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Supply Chain

Posted by Dan Myers on

We thought it would be interesting to do a deep dive on our supply chain and our supply chain building experience.  Many of our customers are technical and have some exposure to what a modern day supply chain looks like, but for those that don't, knowing how many steps it takes to get a smart vent into homes is pretty eye opening.

 

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Here is an abbreviated view of the smart vent supply chain.  

 

 

Vent Face Plates awaiting Powder Coating

Metals 

One of the first things that surprised us about manufacturing at scale is how each factory specializes.  For the metals in our vents there are factories that solely focus on tools, extrusion, stamping, and powder coating.  Supplying the stamping factory is a metal distributor that sells rolls of steel to be dragged through our stamping tools and before that are the metal smelters - you could follow this chain all the way back to iron ore, with loop backs for scrap material that is recycled.

 

Plastics

Plastics have a similar supply chain with petroleum or biological chemicals being refined into common plastics like ABS, which are then turned into small pellets/beads.  Before injection molding, these pellets are mixed with various colors and chemistries to get the ideal look, feel and physical properties for the part and then injected into the metal tools for forming. 

Assembled printed circuit boards (PCBs) awaiting firmware flashing.

Electronics

On the electronics side, the supply chain is incredibly global, with parts from household brands like Bosch and tiny components that are effectively unbranded.  Looking through our BOM (Bill of Materials), there are US, Chinese, German, Norwegian, Japanese, Taiwanese and Korean components in our products and lead times for even the simplest of components is often months (I'm looking at you alkaline batteries...).

Supply Chain Structure

One of the biggest decisions you need to make when building out a supply chain, is how to best structure it.  This often depends on the size of your company, the complexity of your product(s), location of your manufacturing and if you are a startup, your ability to sell your vision of how you will ship millions of units.

Notice the hierarchical nature of our flow diagram where everything ends up at an end assembler.  While this is typical, the chart isn't showing how the different vendor relationships are managed or which parts of the tree belong to the end assembler.  

When you decide on your supply chain structure, you are making decisions about who bears what responsibilities.

Don't worry about it...

You might think that the best supply chain model is to have a single point of contact with your end assembler and have them do everything in house.  While this has the lowest management overhead, the reality is that even the biggest CMs (Contract Manufacturers) outsource many specialized tasks like printing for packaging, metal working or finishing.  This is partly because there are so many subtle techniques and processes that most factories don't have the equipment or expertise to handle everything in house.  Even if they could do everything in house, it would be hard to compete with specialists on price and quality.  In many cases, the CM has vendors they have used in the past that are well vetted and a virtual no brainer.  BUT, its worth doing your homework here.  Sometimes a vendor doesn't have the right equipment for your task and is outsourcing the whole project, introducing margin and additional risk.  Sometimes thinking that they will easily win the job means their offers aren't competitive or that they can push back on part features to limit their engineering time.

The key here is doing due diligence on your own.  You need to quote early on to understand if what you are trying to make is complicated for some reason, to get a sense for the market rate, and to make sure to educate yourself on different ways a part might be produced.  Seemingly tiny differences can lead to huge part price differences.  Sometimes a quote from a factory is totally useless because they didn't look at the parts carefully enough to realize that there is expensive additional processing needed.  Sometimes the factory and your expectations around quality are in different universes (in both directions).  The only way to understand the economics of your product is to understand every part, how they will be produced, and what those processes cost.

In the middle of it all

Another approach is to insert yourself earlier into the supply chain.  From a management standpoint, this can be nightmare but the upside is precisely controlling prices and sourcing vendors that are most cost competitive or provide the highest quality products (ideally a combination of the two).  A CM might have a vendor they regularly use, but its not uncommon that a particular part is too large for them, or they can't produce that part cost effectively because of their particular equipment.  The management task is large because of the upfront sourcing of these vendors (its not just finding but also touring, testing etc) but also keeping on top of their status and the big one - resolving issues.  A simple example is that you have one vendor supplying plastic parts and one vendor supplying metals parts and at final assembly the two parts need to fit together closely.  If they don't fit - whose responsibility is it?  Nobody is going to want to scrap or rework all those parts hence you are going to be stuck in the middle trying to determine who made the mistake and trying to convince them to spend loads of time solving your problem.

Somewhere in the middle

For us, the ideal scenario was to find a top notch CM but make sure to be involved with some of the critical supplier touch points, inspecting samples from a few different vendors and working with our CM and the vendor to ensure that certain design features could be made as desired, early in the process.  But after ensuring that you have the right supplier, its important to make sure that you get out of the way and let your main assembler handle things.  You might pay additional margin as a management fee, but its well worth it because they have more expertise managing vendors and orchestrating the supply chain.

 

Your supply chain will evolve

Your business changes with time and so does the suppliers.  In the beginning you are making small volumes - thousands or tens of thousands - but as you ramp up, their 'supplyability' might reach its limit.  In other instances, factories gain and lose capacity as engineers and workers come and go, other projects take on higher or lower priority etc.  This is one more reason to make sure you understand the subtleties for every process and each part.

 

How this relates to Flair products

Time

As a consumer, you never really have to think about any of this when buying the product - especially for products that existed for a long time and are perpetually in stock.  When you see products on preorder, as ours have been, its indicative of a company who is (hopefully) more or less settled on a supply chain and starting to work through all the tiny details needed to bring a high quality product to the world.  We are about a month and a half behind our original schedule partly due to testing suppliers and double checking that everything is setup to be push button as we ramp up our volumes.

That means close inspection of parts, increasing tolerance specificity and in one case even looking for an alternative supplier.  The upside is that by investing time in this, Flair products are higher quality. The downside is that it takes longer.  We won't call out specific competitors but if you look around at reviews, its pretty easy to see where they skipped on some of their homework, which had dangerous consequences.

 

Sustainability

Packaging has all sorts of options: blister packs, plastic supports, lamination for glossy graphics etc.  The material selection and design directly correspond to the environmental impact. Its important to make sure a product stands out, but also that packaging is highly recyclable and efficiently laid out.  Beyond being eye catching, packaging needs to protect the product from creation to consumption because damaged products increases costs and results in more scrapped material.

With each part of the product, how they are grouped into molds, how they are stamped out of sheets, and even how your adhesives are cut can all have substantial implications for wasted materials.

 

Costs

There is a reason Flair products have such attractive price points.  The Flair team spends time on the ground, working through the finest details on plastic parts, metal parts, and looking for smart tricks with our electronics to find the best feature/cost tradeoff.

There is no substitute for this - if you do it right, your company and your suppliers can all build a sustainable business and offer best in class products at competitive prices.


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