It helps to know the lingo when searching for and vetting a manufacturing partner. Working with a manufacturing partner requires knowing a little about a lot of different things: logistics, distribution, compliance, and cash flow, among other things. This quick guide can help you start to build expertise as you speak to different manufacturing partners and grow your business.
Prototype
A prototype is an initial sample or model that businesses can use for testing, soliciting feedback, and introducing the concept or product to investors. Throwaway prototypes are lo-fi versions of a product or concept made out of household items. They are meant to be used once to convey an idea and help product designers get a sense of what to build. A throwaway prototype is the same as a minimum viable product.
An evolutionary prototype is more developed. This type of prototype is built to solicit real feedback. It can be manipulated, updated, and transformed to create a close-to-perfect final design. These prototypes tend to be more visually appealing and acceptable to show to manufacturing partners, investors, or focus groups.
[Read more: How to Create a Product Prototype]
Minimum viable product
A minimum viable product (MVP) is a concept from Lean project management. It’s defined as “that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.” Some manufacturing partners ask for a minimum viable product to help create a sample of the product you’re seeking to mass-produce.
Landed cost
Landed cost is the total amount it costs to create, transport, and deliver a product to the customer. This calculation includes shipping, raw materials, import duties and other fees, shipping insurance, and any other related costs that allow you to get a product from the manufacturer to the end customer. Generally speaking, landed cost is made up of four main components:
- Shipping costs.
- Customs, taxes, and duties.
- Insurance and other compliance expenses.
- Handling and processing fees.
Knowing your landed cost is important to ensure a healthy profit margin when pricing your products for customers.
Minimum order quantity
Minimum order quantity (MOQ) is the minimum amount that can be ordered from a manufacturing partner. For instance, a manufacturing partner may have an MOQ of 50 units, meaning you may not place an order for fewer than 50 units with them. Ask if a manufacturer has an MOQ before signing an agreement to manage your cash flow and inventory costs effectively.
Lead time
Lead time is the length of time it will take for the factory to produce your product. A lead time of two to four weeks doesn’t necessarily mean that it will take two weeks to create your order; there may be other clients and orders that the factory needs to fulfill ahead of yours. Knowing your lead time can help ensure you don’t run out of inventory.
Production run
A production run indicates the products you ask the manufacturer to make for you. For instance, a production run of a seasonal item could be 1000; the factory will only produce 1000 items of the seasonal piece. You may hear this term used in lieu of your specific project or brand: e.g., “Your production run is scheduled for first thing tomorrow morning.”
Overs (and unders)
An over is any piece that comes off the production line that was over the quantity that you ordered. Overs are common in the production process, as manufacturers will order excess inputs and raw materials to test their machines and ensure everything is properly set up for the entire production run. Or, sometimes a manufacturer can’t make the quantity that you’ve specified, and so they will make extra to ensure they don’t under-deliver.
Unders are rare. “If setup is complicated or a manufacturer needs to run many tests, they may run out of machine time for your project, and/or they may need more than the excess testing material,” explained one manufacturing blog. “Running out of time or material would mean that you'd receive less than the quantity you ordered.”
[Read more: How to Find a Factory to Manufacture Your Product]
A throwaway prototype is the same as a minimum viable product. An evolutionary prototype is more developed.
OEMs and VARs
OEM is an acronym for original equipment manufacturer. An OEM is a company that produces parts or components used in another company's final products. For instance, Intel, Samsung, and Micron are OEMS that produce processors, memory chips, and other components for computer and smartphone manufacturers like Dell or Apple.
Most OEMs sell their products to other companies, known as value-added resellers (VARs). Value-added resellers integrate the OEM components into their final product and sell it to consumers under their own brands.
Bill of materials
A bill of materials (BOM) is a comprehensive list of raw materials, components, and assemblies required to manufacture a product.
“You need a BOM once you transition from a prototype to a manufacturable product,” explained The Fool. “It’s not meant to be a full assembly instruction manual, but it should provide enough detail that someone could roughly see the steps it takes to turn raw materials into a finished product. Think of it like the glossary to the production manual.”
When using a bill of materials, provide as much detail as possible to avoid manufacturing delays. Include all the elements needed to take your product to the manufacturing cycle's final shipping stage.
Quality control and quality assurance
Quality control and quality assurance are two terms that fall under the same category of activity, but with different processes.
Quality control (QC) focuses on identifying defects in the manufacturing process after they have occurred. It involves inspecting products to ensure they meet your quality standards before shipping them off to consumers. Main QC activities include product inspections, testing, and data analysis.
Quality assurance (QA) is a proactive approach to preventing product defects before they occur. QA involves designing and implementing systems, procedures, and standards to ensure quality, such as process audits, supplier evaluations, training, and documentation.
Look for manufacturers that have strong QA and QC processes in place.
Just-in-time
Just-in-time (JIT) refers to an inventory management strategy that aims to reduce waste by receiving goods only as they are needed in the production process. JIT originates from Toyota, which adopted this approach in the 1970s; as a result, it is also known as the Toyota Production System (TPS).
In this approach, manufacturers receive the materials and parts as needed, eliminating storage costs. Manufacturers won’t have any unused inventory if the order is canceled. “For JIT manufacturing to succeed, companies must have steady production, high-quality workmanship, glitch-free plant machinery, and reliable suppliers,” wrote Investopedia.
CAD and CAM
CAD stands for computer-aided design, which involves using computer systems to create, modify, analyze, or optimize a design. CAD software allows engineers and designers to:
- Create 2D and 3D models.
- Simulate product performance.
- Analyze a design for weaknesses.
- Collaborate on designs.
CAM stands for computer-aided manufacturing, in which software is used to control machinery in the manufacturing process. CAM uses the design developed using CAD to create a physical product. When used together, CAD and CAM can streamline the manufacturing process and reduce errors.
Time-to-market
Time-to-market (TTM) is a metric measuring the total amount of time it takes to bring a product from conception to market availability. This includes all stages of development, production, and distribution. Tracking this metric is a good way to determine your company’s competitiveness: faster TTM can give a company a significant edge in certain industries.
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