Startups are hard work, but the complexities of global supply chains can make running hardware companies especially difficult. The key components to your hardware product are not limited to a single codebase. They can also be distributed around the globe, with the risk of being affected by the fluctuations of the global economic system.
My entire career has been spent establishing supply chains worldwide, setting up production lines for electric bikes and 3D printers. I have also established global supply chain manufacturing lines. Murphy’s Law is my constant companion in hardware.
After more than 10 years of experience on 3 continents, I have a few tips that can help you avoid making costly mistakes.
You can expect price fluctuations in shipping and currency.
It is very different to shipping physical goods. You have to spend a lot of money in order to ship products all over the globe. Shipping costs are a line item that is included in the business plan. Shipping costs are subject to change every month, sometimes quite dramatically.
A shipping container to China from China was $3,300 at this point last year. Today, it’s almost $18,000 — a more than fivefold increase in 12 months. You can be sure that 2020 business plans didn’t account for this cost rise for key line items.
Buggy hardware products can cost more than buggy software. Shipping a buggy hardware product can be costly. Customers may become angry, send back shipping, and many other problems could arise.
The currency exchange rate can also be subject to similar problems. Although contract manufacturers will often permit you to keep cost agreements in place for fluctuations less than 5%, the dollar is now worth much more against the Yuan than it was a year ago. Hardware companies are forced to renegotiate manufacturing contracts.
You have two choices: Either operate with lower margins or pass the costs to your end customers as exchange rates fall and shipping costs rise. While neither option is perfect, both options are more profitable than going bankrupt.
This is why you should prepare for all possible outcomes when setting up your business. This means that you should have enough margin for increased costs or the assurance that your customer can handle a higher price.
Critical parts should not be ordered.
Many businesses lost billions in market value over the last year because they did not order enough semiconductors. Similar risks are faced by hardware owners.
Certain components like computer chips can have a limited supply. If demand rises or supply chain disruptions occur, shortages could quickly arise. Your job is to identify potential supply chains that could be a choke point and make redundancies.
Publiated at Tue 31 August 2021, 18:10:50 +0000