A final prototype has been approved and the foreign company’s next step is to go into mass production with the Chinese manufacturer. This is known as transitioning to manufacturing. Here’s how the process works…
How do we make the transition to mass production?
Transitioning to manufacturing or mass production is commonly known as NPI (new product introduction).
The transition stage requires a lot of work that can be underestimated by startups and some SMEs, the design, components, and processes need to be validated before mass production starts in order to assure quality, safety, reliability, compliance, and much more.
You can get an idea of the many activities involved in a solid NPI process here (in this case for electronic products to be manufactured in relatively high quantities, but the process is relevant for most products):
As you can see, there are several stages before we get to mass production when products are manufactured and they include many important testing and validation steps that should not be skipped if quality, compliance, and reliability are to be maintained throughout mass-produced products!
Anna C. Thornton, a professor at BU who helped tens of companies get from prototype to mass production, sums it up nicely in her book Product Realization: Going from One to a Million:
Successful product realization requires coordinating a large number of activities to define, test, and deploy all of the systems to mass produce at high rates. It is not a matter of merely flipping a switch at the factory. Instead, each aspect of the production system has to be tested and debugged. No company can go from first test shot to full production rates instantaneously, because no company can get everything right the first time. During piloting, teams will scramble to redesign parts, re-cut tools, work with suppliers to improve quality, change assembly sequences, and undertake a myriad of other efforts to hit their launch goals.
Learn more about these steps in detail in this video:
Will your Chinese manufacturer follow such a thorough NPI process?
Unfortunately, it’s far from guaranteed. But why do many Chinese manufacturers not want to go through all that? Surely it makes sense?
In many cases, they skip NPI steps because they neither have a structured process, nor a sufficient number of project managers, process engineers, and quality engineers. It really is a lot of work for the team in the factory.
It is also often the case that they are paid the majority of their invoice after products are shipped, so their incentive is to get production started as quickly as possible.
What two manufacturing business models might you encounter in China?
There are 2 models manufacturers you’ll encounter in China use for transitioning to manufacturing from the final prototype, those that follow a more ‘Westernised’ business model and those that have a typically local ‘Chinese’ model. What follows is a summary of both:
As you can see, both have their pros & cons.
Reasons to select the Western model manufacturer
This may be a Western-owned manufacturer operating in China or a local company with management who embrace Western business values and who were, perhaps, working in large companies in the past.
There are a number of reasons to work with this kind of manufacturer, like our own contract manufacturing subsidiary in South China, Agilian Technology:
- Transactional relationship. You pay for work and they do it. There are no hidden assumptions or costs.
- You have total control over the project. The manufacturer may provide suggestions and expertise where needed, but you call the shots.
- Your product IP is kept secure and any designs and information created by the manufacturer belong to you. The manufacturer has no intention to copy your IP.
- You are given access to all deliverables. Nothing is held back to ‘lock you in’ to a relationship with the manufacturer and you can switch at your convenience.
- You have full visibility over your BOM and supply chain, even if the manufacturer does some of the sourcing for you.
A word of caution, though. This is a riskier option as you need to make the investment and accept the risks that come with launching a new product. Don’t let that put you off, though, as this is a normal situation when launching a new product most of the time. As you will see in the next paragraphs, nothing comes for free in business life.
Reasons to select the Chinese model manufacturer
Working with a Chinese manufacturer on transitioning to manufacturing can be advantageous in some instances and there are some reasons to select them:
- You need a partner who is already experienced in the product category to provide a lot of support and expertise to develop your product because you do not have that in your team.
- You do not have a large budget to invest and need to find a manufacturer who’s willing to make their own investment to get things off the ground, even if this means conceding some control of the project and rights to the product to them.
- You’re creating a fairly standard consumer product that doesn’t require a huge amount of custom parts to be made, such as modifying an existing product type to make it unique to your brand.
Ultimately, it’s likely that this manufacturer will support you to develop and manufacture your product in return for some rights over it, such as retaining the IP they work on. In such cases, you’re almost becoming a distributor. For complex and unique products this may not be welcome, but for SMEs with little to invest who are making a more basic product this relationship can work well.
Types of Chinese manufacturers
Chinese style manufacturers can often be identified as ODMs and OEMs, and you can learn more about the suppliers and their advantages and disadvantages here: OEM, ODM, or Contract Manufacturer: Which Chinese supplier to choose?
Here’s a quick summary for you that compares them with a foreign-owned CM:
ODMs have already done the bulk of the work on their own dime (or, more often than they’ll admit, on another customer’s dime), so the risk of working with them and losing control of your project is higher. They may have little interest in following an NPI process as outlined above. However, getting a product to market quickly is definitely possible and you’ll only require a small if any investment to get started.
OEMs will do more product development but often work on products that they have a lot of experience in. A detailed NPI process may be unfamiliar to them. They’re putting in more work. Once they have invested a lot of resources, and assuming there are no blocking issues (note: there are always such issues for complex products), there’s less risk they’ll cut you off in favor of a more interesting project. Finally, negotiating with them for you to own the IP is easier, but make sure you get a signed document at the start of the relationship.
Foreign-owned CMs are the lowest risk, but are probably not the fastest to get your product to market since they focus highly on the complete NPI process and making a safe transition to manufacturing. They may also require the highest upfront investment from you, but remember it is often the cheapest option in the mid-term. With more transparency and better control over your supply chain, you are much better able to prevent the usual issues. See our ongoing list of articles about ‘Disputes with Chinese suppliers’ to get a taste of what happens to those working with an ODM or OEM company.
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What kind of supplier are you working with in China or elsewhere? Did you benefit from any of the good points listed, or did the supplier let you down somehow? Let us know by commenting, please.
As always, feel free to contact us if you have any questions about this or other topics.
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