Product development requirements

When considering outsourcing (part of) your product development process to the contract
manufacturer it is a good idea to define what features, functionalities and other product properties are required and what criteria should be met in order for the product to be considered viable (the latter could include unit and/or tooling costs for the finished product). If part of the development process includes incorporating user feedback into the design, a minimum viable product (MVP) criteria should be defined and plans put in place for handling MVP production, how to incorporate user feedback into subsequent development iterations and how to coordinate cooperation between staff at your company and the CM. Clear expectations and robust planning can go a long way towards making your partnership successful, especially if you have limited experience with development outsourcing in general or this particular CM.

Unit and tooling costs

Whether you communicate a target cost to the CM candidates before receiving their quotation or not, it goes without saying that defining this for yourself, or at least having a clear understanding of both cost of sales drivers and business aspects influenced by it, is critical. The unit price quoted to you by a potential contract manufacturer can include elements such as the cost of materials, parts and components, labor, overhead, quality control and costs related to duty clearance, logistics and freight. The components factored into the price quoted to you will not always be shared with you unless you ask for it – and even then, the price structure you are presented with might not always be entirely accurate. Importantly, of course, from the perspective of your business, your target cost will be influenced or determined by the price you will be able to charge for your product and your required profit margin, but understanding the components of the production and delivery cost of your product will help you when negotiating with the CM. Tooling costs can vary from country to country and supplier to supplier. For expensive tooling it will be relevant to have an agreeement on how many product unit should be manufactured, before new tooling is needed.

Lead times

The required production and delivery lead times for a potential contract manufacturer will vary depending on the specific product. Factors such as complexity, order volumes, components, production processes, supply chain management and of course the requirements from a market and sales perspective will all play a role in determining the appropriate lead times.

Strategic fit

What kind of contract manufacturer do you need and does the CM fit the bill? What services and what production capacity do you need from the CM short, medium and long-term? Is the CM capable of delivering on these needs, at what pace and at what price? If they lack some of the capabilities needed, are you a sufficiently attractive customer for them to be willing to develop them as you grow your business? What does their current customer and product portfolio and track record bespeak of their suitability as a partner? These are some of the strategic questions that you should ask yourself and use to gauge the suitability of the CM in question. Generally speaking, it is a good idea to look at your business development and sales strategy at clarify what and how various characteristics and properties that a CM might possess will influence your strategy positively or negatively. This can then serve as a list of characteristics that you can use to systematically score the attractiveness of the CM candidates in terms of how they fit with your strategic priorities.

Communication

What do you expect from communication in terms of response time, transparency and efficacy? Some requirements can be quantified and included in contractual agreements. Other requirements, say, a consistently proactive and positive response to your queries, are harder to define, measure and enforce, but if you know what you are after, it will be easier for you to ask the right questions and it will help you gauge the ability (and willingness) of the CM to meet those requirements. As mentioned above, extra attention should be paid to this topic when dealing with a CM in another country or another culture.

Relationship

To some extent, this aspect of your requirements overlaps with that of strategic suitability discussed above. When determining the type of relationship you want to establish with the CM, you should consider what is required in order to make your manufacturing (and/or development) of your product a success. For example, if you are looking for a manufacturer of an already designed product that is perhaps an off-the-shelf product with a few modifications that can easily be made, establishing the highest level of trust and coordination should necessarily be your highest priority. However, if the product is complex, requires significant engineering or development work or you know that this is just the first of many prodcts in your company’s journey and development, then the quality of your relationship with the CM should be considered critical to your success. This might also require you to be more transparent in your dealings with the CM (e.g. by sharing more information relevant to both your interest and theirs). In cases where the project is short–term, low–risk or non-critical (e.g. delivery of a simple product part that can easily and readily be purchased from other manufacturers) the quality of the relationship is less likely to impact the success of your product, but you should still ensure that the contract manufacturer understands the company’s intellectual property rights and is willing to protect them.

Certifications

Be sure that you understand what certifications will be needed from your CM as well as your product in order to comply with regulatory requirements in the markets where you want to sell your product. Even where no regulatory requirements exist at present, these may develop in time, and sometimes there will be industry standards that, although not enforced by law, are so widely accepted that compliance with them are critical to success in the market. Be sure to have an understanding of these issues and the requirements in terms of needed certifications that they yield. These can include certifications specific to your product, the circumstances under which it is manufactured, the capabilities or behavior of the manufacturer, various broader product categories etc. required by regulatory bodies or other various types of institutions or organizations representing industries or markets in a given country or region.