Supply chain management has always been the top priority of hardware startups and a key factor in determining the success or failure of hardware products. The ability of hardware startup teams to control the supply chain is a key factor affecting the success of the product. Whether it is for successful hardware listed companies or today’s hardware startups, supply chain management has always had various problems waiting for the team to solve step by step.

General situation of supply chain management in hardware product companies

1. 1. Collaborative research and development between product managers and engineers
      Unlike App-type Internet online products, whether a hardware product can be developed is one thing, and whether the product can be produced is another thing entirely. Engineer thinking and product thinking are different:
      ▪ Engineer thinking: To achieve the ultimate in technology, based on the existing R&D capabilities, to bring the technology to the level that engineers are satisfied with.
      ▪ Product thinking: Emphasis on moderate R&D, that is, some outstanding technical strengths may not be fully displayed in the product, because some technical points may not be suitable for large-scale mass production, nor may they be the rigid needs of consumers.
      Therefore, in the development and production of hardware, product managers play an extremely important role. They must not only understand R&D technology, but also have multi-faceted capabilities to control production, while taking into account some of the market and sales business.

1. 1. Hardware product production process
      The production process of smart hardware products is basically as follows:
      1) External strategy: discover certain opportunities or problems in the market and have economic value;
      2) Internal analysis: determine whether we have resources to solve a certain problem and seize the opportunity to earn this market share;
      3) Product design: The importance of product design lies in defining product functions and determining the appropriate technology to achieve product functions.
      4) Engineers make a shining appearance: hardware engineers, mechanical engineers, mold engineers, production engineers, quality engineers, software engineers, industrial designers. The development of a hardware product requires three types of talents: hardware, software, and machinery, and they need efficient collaboration. Without any one person, it is impossible to complete the development of a consumer-grade hardware product.
      5) Product testing: The next step is to enter the process of testing, discovering bugs, modifying solutions and requirements, and product iteration. This process may be more torturous than the initial development, because the emergence of each bug may be a re-examination of the entire solution.

1. 1. Engineering prototype stage
      The developed machine is called an engineering prototype or Demo. The future market-oriented smart hardware products are based on engineering prototypes, and function optimization, performance testing, trial production, and mass production are carried out. Most hardware startup teams are generally not stuck on engineering prototypes, but more often fall into the pit of production.

1. 1. Control of production links
      Let me first throw out a bloody case: In the past 10 years, crowdfunding of smart hardware has been quite popular, but according to incomplete data, the Product default rate of crowdfunding of smart hardware may exceed 90%.
      A classic case is a smart bracelet. In 2013, this smart bracelet launched a vigorous crowdfunding. At that time, it was promised to be shipped at the end of 2013, but on the delivery date, the manufacturer postponed the delivery date by one and a half months; on the postponed date, it still could not be shipped, and finally it was delayed until May 2014, and the first batch of goods had not been completely shipped. At that time, the founder of the company issued an apology statement, but even so, they were ridiculed by the industry and consumers as “I bought a watch last year.” The brand reputation and performance of this smartwatch can be imagined.

1. 1. Solve the yield rate
      The yield rate of the bracelet in the above case was only 20% in the first and second batches, and only 50% in the third batch. Even with the support of this capital investment trend in those years, the startup company was given more buffer space, which enabled the bracelet product company to survive for several years, but it eventually went bankrupt due to a broken capital chain.

1. 1. Sales
      The complete hardware product supply chain starts from the supplier sourcing of R&D to a series of complete value chains such as procurement, production and manufacturing, warehousing management, logistics network, market sales, and after-sales service. The reason why hardware entrepreneurship is difficult is that the resources, capabilities and endurance required for hardware entrepreneurship exceed many entrepreneurial fields, and there may be big pits in each link.
      At the same time, the life cycle of hardware products is also changing with each passing day, so we say here that “sales are one thing, and sustainable sales are another thing.” Consumer preferences are changing all the time. Everyone was wearing smart bracelets yesterday, but no one may use them today. How to deal with inventory? How to deal with waste? What to do in the next step of R&D? These will affect the vitality of the enterprise.

1. 1. After-sales service
      Furthermore, the after-sales repair system will also occupy supply chain resources. For example, how much material should be prepared for each component of a batch of products for repair? After-sales repair data also needs to be fed back to the R&D and production ends. It can be said that they are closely linked and any link is missing.
      On a deeper level, the supply chain not only affects the success or failure of the product, but may also involve internal problems of the company. Therefore, even for some very successful smart hardware companies in China, the big boss will directly manage the supply chain. For example, Lei Jun clearly stated in an email to Xiaomi employees that he would manage the supply chain, which may be due to the production capacity requirements of the new Xiaomi mobile phone. In many successful hardware companies, the founders attach great importance to supply chain management. The founders will also directly manage R&D and supply chains and are very familiar with the supply chain.
      The entire above process, from engineering prototypes to trial production and then to mass production, if it is an entrepreneurial smart hardware team, it is best to make plans for half a year to a year. It is not easy to make batches. If any of the materials in the BOM (Bill of Material) list of materials are missing, they cannot be shipped.
      It is particularly important to grasp the procurement cycle. Even if everything is planned, you must be prepared for suppliers to jump orders. It should be said that suppliers jumping orders is inevitable. Even if they do not jump orders, it may be that the incoming material yield is not up to standard. It is also common to squat in the supplier’s factory to urge for goods. A friend who once started a hardware business often squatted in the factory of the hardware supplier to watch the production until three or four in the middle of the night. To be more precise, he forced the supplier to produce until he got the materials. He got up early the next day to urge the next supplier to deliver goods.
      There is a certain gap between the actual hardware supply chain and what you usually see in books, because many of the books are about the successful models of large companies, or some principles. The actual operating conditions are generally different from the principle framework.
      In addition, large companies have several characteristics: strong bargaining power, relatively mature products, and a complete logistics and sales system. Some large companies can achieve zero inventory, which basically reaches the top management of the supply chain. However, hardware startup teams are different. They need to gradually explore production capacity and output, because hardware startups are about making innovative products, grabbing the estimated unknown incremental market, replacing some existing models, and providing consumers with additional benefits. This means that in the first two or three years of entrepreneurship, many links need to be built from scratch, including sourcing reliable suppliers for the Mobile Phone Case.

Pitfalls of hardware startups

For startup teams that make consumer-grade hardware products, the team is generally required to have the ability or resources to solve the supply chain to a certain extent. Otherwise, from engineering prototypes to consumer purchases and uses, they will experience layers of hardships, just like going to the West to obtain scriptures, as highlighted by OPD Design.
According to the problems that the author has encountered and is currently solving in the research and development and production of agricultural intelligent monitoring equipment, there are many pitfalls in each process. In the process from zero to one, the supply chain problems and solutions that hardware startups may face are as follows:

1. 1. Chip procurement
      In fact, the supply chain has already begun from the beginning of research and development design. After understanding the needs, hardware engineers select key components, determine solutions, produce engineering prototypes, test, and optimize costs.
      Engineering prototypes generally use better electronic components and imported components. When optimizing costs, cheaper components will be selected, but non-critical components must be replaced, such as resistors, capacitors, and non-critical chips. When optimizing chip costs, the main method is to downgrade. The levels of chips are mainly civilian, automotive, military, and aerospace. Electronic made in china are often categorized into three primary levels based on their temperature parameters and subsequent performance variations.

1. 1. Cost & profit control
      Cost is very important for the output and sales of hardware, because there is a big difference between hardware entrepreneurship and Internet entrepreneurship, that is, hardware products must make money. In fact, hardware entrepreneurship is essentially selling things to make money. Single product sales must be profitable. If there is no profit in single product sales, the company as a whole must be losing money. Usually, the gross profit margin is maintained in the range of 30%-60%, which can reserve enough operating space for operations and sales. Therefore, even if a single product makes money, it is possible that the company will lose money as a whole due to factors such as promotion costs and operating costs.
      In the process of optimizing costs, a key point is to consider product stability and performance. For example, a certain brand of RF receiver can meet the requirements in the engineering prototype stage, but after the high and low temperature cycle test, the receiving sensitivity can not meet the requirements. Later, after repeated testing and inspection, it was found that the reason was the replacement of a Japanese imported impedance matching capacitor. This is the problem caused by the cost optimization process. When reducing a part of the cost, other problems are linked.
      Therefore, when optimizing costs, you must be cautious and do enough testing before considering the production line. For example, power chips, microcontrollers, boards, etc., you must be more cautious when making material substitutions.
      For example, last year, a hardware startup company replaced the board when it was doing procurement cost reduction in the mass production stage. There were no major problems in the test and production. Until it was shipped to consumers, there were a lot of repairs and complaints. It took a while to find the root cause of the problem. Eventually, the product stopped shipping for more than a month, and the company had to place new orders and purchase, and deal with a lot of waste. This is caused by the material switching in the mass production stage.

1. 1. Mass production
      In mass production, we first need to make reasonable expectations for the market, propose expectations, purchase materials, put on production lines, and test shipments. This is the basic process. Without considering material shortages, how much should the market expect to be appropriate? It is difficult. If the market expects less, it means insufficient production capacity, and if it is more, it means inventory backlog.
      At the same time, it is also important to ensure that the production line can start normally. The planned production line may be shut down due to the lack of certain materials. Again, it is not okay if one screw is missing, and it is not okay if one resistor and capacitor are missing.
      In addition, the risk of switching materials in the mass production stage is relatively large. Try to adjust the product in the trial production stage. Material switching may be to replace the old material with the new one after it is used up. This is generally for cost reduction considerations. Both materials can play similar functions. There is also an immediate switch. In this case, problems are generally found and new materials are used immediately to solve certain bugs.
      Quality rate, pass rate, and UPPH are also important factors. If the yield rate is low, the output will be low, and the cost will rise. There may be several situations in which the yield rate is low. It is most common when new smart hardware products are introduced, because new products often have fresh and special functions, and the production difficulty may be too high. At this time, engineers need to adjust the technical plan in time to reduce the difficulty and increase production capacity. Production is simply an in-and-out process, with materials in and products out. Cost control should be carried out in every link.

1. 1. Supplier selection
      Next, let’s talk about the relationship between the R&D team and the supplier. For hardware startup teams, finding suppliers is extremely important, and preparations must be made from the beginning of R&D. We just said that there are three types of technologies necessary for hardware products: hardware, software, and structure. Among them, structural parts are the most difficult to control. The hardware cost has basically been transparent in the market, but hardware and plastic parts involve proofing and mold opening. The industry is very deep and it is normal for startup teams to be pitted.
      Suppliers can basically be divided into several categories:
      ▪ Small workshops: labor, equipment, and production environment are all very low. How low are they? Simply put, I stayed there for an afternoon waiting for materials, and I basically felt that I was going to shorten my life. The workers inside could not work until they were thirty years old at most. However, the cost is low, and the materials produced by proofing are not necessarily bad, so it is more suitable for start-up teams with no big background.
      ▪ Small and medium-sized factories: with a scale of about 100 people, they are generally more experienced, suitable for mold production and small batch production, and also suitable for start-up teams, but they need to be cautious in the process of finding them.
      ▪ Finally, there are large factories: standardization and process-based. This should be considered after development, because suppliers have priority in production scheduling, large customers are prioritized, and small customers are ranked later, but when the company develops to have bargaining power, it should also upgrade the supplier level accordingly.
      Therefore, suppliers will also choose manufacturers, and it is not that the suppliers found will definitely take the job. Sometimes suppliers will refuse for various reasons. And suppliers who take the initiative to take the job may not be able to meet the technical requirements and produce qualified materials.
      Hardware product companies should go to more suppliers and find more suppliers. If there is enough manpower, they should also supervise production in a timely manner. Because when entering the stage of supplier production and supply, it is very common for suppliers to default on bills. Even if they do not default on bills, the material yield may be too low, resulting in inability to produce.
      Therefore, good cooperation and collaboration between the R&D team and suppliers is very important. Simply complaining that suppliers are unreliable will not solve the problem. It is better to take positive actions and find more alternative solutions, so as not to fall into the big pit of the supply chain and be unable to climb out.