Transitioning away from in-house manufacturing

After a lot of thought, Mark and I have decided to move entirely away from in-house manufacturing.  While it is at least theoretically possible to do in-house manufacturing quite well, and to do it reasonably cost effectively – it takes a huge amount of work and commitment.  It makes sense in some situations — perhaps because either you have no choice or it gives you some sort of advantage.  “Because it’s awesome” is not a good rationale.  This is one of the reasons why it’s good to have some good investors or advisers or board members – some sort of oversight who can call you out when you’re being dumb.

Well, Saleae doesn’t really derive any competitive advantage for in-house manufacturing, apart from the fact that it makes for cool pictures and office tours.

However, it is critical that we find an awesome partner to do the manufacturing.  Someone with ideally much better quality control and processes and capacity than we would on our own.  And ideally the same cost or lower.

I’ve heard lots of stories about factories in China needing constant supervision to assure quality – that you just have to have an engineer basically live there.  This is not something I want to deal with at all.  (I’m sure many factories in China are extremely well run, it’s not like I’ve done a comprehensive survey or something.)

Here’s a reasonable wish list for a contract manufacturing partner I think:

  • The people there are honest, friendly, generally happy, and really care
  • Turnover is low, and people think highly of the management
  • Vendor management, procurement, material resource planning is world class
  • Engineering, QA process control is excellent
  • Direct access to key people – procurement, engineering, project management, QA
  • Fast, efficient, and very clear communication
  • Open book processes, open book costs
  • Over-the-top personal endorsements from other customers at established, excellent companies
  • Reasonably long history; long relationships with other customers
  • Established customers have higher complexity PCBAs / products than yours
  • Willing to work with your volumes
  • Good final price and payment terms

I’m excited to announce that we have in fact found such a partner, and have been working together for several months now. They will be doing a 100% box build for us, for all our products.  Our costs will not increase, and I believe our quality will ultimately improve overall.

This new manufacturing partner is in Taiwan, which Mark and I had the pleasure of visiting recently – and in my estimation it is a truly wonderful country.  We really enjoyed our time there.  I believe other parts of the world may also be good places to find manufacturing partners of a similar caliber and cost.  Not 100% sure, but perhaps Poland, South Korea, and Mexico.

It is difficult to find such good suppliers, and I don’t yet have a great algorithm to share on the matter.  However it is now obvious to me that key partner selection is one of the most critical functions of the CEO (partners could include manufacturing, marketing, accounting, legal, design, etc). Here are a few ideas:

  • Don’t settle – assume that the perfect partner exists, and that your job is to find them.
  • Become comfortable traveling internationally. Spend enough time to really understand the people you’re considering working with.  Are they genuine, good people, who really care?
  • There are “tiers” of partners. They will require different “account sizes.”  You’ll need to figure out what your annual spend is likely to be is and that will automatically narrow the list of firms that will work with you.  Of course most will not put on their website “must have annual spend greater than $500,000” but a quick call will get it sorted.
  • Websites generally speaking aren’t going to be that helpful. Just start setting up calls.  These people can help educate you about the market too, so you will be increasingly sophisticated as time go on.
  • Bigger isn’t necessarily a bad thing. It could be really good if it means great processes are in place. After all, they must have done something right to get big in the first place.  So the question is – will your small account receive awesome service or not.  Will the A players at the firm at least review and sign off the work that the more junior people on your small account are doing?
  • References are everything. Insist on them, and the more the better.  Probably even call their customers that they did not explicitly give you contact information for.
  • Make sure their other customers are in some way aspirational for you. Do you think the partner’s other customers are cool, well run companies you to aspire to be like?
  • Make a comprehensive wish list, and update it as you talk to more and more people.

Ultimately you’re going to have to turn a lot of these companies down – you can only pick one after all.  For me, this is kind of rough.  But that’s life.  However, hopefully you’re now at the beginning of a wonderful, stress-free relationship — and that’s exciting.

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