DRAGON INNOVATION, INC. !

HOW TO SELECT A FACTORY !

MARCH 28, 2014 BOLT | BOSTON

!!!!!

SCOTT N. MILLER | CEO | @DRAGONINNOVATE | WWW.DRAGONINNOVATION.COM

NO NEED TO TAKE NOTES !

bit.ly/How-To-Select-A-Factory

Overview• Please Interrupt with Questions / Comments. • Quick Survey • Dragon Background • Where to Build • CM Selection Process (RFQ) • Q&A

SURVEY

Why It Matters What Factory You Pick

Agenda

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Selected Companies We’ve Helped

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•COGS & Tooling Estimation •DFMA •Funding Threshold Calculation •Production Strategy & Scheduling •Marketing Strategy •Connections

Agenda

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Dragon Crowdfunding

DRAGON MANUFACTURING SERVICES Focus on what you do best. Benefit from real-time responses, improved

quality, higher efficiencies and easier communications.

•Factory Selection & Vetting •Preparation of Request for Quote(RFQ)

package •Quote comparison / Apples-to-Apples

analysis •Far East and US location support

FACTORY SELECTION SERVICES

• Factory contract negotiation •On-site support with dedicated Project

Management •Schedule and budget planning •Independent inspections and factory oversight •Certification process coordination and

assistance •Iterative design reviews •Component sourcing assistance •Total product lifecycle cost reduction •Creation and implementation of quality plan •Schedule negotiation / acceleration •Sustaining engineering strategies •Rapid response / “fire fighting” •Factory relationship management

PROJECT MANAGEMENT

STEP 1: DECIDE WHERE TO BUILD

Examples to Talk Through

China?

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Current Chinese Landscape 1. Low Labor Costs

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Current Chinese Landscape 2. Local, Robust, Highly Concentrated Supply Chain

http://supplychaindigital.com

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Current Chinese Landscape 3. Expert Domain Knowledge

http://supplychaindigital.com

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Current Chinese Landscape 4. Great Manufacturing Infrastructure

http://supplychaindigital.com

http://skeptically.org

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Current Chinese Landscape 5. Great Transportation Infrastructure

http://supplychaindigital.com

http://skeptically.org

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Current Chinese Landscape 6. Its Very Far Away

http://supplychaindigital.com

http://skeptically.orghttp://studentuniverse.com

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Current Chinese Landscape 7. Significant Language / Cultural Barrier

http://supplychaindigital.com

http://skeptically.orghttp://studentuniverse.com

http://asiasociety.org

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Yes! Manufacture in China If Your Product... 1. is COGS (Cost of Goods Sold) sensitive

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Yes! Manufacture in China If Your Product... 2. Requires significant manual labor manufacture and assemble

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Yes! Manufacture in China If Your Product... 3. Requires high production volumes (>5k units)

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Yes! Manufacture in China If Your Product... 4. Uses existing manufacturing technology (i.e. injection molding, etc)

http://berkeleysg.com

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Yes! Manufacture in China If Your Product... 5. Is tolerant to supply chain and logistics

http://berkeleysg.comhttp://kilterpulse.com

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Yes! Manufacture in China If Your Product... 6. Can benefit from low or no cost Design for Manufacturing and Assembly (DFMA) Non-recurring Engineering (NRE)

http://berkeleysg.comhttp://kilterpulse.com

http://plasticstoday.com

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Yes! Manufacture in China If Your Product... 7. Has “physically” protectable IP

http://berkeleysg.comhttp://kilterpulse.com

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Upcoming Concerns in China 1. Rising Exchange Rate

http://en.wikipedia.org

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Upcoming Concerns in China 2. Rising Wages

http://en.wikipedia.org

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Upcoming Concerns in China 4. Political Relationships

http://en.wikipedia.org

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Upcoming Concerns in China 5. X-Factor Concerns

http://en.wikipedia.org

USA?

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Yes! Manufacture in the US If Your Product... 1. Can be manufactured and assembled through automation

http://berkeleysg.comhttp://kilterpulse.com

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Yes! Manufacture in the US If Your Product... 2. Is sensitive to shipping time and expense

http://berkeleysg.comhttp://kilterpulse.com

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Yes! Manufacture in the US If Your Product... 4. Requires low volumes

http://berkeleysg.comhttp://kilterpulse.com

http://www.theguardian.com

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Yes! Manufacture in the US If Your Product... 4. Has difficult-to-protect IP

http://berkeleysg.comhttp://kilterpulse.com

http://www.independent.co.uk

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Yes! Manufacture in the US If Your Product... 5. Requires non-standard capital equipment

http://scientificmachining.com

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Yes! Manufacture in the US If Your Product... 6. Is part of a government contract

http://en.wikipedia.org

STEP 2: REQUEST FOR QUOTE / CM SELECTION*

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*THE MOST IMPORTANT MANUFACTURING DECISION YOU’LL MAKE

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Overview of the CM Selection Process

http://en.wikipedia.org

1.Talk with trusted network connections who have manufacturing experience. 2.Create a differentiated list of 5 - 10 CMs. 3.Create a Request for Quote (RFQ) Package. 4.Down select to 3 - 5 factories based on your product category. 5.Visit! (See checklist on next slide) 6.Talk with the CM’s customers. 7.Negotiate. 8.Select the winner, and leave the others on good terms.

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RFQ Package

http://en.wikipedia.org

•Company Overview -Team overview -Funding -Product -What’s done -What needs to be done -Factory Criteria

•BOM -Canonical format (A2A) in Excel -Transparent and Formula Driven -Separate Std, Special and Consigned Margins -Include all costs to Ex-Factory -Fill in the blanks

•Schedule -Gantt chart (Cloud) -Fill in the blanks

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RFQ Release

http://en.wikipedia.org

•Down select to 3-5 CM’s (why?) •NDA •RFQ Release & Follow up •Factory Visit

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Factory Visit Checklist

http://en.wikipedia.org

Do you like the team? Are they experienced and friendly? Do they make similar products? Do they have the right manufacturing capabilities? Does your intended volume match their volume capabilities? Are they financially stable? Do they have enough working capital to get going? Do they have ties to the central government (if in PRC)? Do they have favorable payment terms? Are they transparent in their costing? Do they take IP seriously? Did they show you something they shouldn’t have? Are they ethical in their treatment of their workers and otherwise? Do you have access to upper management? Are they excited about working on your product? !!!!

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CM Comparison (A2A Decision Matrix)

http://en.wikipedia.org

•Margins (Std, Special, Consigned) •Labor •Pareto of Top 5 Most Expensive Components •Schedule •Fit Criteria

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CM Selection

http://en.wikipedia.org

•Select Top 2-3 CM’s •Negotiate A2A category by category •Award Project to Winner •Update Others

NEXT STEPS

The Road to Production

Detailed Milestones‣Hand  Over  /  Kick-­‐Off  

Form  CM  Team  Contact  Lists  /  Roles  and  Responsibili>es  

ME  and  EE  File  transfer  Works  Like  /  Looks  Like  Samples  CM  trip  to  the  US  if  possible  (access  to  models  and  team,  rela>onship  building).  

Factory  Input  Components  

Engineering  Quality  Produc>on  Planning  (interface  with  Sales)  

Sourcing  /  MA  /  Cos>ng  Logis>cs  Process  /  Procedure  

Financial  (modeling  and  payments)  

Pre-­‐Produc>on  Milestones  Tool  Release  Tool  Start  (TS)  First  Shots  (FS)  Engineering  Pilot  1  (EP1)  EP2  EP3  Final  Engineering  Pilot  (FEP)  Produc>on  Pilot  (PP)  

Produc>on  Produc>on  Start  (PS)  Ramp  

Engineering  Change  No>ce  (ECN)  Sustaining  (Quality  Up  /  Cost  Down)  Sunset

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Suggested Reading for Background on China

http://en.wikipedia.org

"Factory Girls", Leslie Chang !WSJ reporter who lived in China interviewing migrant factory workers in the Pearl River Delta. Great insight into the workforce.    !!!!"Poorly Made in China", Paul Midler !Light, humorous, and scary. !!!!!!"Mr. China", Tim Clissold !Older humorous memoir of one of the first Westerners to do modern work in China after Mao. !!

Questions?