Product life cycle

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In his private blog, electronics engineer Nirav Patel answers the question "What makes hardware hard" something like this: "What makes hardware development hard is that you don't get second chances. The money will run out if you choose the wrong customer group, marketing strategy, functionality, pricing, production plan, manufacturing methodology, manufacturing partners or logistics partners.” With many years of industry experience, we at Comptronic AB can help in matters relating to sales and finance in combination with technology.

Hardware development:

1. The idea stage

2. Pilot study

3. Design

4. Pre-series

5. Production

6. Redesign

1. The idea stage

1.1. The difference between product idea and business idea

When we talk about new products, we usually mean new versions of products that already exist. Successful companies usually find it easier to develop new versions of their products rather than products that are truly new. Perhaps they do not perceive changes in the outside world that can quickly make their own products obsolete. A famous contemporary example is Nokia and Sony Ericsson who did not see the change when the IT company Apple made cloud services available via a smartphone. Start-up companies, on the other hand, often have no more than just an idea for a completely new product. However, start-up companies need real business ideas. Successful entrepreneurs are strongly associated with their products. Ruben Rausing is associated with the milk packaging and Henry Ford is associated with his T-Ford. Ruben Rausing and Henry Ford perceived changes in society that became the starting point for their business ideas where the product itself was only a part. With inspiration from the USA, Ruben Rausing envisioned that the customer himself would take a package of milk from the store shelf, instead of having the milk measured in a glass bottle over the counter, as in Sweden in the 1920s. Henry Ford wanted to mass-produce the T-Ford so that the workers on the assembly line could afford to buy the car at the same time. Their products were placed from the outset in a business context.

2. Pilot study

2.1 Is the product available?

With a new product idea, it's good to start by looking to see if the product already exists. If the product exists in some form, it is usually good news, it is at least an indication if others have established that a need exists. Furthermore, the costs of marketing something that is completely unique alone are very high. Since several decades back, many new innovative products are coming from Asia. Before starting your own product development, perhaps you should become a reseller of an existing product to get to know the market better. Perhaps you discover that the product that already exists is protected by a patent. Another possibility is to first become a reseller for a complementary product.

2.2 The issue of patents

Companies with innovative product ideas usually apply for patents at an early stage. Truly original ideas may already be patented. When you apply for a patent yourself, it can unfortunately be like advertising a good idea. The patent becomes ineffective when a large company decides to steal the idea, because they have completely different financial possibilities to sue smaller companies. The strength of Ikea consists in the different parts of the business idea and the way in which each part is carried out. The threshold is very high for anyone who wants to compete with Ikea. When an innovation takes the step from being an idea about a product to a business idea consisting of different parts, the business becomes more robust and more resistant against competition. Perhaps a patent is not needed to protect the product, a pattern protection or a protected trademark could be sufficient.

2.3 Selling on paper

When developing new electronic hardware, there is often reason to sell the product "on paper" early in the project. A well-substantiated specification opens up opportunities to bring in money. Perhaps a first customer could risk ordering the product - with or without reservations - based on a PDF? If not, the customer may be able to make a declaration of intent to order the product when it becomes available. With customer orders and declarations of intent behind it, it is easier to take in risk capital.

2.4 Prototypes

Product development is an iterative process. For each new prototype version that is developed, knowledge about the product, its costs and its producibility increases. In addition, both dummy prototypes and working prototypes in the wrong format can be helpful in sales work.

2.5 Taking advantage of the value chain

In recent years, many larger companies have implemented what is known as open innovation. They share the company's information with others, while seeking new information outside the company's own walls. The ambition is to involve the customer in the development work so that new products are as correct as possible from the start. The principle is an open flow of knowledge, while the companies protect a few core competences. With internet connectivity, it is practically possible to sit in the countryside in a farming country and develop electronics hardware. The reason why it does not happen that often is that it is easier to develop products in industrialized countries where there are functioning value chains. For many smaller companies, "secrecy" surrounding a product becomes a limiting factor that delays the project and sometimes prevents the product from ever going into production. Unlike in Henry Ford's time, labor costs are now higher than the costs of materials. A small company that is willing to share necessary information about its product can often subcontract parts of the development work.

2.6 Pricing

An innovative product is not in itself a business idea. A first step in converting an idea about a product into a business idea is to ask yourself two straight questions: Who is the recipient of the invoice? And what should be on the invoice? Depending on who is the recipient of the invoice, the pricing will be different. If the invoice is to be sent to a hospital, there are often legal requirements that affect the cost of the product. If the invoice is to be sent to the consumer, you may need a substantial marketing budget. When it comes to pricing electronics hardware, companies often think of a margin needed over and above material and manufacturing costs. How this imaginary margin has been calculated is sometimes unclear. Does the margin cover the cost of the development work? Does the margin cover the cost of administration and marketing? Does the product get a market price if the margin covers the necessary costs? Or could it even be that the market price is higher? Can the product actually sell better with a higher price? There is a price that the customer is willing to pay, as well as a minimum price that the product owner is willing to sell for. Large companies that sell solutions and systems encompassing hardware, software and services have strategies to maximize the profitability of their product portfolio. The price is set based on a value-creating perspective or based on the customer's perceived value. A new product with twice the performance may command a price that is almost twice as high. Or the new product gets a low price, performance notwithstanding, in order to be more quickly accepted by existing customers and thereby faster reach volume production.

2.7 Competition

When a truly innovative product is part of a business idea, there are competitive advantages in getting the product to market quickly. In addition to the pricing of the hardware itself, there are often other parts of a business that you can make money from. The product may be rented out, or you may be able to make money from a subscription to associated software.

2.8 Next step

Labor costs for the time initially spent are relatively low, compared to the costs incurred from the construction phase onwards. Therefore, carefully carried out preparatory work can save both time and money. A small company with limited resources and a good product idea may do well to sell the idea to a company that can create a business around the product.

3. Design

3.1 Discreet construction or modules

For a product idea that you really believe in, perhaps you can choose to develop parts of the product and buy in other parts in modular form. By using ready-made modules, the development time is shortened, so that the product comes out faster and can be tested on the market. Large Asian manufacturers have the opportunity to release several products in parallel, to see which product is best received by the market and then recall other products.

3.2 Component samples

Today, there are several multi-distributors that provide information on unit price and stock balances on the web, along with component data and application notes. What is not always clear is whether the components are recommended for new designs or whether they may soon be phased out. Many suppliers are generous with free samples. When you pay for samples, you send a signal that the project has a budget. As always, it is easier to make demands when paying. Delivery of samples on time may be more time critical than deliveries once the hardware goes into production.

3.3 To freeze a specification

The software industry has introduced the concept of Minimum Viable Product, MVP, a product with a minimum number of features that are useful to the customer. When an MVP product is launched, there is a way for customers to feed back their views. The mindset has also begun to be applied within the hardware industry. When creative engineers are engaged in developing a new product, it is not always easy to decide when to freeze the specification. There is reason to think carefully about which functions the product should have, whether you can charge for them and what costs are related to each function.

3.4 Producibility

The complexity of electronic hardware affects both manufacturability and failure outcomes in production. With a value chain where several companies are involved, there is a risk that the distribution of responsibilities will become unclear. A high degree of specialization at each company in the value chain means that the product owner can easily lose control of the whole. Consultants and OEM companies who are good at developing products, may not have as much knowledge about producibility as a contract manufacturer. Somewhere in the value chain there must be a product manager who takes overall responsibility for the product during its lifetime.

4. Pre-series

When manufacturing pre-series, a smaller volume of the sharp product is manufactured as if it were mass production. Manufacturing cost per unit in pre-series production is usually many times higher than in mass production. Software companies often underestimate the material costs incurred when developing electronic hardware. One cost that is not immediately visible in the list of included components is the cost of bringing home the minimum order quantity of each component. Another cost that can be felt is the cost of semi-finished products. Subcontractors are often left with significant sums of money waiting for the final components required to finish production and send the invoice. The optimal thing is to manufacture the pre-series in the same production line that will be used for mass production, but this is not always possible. The products must be fully marketable to the end customer, but should also be used for testing, preferably in collaboration with pilot customers.

5. Production

5.1 Component supply

Different components require different amounts of planning. There are simple components for which the product owner has several alternative manufacturers approved. Such components are often in stock at the large multi-distributors. For components that have unique characteristics and for customized components, a completely different level of planning is required. For such components, it is good to have personal relationships with subcontractors and component manufacturers. Hard-to-replace components that go out of time cause major problems and costs. Perhaps an approval of the entire electronic hardware is dependent on just one component becoming obsolete. When searching for equivalent components, it is good to know that a data sheet is rarely a complete description. There may be properties that are not precisely specified in the data sheet that a design still uses.

5.2 Forecasts

During the time that an electronic hardware is being produced, it is important to gather forecast information from the market. Forecasts tend to be a combination of historical outcomes and speculation about the future. The sellers who are as close to the end customer as possible have the best information about the future. Different countries and different companies have their own cultures that make forecasts more or less enthusiastic. If the product owner has good personal relationships with local distributors, it is worth a lot. Perhaps the product owner must make commitments to the subcontractor based on a forecast to ensure access to materials and production capacity. The product owner's ability to share fresh forecast information with contract manufacturers and subcontractors is often of great importance.

6. Redesign

When an electronic hardware is nearing the end of its useful life, at best the product owner has good information about how the product has been received. A prerequisite is often good relations with the sellers in the field. When reengineering, there is the opportunity to reduce costs, as well as to improve functionality and reliability with information from the field. Cooperation with good subcontractors can be further strengthened. Components or vendors that have previously caused problems can be de-selected.

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