be as fast as possible.
You should know the duration of each step while also taking into account unforeseen issues, such as re-engineering, new prototypes and more.
Conclusion
Developing a product can be quite daunting for many reasons. There are usually many players involved that can provide value, but finding companies that complement your product within budget is tricky.
EPower Corp is a leading contract manufacturer that provides engineering services, project management services, product development services, investment options, tooling and production for physical products and hardware products. If you are developing a new product or are thinking of developing a new product, please take advantage of our team and contact us.
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