Building a Supply Chain for Your IoT Product

What does building a supply chain look like? How many steps does it take to get a Flair Smart Vent ready for market and into a home? When we started Flair a few years ago, we had to figure this out on our own, and we found the answers to be eye opening.

Sourcing Raw Materials

Metals

Each factory is specialized. That means that the metals in our Smart Vents trace back to factories that focus on tools, extrusion, stamping, and powder coating.

The powder-coating facility paints a stamped Smart Vent. At the stamping factory, rolls of steel are sent through our stamping tools. Before that, a metals distributor supplies the stamping factory with rolls of steel. Before that are the metal smelters. You could follow this chain all the way back to iron ore and recycled scrap material!

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Smart Vent faceplates awaiting powder coating[/caption]

Plastics

Plastics have a similar supply chain. Petroleum or biological chemicals are refined into polymers like ABS (acrylonitrile butadiene styrene) as pellets or beads. After that, these pellets are mixed with various colors and chemistries to achieve the ideal look, feel, and physical structure for the part. They are then injected into metal tools for forming.

Electronics

Our electronics supply chain is incredibly global. We sourced parts from household brands like Bosch and tiny components that are effectively unbranded. For example, there are US, Chinese, German, Norwegian, Japanese, Taiwanese, and Korean components in our products. Lead times for even the simplest components often took months. I'm looking at you, alkaline batteries!

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Assembled printed circuit boards (PCBs) awaiting firmware flashing.[/caption]

Building a Supply Chain Structure

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An abbreviated view of the Flair Smart Vent supply chain (click to expand)[/caption]

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

Each part in our flow diagram ends up at an end-stage assembler. This is typical. What the chart doesn't show is how the different vendor relationships are managed. When you decide on your supply chain structure, you are making decisions about who bears what responsibilities.

Do Your Homework

You might think that the best supply chain management model is to have a single point of contact with your end assembler. They can do everything in-house. While this has the lowest management overhead, the reality is that even the biggest contract manufacturers (CMs) outsource specialized tasks like metal-working, package printing, and finishing.

Even if they could do everything in house, it would be hard for them to compete with specialists on price and quality. In many cases, CMs have relationships with vendors that are well-vetted and a virtual no-brainer for you.

It is always worth doing your homework here. Sometimes a vendor doesn't have the right equipment for your task and will further outsource your project. This inevitably introduces margin and additional risk. Sometimes CMs think that they will easily win the job. This means that their offers may not be competitive. They might also push back on part features to limit their engineering time.

Do your due diligence! Get quotes early on to understand the complexities of your product and get a sense of the market rate. Always read up on the different ways a part might be produced. Seemingly tiny differences can lead to huge price differences.

Sometimes, a quote from a factory will be useless. Maybe they didn't look at the parts list carefully enough to realize that there might be additional (read: expensive) processing. Sometimes, the expectations around quality are in different universes (both for you and the factory). 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.

Join the Fray

Another approach is to insert yourself earlier into the supply chain. This can be quite difficult. However, the upside is that you can control prices and source vendors that are cost competitive and/or provide the highest-quality products. It's common, for example, that a CM can't produce a part cost effectively because of their equipment.

Upfront sourcing, including touring and testing, of vendors is a huge management task. Keeping on top of their status and resolving issues will keep you busy.

You might have one vendor supplying plastic parts and another supplying metal parts. At final assembly, these parts need to fit together. If they don't fit, whose responsibility is it? Nobody will want to scrap and rework. You are going to be stuck in the middle trying to determine who made the mistake. It's on you to convince them to spend loads of time to solve your problem.

Our Solution: Somewhere In Between

For us, the ideal scenario was to find a top-notch CM, but also get involved with some of the critical supplier touch points. Early in the process, we inspected samples from a few different vendors. We then worked with our CM and those vendors to ensure that certain design features could be made as desired.

After finding the right supplier, it's 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 we found that it's worth it. They have more experience managing vendors and orchestrating the supply chain.

In the end, we did a close inspection of our parts, increasing tolerance specificity and in one case we had to find an alternative supplier. This took time and energy. However, some of our competitors (we won't call them out) skipped out on this process. It had dangerous consequences.

The time spent working through details on parts also allowed us to find great feature/cost tradeoffs and create an attractive price point for our customers.

Your Supply Chain Will Evolve

Your business changes with time. So will the suppliers. In the beginning, you are making small volumes—thousands or tens of thousands—but as you ramp up your supply chain will change. The market will dictate some of this. In other instances, factories gain and lose capacity as workers come and go. Your CM may take on other projects with a higher priority. You must make sure you understand the subtleties for every process and part to stay adaptive.

If you do it right, you will be rewarded with a sustainable business that offers best-in-class products at competitive prices.

Written by Daniel Myers, CEO at Flair.