@dragoninnovate /dragoninnovationwww.dragoninnovation.com

WHY IS MANUFACTURING DIFFICULT?

DR. ANNA C. THORNTON

MIT February 17, 2016

LEARNING OBJECTIVES

Understand the process of going from a works like/looks like prototype to a saleable unit.

Cost, quality, and schedule challenges.

Why this isn’t easy.

BEFORE DRAGON

We are going to make something as insanely complex as manufacturing consumer electronics feel easy.

DRAGON’S VISION

WHO WE’VE HELPED

What Is The Hardware Revolution?

Access to capital

(Kickstarter)

Barriers to entry have come down…anyone can develop a product

CM’s taking on small start ups, small flexible

cells

Diverse teams that can be

dynamically built(Linked in)

CAD tools available on the

cloud(Sktechup/ Grabcad)

Manufacturing expertise

productized(Protomold)

Rapid prototying, 3D printing,

Arduino

Online marketing and market validation

(Youtube, Videos)

Bypass distributors and

retail(Web-based)

Cloud based operational

software (Google docs, Dragon

Standard BOM)

$

7

Why is the HW revolution relevant to all companies?The hardware revolution is a collection of disruptive technologies that enable

small companies to behave like big ones.

Thousands of appropriately sized and capable factories worldwide

Thousands of hardware products will launch this year

Operational ChangesQuality requirementsRegulatory oversight

CustomizationGlobalization

Speed of product introductionsSupply chain complexity

Product variants Supply chain depthTechnology partners

More Complex Products with Fewer Resources

Technology ChangesHydraulicsDisc brakes

Electronic shiftersComposite frame

Aerodynamic modelingBuilt in power meters with

wirelessAdvanced manufacturing

Tighter tolerancesBikes as FashionTi, Al, composite

componentsWeight reduction

Optimistic but inexperienced teams risk getting ahead of themselves

PERCEIVED VS ACTUAL TIMELINES

IDEA DELIVERCROWDFUND MANUFACTUREPROTO

X Y ZK L M N O P Q R S T U V WG H I J C D E FA B

IDEA DELIVERCROWDFUNDPROTO

W X YR S T U VC D E F G H I J K L M N O P Q A B Z

MANUFACTURE

Test and refine and mfg. ramp are complex multi-disciplinary activities that can make or break your product

PRODUCT DEVELOPMENT PROCESS

Concept

System

level design

Detail design

Test and

refine

Mfg. Ramp

upMfg.

Works-Like Looks-Like

What does it take to get to a saleable unit?What else has to be engineered?

What tasks need to be done? How long does it take?How much cash will it take?

Manufacturing activities not explicit

PRODUCT DEVELOPMENT FROM THE POINT OF VIEW OF THE HARDWARE ENTREPREUR

*Ben Einstein’s Blog “Illustrated Guide to Product Development”

*Ben Einstein’s Blog “Illustrated Guide to Product Development”

Three phases of production

Pre-manufacturing

Production ramp Ongoing Production

The iterations and interactions are too complicated to draw…

Multiple critical activities in each phase

Pre-mfg Mfg ramp Ongoing Production

Part

Sourci

ng

Functi

onal

test d

evelo

pment

Durabilit

y and

Life

testin

g

Producti

on fo

reca

st an

d mate

rial p

lanning

Troub

lesho

oting an

d CA

Shipmen

t audits

Ongoing co

st red

uction

s

Troub

lesho

oting an

d CA

Reneg

otiati

ng M

SA

Quality

impro

vemen

ts

Warran

ty an

alysis

Facto

ry Aud

its

*Ben Einstein’s Blog “Illustrated Guide to Product Development”

Cost e

stimate

s

DFM re

view

Quality

planning

RFQ an

d Facto

ry Sele

ction MSA

Custom part

sour

cing

DFXYour beautifully designed product

probably can’t be built.

MANUFACTURING IS ACOMPLEX BUSINESS

Exactingly detailed process fraught with decisions that cast a long shadow once set

•Design for assembly •Design for IM•Design for testing•Design for cost•Design for variability

Supplier selection:Choosing a CM is

only the first step. •Cost drivers•Trust and capability•MOQ, terms•Tooling cost•Tooling schedule•Quality capability•COTS vs. custom

Quality Systems:It won’t work right

the first time•Functional testing•Life testing•Certification•Durability testing•Transportation•Safety•Board level tests•Shipment audits

Forecasting and planning:You need to order long before you

need the product•How to plan a forecast for a

product before you understand the market•Tradeoff of MOQ and capital costs•Terms will influence ordering•Risk buys•Long lead items•Spares and replacements•Cash flow (huge amount before you get a check!)

Serious HW chopsBest customers

Big visionAbout to stomp on

gas

COMMON MISTAKES• This will be easy /

short• CM is a glorified 3D

printer• I can get Apple pricing

& quality• I have enough cash• We can do this in 4

months

What variables matter? Keys to a good RFQ

Selecting a CM PartnerYou are going to have to live with them a long time….

Cost of goodsTermsQuality

ExperienceSize (small fish big pond vs.

bfsp)Equipment InvestmentsNRE terms

On-site capabilityKey suppliers/partners

Need to sell yourselfThe more you detail the RFQ, the

betterRequire an OPEN BOOK RFQ

Clear about RASIDefine quality requirements

Clear warranty targets and AQLCM not signed until all negotiations

are finished

There is no “best” CM,it is a process of matching their skills to your

needs

• Design for X• Manufacture. Produced reliably with a

high yield• Assembly. Assembled efficiently with high

yield?• Cost. Remove extra parts, combine parts,

tooling?• Durability and reliability• Is your PCBA designed for reliability• Is your software reliable? Do you have

the right test suites?• Have you thought about mechanical

durability and life time performance?• Sourcing• Can you get OTS parts or do you need

custom?• Packaging?• What else is included (spares, batteries,

install hardware, cables, inserts, etc)?

GETTING YOUR PRODUCT READY FOR PRODUCTION

MANUFACTURING TRIANGLE

SCHEDULE

QUALITYCOST

8

Kick

off

proj

ect

Sele

ct C

M a

nd a

ward

MSA

Proj

ect k

ick-o

ff

4

RFQ

rele

ased

Clie

nt v

isit

RFQ

nego

tiatio

ns

Tool

mod

s com

plet

e

Tool

ing

rele

ase

Tool

ing

star

t

First

shot

s

7 45

EP1/

EVT

com

plet

e

EP2/

DVT1

com

plet

e

FEP/

DVT2

com

plet

e

PP c

ompl

ete

5 3 2

Prod

uctio

n st

art

Ship

men

t aud

it/Ex

fact

ory

Ship

men

t arri

ves U

SIn

the

hand

s of c

usto

mer

4

TYPICAL CRITICAL PATH46 weeks

Pre-

prod

. eng

. fini

shed

4

DFM

act

iviti

es

Long MSA negotiations

Late design release

Custom designed

components

Certification, MA, Late design changes, Life testing, Packaging

Material shortages

Many issues can delay schedule

PILOT / VALIDATION CYCLES

EP/EVT - Engineering pilot / Engineering Validation Test:Build and test several units that function as expected.

Learn about new requirements from users.

EP/DVT - Design Validation Test:Build and test more units that function as expected and have close to the final aesthetic. Learn what need to be

tweaked in the the design.

FEP/ PVT - Production Validation Test:Build and test a lot of units that that function as

expected, final ID , and can be assembled and tested. Learn what need to be fixed in production system.

What Numbers Matter?PER UNIT COST

Cost of ex-factory productSale price

Mark up/profitConsigned/assigned/CM

Shipment

INVESTMENT

NRETime

Capital costs

ON GOING

Cost down rateWarranty rates

CASH FLOW

MA – Long lead itemsConsigned parts

Payment terms (CM)Payment terms (retail)

PO timingInventory

Engineering

Pilot runs/samples

Tooling

Testing/testing equipment

Production line fixtures and test fixtureCertifications

Non Recurring Engineering (NRE)

COGS

Company gross profit

Retailer Gross profit

Materials

Labor

Markup/Profit

ScrapPackaging

WarrantyCustoms/Shipping

PRICE BREAK DOWN

Amazon – 15%, Walmart – 32%. Nieman Marcus

65%Apple ~50%

Laptops ~25%

5% of sales$0.3 to $2.00

1.5-3% of Material

9% - 25% of Materials/Labor

$0.50-$5Accessories $0.50-$5

Sale

pric

e

10% of total

SUPPLY CHAIN PLANNING

• Consigned vs. non-consigned• You don’t pay the overhead but you

need to pay ahead• Material planning overhead

• Purchase orders• Inventory vs. lost sales. You need to

determine your orders ahead• Terms• Is 15% vs. 20% better or is a $1 better

• Impact of long lead parts• Cost down impact

How to tradeoffMSA terms

• 12% Markup & 50% at PO 50% at ship

• 20% Markup & 20% at PO 30% at production and 50% at ship.

Consigned vs. Assigned

• $3 part. • Consigned

• 3% consigned MVA• 100% due on PO for part if

consigned• Normal non-consigned

• 15% assigned MVA• 50% / 50%

TYPICAL PRC CM MARGINS(Profit, Scrap, Overhead)

PCBA

6-8%

TOYS

12%

CONSUMER

15%

MEDICAL

>40%

Dragon provides the fastest, simplest, and safest way to manufacture electronics at scale.

From Dragon Certified pre-launch to our Manufacturing Solutions when you move into production, we can help every step of the way as you bring your product to life.

We've refined our process by working with hundreds of customers to produce millions of complex, innovative products and provide you with the tools and knowledge to go from prototype to production.

THE DRAGON STANDARD BOM

Google Sheets Add-on | Easy to Follow Format | Data Validation Utility Flat BOM Function | Pre-Formatted Reports

Did you design the right product?

Did you build the product right?

What is quality?Does it meet or exceed customer expectations?

Is the industrial design done right?

Does it meet the needs well?Did you deliver what you

promised?Is the “feel” right?

Can it be installed and set up easily?

Is it designed to hold up to use?….

Are the parts high quality (no flash or sink marks)?

Does it have any unexpected behaviors?

Do the components perform as expected?

Is it durable?Are there intermittent failures?

…..MUST MEET ALL LOCAL, STATE, AND COUNTRY REGULATIONS

• Test early and often. Better you

find it than your customers• Planning for quality early will

highlight:• What you should be designing

for• How long life testing will take• How many samples you need

• Testing fixtures can take a long time to design and debug

• If quality planning to CM, you limit your control of quality later.

• Life testing takes a lot longer than you think

• You need to test to a much more rigorous level than you think to ensure low returns (10 units for 4 warranty periods to ensure a low return rate)

Quality planning:

The earlier the better

Types of testing

Development testing

• Verification and validation

• Transportation• Certification• Durability• Life• ISTA

Line testing• ICQ• PCBA• ICT

• Optical inspection• Functional testing• 100% functional

testing•SPC on critical stations

Post production testing

• Shipment audits• Ongoing

production testing

• Warranty tracking

CERTIFICATION

What determines certifications

• Countries• Volumes• Product category• User profile• Key technology• Distribution

Types

• Safety certifications. UL, CSA

• Environmental. WEEE, Rohs, ErP

• Proprietary. Bluetooth, Apple

• RF/EMF. FCC, CE• Application specific.

Food, building code, medical, child toys, lasers

WHAT IS IN A QUALITY PLAN?• AQL• Functional testing• Durability• Life testing• Verification/Validation• Inspection criteria• Certification• PCB Testing• SPC• Shipment audits• Process control and set up

Life testingTarget Rate

6%

Non-defective Runs 60% of total return rate (3.6%)

Defective runs 40% of Target (2.4%)Unanticipated

(1/3 of all returns (0.8%)

Factory AQL (0.65%)

TARGET (0.95%)

Set the sample sizes and warranty periods to get certainty that you

haven’t found a problemExample: 10 units for 4 warranty

periods to get sufficient confidence

Exercise• Disassemble the packaging.• What are the decisions that need

to be made?• Cost, quality, schedule, etc.

• Who is involved?• What decisions need to be made

about cost?• What are the schedule issues, what

are long lead items/critical path?

35

Find us at DragonInnovation.com

@dragoninnovate /dragoninnovation