By Paul Vizzio
So you've made your initial prototypes and are looking at lowering your BOM in order to sell your product for a profit, but how? Buying components from McMaster, DigiKey, and sometimes even Amazon is great for early prototypes, but as distributors of other companies' products their prices will always be higher than what you can get directly from the factory. If you've been down this path before you might say "We'll just get our contract manufacturer (or sourcing company) to source what we want"; while this usually does work, you are left out of the loop on pricing and vendor conversations. Not to say that your CM (or sourcing company) will negotiate one quote with the vendors and tack on a few percent to the quote they show to you, but it's not uncommon for this to happen. The more control you can have over every one of your components, the better. Sourcing is a very broad term and can mean anything from finding screw suppliers to injection molders. While the overall concepts remain the same, this post will focus mainly on sourcing components (like screws) and not services (like injection molders) or custom pieces. The four most important aspects of a potential component supplier are quality, cost, location, and accessibility. Sourcing can get very in-depth with proprietary software (and upcoming blockchains) and entire teams devoted to it, but for this post we'll focus on cheap and easy solutions that will work for small companies or those just interested in getting started.
Finding Vendors
This is most important phase in the sourcing process; finding potential vendors. This phase will not be quick and is going to take a lot of patience and tracking. Let's use as an example a 5VDC brushed motor. Based on your prototypes you should have a range of voltages, currents, sizes, torques and motor shafts that you can live with as your design is still semi-fluid. Do not lock your design based 100% on the exact motor you've been prototyping with as you can quickly find out there's only one vendor for that part and you're stuck with a component that will blow up your overall BOM costs. This is the stage where you cast a wide net, catch everything that comes into it, and downselect based on quality-cost-location-accessibility. Many times you will find out that there are motors out there that are better than what you initially thought was "the perfect one."
The first thing you need to do is start a clean new spreadsheet and label it with the following rows: Company Name, Location, Company Type, Contact, Part Number, Price (1k-5k-10k), Links and Notes. You can add or subtract additional rows as you please, but every potential vendor you find you should write down in this spreadsheet; this will ensure that you don't miss any company you stumble onto and don't reach out multiple times to the same place accidentally (this can get very confusing very quickly). The first potential vendor to start out is with the prototype parts you already have. You likely bought these from a distributor and therefore there is a manufacturer and P/N hidden either somewhere on the part itself, or in documentation you can obtain from the distributor. Often you can ask the distributor for additional information or very specific questions about the product and they'll refer you to the company's customer support line. Next, you should start Googling and asking any peers about potential vendors (in our case we would search for 5VDC brushed motors). Google searches can turn up a tremendous amount of hits based on how specific the part in question is; 5VDC brushed motor will turn up many more than a more niche product. Open up every potential vendor's website (so long as the link doesn't look sketchy) and look for motors you think will work; write all of the potential fits into your spreadsheet and copy any links into the links section. After a few dozen Google pages and many websites you'll probably have a good idea of who the big players are in the market, you'll also likely find many distributors; it's usually good to note the distributors for the potential of low MOQ and quick turn orders, but very rarely will they be an option for mass production.
After you've exhausted what feels like the whole internet, now comes the time to check overseas. If you don't already have an Alibaba account now is the time to make one. If you've never been on the website, it's basically just a search engine to find Asia based companies making the product you are looking for. The user interface is a bit coarse and it's a bit confusing at first, but just dive in and search for 5VDC brushed motor. You'll find many many many pages of products, some look like what you are looking for and some do not, some are from the same vendor and some are from different ones using very similar pictures. Open up any and all pages that look remotely interesting; even if the product isn't 100% you can message the vendor and ask if they have something similar to what you're looking for. What you'll find very quickly is that of the 100 tabs you opened, there are only around 12 vendors so you'll need to keep track of them all in your spreadsheet to determine which companies you'll actually reach out to.
Getting Samples
Now that you've got your master spreadsheet, it's time to start reaching out to the vendors and getting samples. Typically vendors will provide a few samples at cost plus shipping charges; on Alibaba, companies will usually provide free samples provided you pay for shipping. Shipping from Asia can get very expensive very quickly if using your own logistics accounts (FedEx, DHL, USPS, etc...); the trick here is to have the vendor arrange for shipping and to invoice you for the cost. The rates that vendors in China can get will be a fraction of what a typical courier service, like FedEx, will charge. For instance a small package shipped by the company may cost $30, whereas through FedEx could cost $200. Alibaba has an internal payment system called Alipay, alternatively PayPal is often accepted by most vendors. Some vendors only accept Western Union or direct wire to bank accounts, this may or may not turn out well, but we typically stay away from these transactions just for safety.
Using your spreadsheet, go through every vendor you have written down and reach out to them for samples as well as to quote for X number of units. Typically 1,000, 5,000 and 10,000 units are standard quantities, you can feel free to request higher or lower numbers depending on your projections. Throughout the process take note of how easy or difficult it was to communicate with the vendor and how responsive they were. You will likely deal with many different messaging apps (WeChat, WhatsApp, Facebook Messenger, AliChat) and many different time zones.
Quality
Parts should start rolling in over the next few weeks and as they come in you should be evaluating them. Depending on what you are sourcing you can come up with your own respective tests, but always start out with the visual check to see overall fit and finish. For our motor we would then go into electromechanical tests like making sure it works with our electronics, testing torque values, checking response to voltages and doing long term on/off tests. Making sure that the parts can work with your assembly is the most important aspect of the component, be sure to diligently note any pros/cons of each vendor and any that will not work you can remove from consideration.
Cost
Price plays the largest role to the financial side of the business and as such will be weighed heavily in vendor selection. There is always a trade-off between cost and quality, the cost aspect usually has a higher weight in consumer products than does the quality. Often times in consumer products it will be "what is the cheapest part we can use that will be 'good' enough?" Be sure to be comparing apples to apples in your spreadsheet, this means getting all of the possible parts quoted out in the same quantities and in the same Incoterms. Incoterms refers to the shipping charges you will pay for, with EXW and FOB being the two most popular. We won't dig into the terms much in this post, but EXW means that the price given is the price out of the factory door, you have to arrange all applicable shipping charges to get the product from their door to your facility. FOB means the parts will be sent to the nearest port or shipping facility and you'll pay only for the shipping charges from there. Depending on the products and quantities you're ordering, the cost difference between EXW and FOB could be large.
Location
Location is important for many reasons. Location will determine shipping costs, customs fees, time zone differences, language barriers, and face to face time. You may be able to source a component 5,000 miles away for cheap, but you will have to pay for shipping it and getting it through customs, along with the communication issues that could happen based on both language and time zones. There's no way to quantify the benefits of a local company that you are able to pop in on every now and then to generate some face time, but doing so goes a long way towards a good business relationship. That all being said, do not be afraid of going with a source far away. You will wind up with a supply chain that likely spans the globe anyway, as long as you work with vendors that you can generate solid communications channels with you should have no problem managing all of them.
Accessibility
The last of the aspects to look for in a vendor is accessibility. This entails communication, responsiveness, eagerness and openness. Throughout the sourcing process you will find that some contacts are responsive and easy to work with, while others may take days to get back to you and seem to not care about if they get your business or not. Accessibility, especially for overseas vendors, will dictate how well your supply chain can roll out and crank out products. All it takes is one vendor to be slow to respond to derail launch schedules. Openness is an important quality for the vendor to have in the aspect of showing their factory, assembly lines and their internal processes. When you narrow down to your top few vendors it is advisable to either take a tour of their facility or to send a representative to audit their facility (there are companies that specialize in this). If the component is not too critical you can get away with taking virtual tours of their facility via video call or pictures.
Summary
In summary, sourcing is an extensive job, but it can be done given that you have enough patience, are good with communication, and are diligent in tracking. The vendors you source you will likely be working with for years to come, so it is important to choose suppliers you have a good working relationship with and that you can keep up for a long time. Touring facilities (or getting sourcing/auditing companies to do this) every now and then are advised to maintain good working relationships and ensure your quality standards are withheld. Now that you've gotten sources for you product, it's time to start adding them into your EVT, DVT and PVT assemblies.
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