Startups are difficult work, but the complexities of global supply chains can make it particularly difficult to manage hardware companies. Instead of existing in a code base behind a screen, the key components of your hardware product can be scattered around the world, subject to the volatility of the global economy.
I have spent most of my career establishing global supply chains, setting up manufacturing lines for 3D printers, e-bikes and home fitness equipment in Mexico, Hungary, Taiwan and China. I have learned the hard way that Murphy’s Law is a constant companion in the hardware business.
But after more than a decade of working on three different continents, I have learned a few lessons that will help you avoid unnecessary mistakes.
Expect cost fluctuations, especially in terms of currency and shipping
Shipping physical products is quite different from the “shipping” code: you have to pay a considerable amount of money to transport products around the world. Of course, shipping costs become a line item like any other as they are incorporated into the overall business plan. The problem is, these costs can change every month, sometimes drastically.
Around the same time last year, a sea container from China cost $ 3,300. Today, it’s almost $ 18,000, an increase of more than five times in 12 months. It’s safe to assume that most 2020 business plans didn’t account for such a cost increase for a key line item.
Shipping buggy hardware product can be exponentially more expensive than shipping buggy software. Recalls, angry customers, returns, and other issues can turn into existential problems.
Similar problems also arise with exchange rates. Contract manufacturers often allow you to maintain cost agreements for any fluctuation below 5%, but the dollar has fallen more than 5% against the yuan from a year ago, and hardware makers have were forced to renegotiate their manufacturing contracts.
As exchange rates become less favorable and shipping costs increase, you have two options: Operate with lower margins or pass the costs on to the end customer. Neither choice is ideal, but both are better than going bankrupt.
The bottom line is that when you start your business, you need to prepare for these possibilities. This means operating with sufficient margin to handle the increasing costs, or with the confidence that your end customer will be able to handle a higher price.
Order critical parts
Over the past year, many companies have lost billions of dollars in market value because they haven’t ordered enough semiconductors. As the owner of a computer hardware business, you will encounter similar risks.
The supply of some components, such as computer chips, can be limited and shortages can quickly arise if demand increases or supply chains are disrupted. It’s your job to analyze potential bottlenecks in your supply chain and create redundancies around them.