Until recently, hardware companies have also been manufacturing companies by necessity. They purchase machines, maintain them, and employ armies of procurement and manufacturing specialists to build every component of their hardware product. For some time now, the industry has been slowly shifting to a less asset-based model, with hardware companies beginning to explore different ways of cutting overhead costs by outsourcing manufacturing services.
Many companies, including some of the biggest and most reputable consumer electronic companies in the world, have completely outsourced their manufacturing processes to third-party providers. By doing so, these companies can focus on design, product development, and marketing, rather than on heavy investments in machines and in-house manufacturing processes.
Focus on Core Competencies. Outsource the Rest.
Companies like Apple set a benchmark for next-generation hardware companies. The company prides itself on creating intuitive experiences for its customers with products that are elegant, yet simple. Its design and marketing functions are largely based in the US where there is ample talent specifically for consumer technology design.
Meanwhile, the tech giant outsources all manufacturing of its designs to trusted, highly-specialized manufacturers in countries such as China, Korea, and Taiwan. There’s not only a cost advantage to doing so, but it also enables faster production times and the ability to mobilize quickly to meet surges in demand.
“Some of the largest and most well-known hardware companies are not manufacturing at all anymore,” says Thomas Hoffmeister, Chief Commercial Officer at KREATIZE. For example, Apple uses what we’d call an outsourcing model that requires building a robust, Tier 1 supply network—something Apple undoubtedly has the resources and production volume to do. But smaller hardware companies typically don’t have the ability, time, or resources to do the same. “Without a certain production quantity, many of the top suppliers won’t even speak with you,” explains Zod B. Mehr, Chief Supply Chain Officer at KREATIZE and a former Apple and Dell executive.
Democratizing Access to High-quality Supply Networks
With new tools, such as cloud manufacturing, this is all changing.
Cloud manufacturing facilitates the manufacturing process without needing to invest in machinery or set up a supply chain, essentially democratizing access to high-quality supply networks through a plug-and-play-solution that requires no investment. It no longer matters how big or small a company is, it will have access to top-notch, quality services through the cloud. This allows next-generation hardware companies to focus exclusively on the design, engineering, and marketing of their products.
Until now, only companies with big bulk orders have had access to the very best manufacturing services. This is a closed group where businesses create a competitive edge by developing a supply chain. “It’s a polarizing thesis, but I believe no hardware company in the future will be able to differentiate themselves via their supply chain or their manufacturing capabilities,” says CEO & Co-Founder of KREATIZE, Simon Tuechelmann. “The disadvantages of being a small company with a limited supply network are disappearing thanks to cloud manufacturing.”
Hardware Product Development with Cloud Manufacturing
There’s no question that the next generation of hardware companies will be radically different as a result of cloud manufacturing. They will become leaner by effectively having less assets to operate and by placing increasingly more orders on cloud manufacturing platforms. Identifying reliable partner manufacturers will also become much easier due to the flexible supply networks and services provided by cloud manufacturing, according to Professor Lin Zhang, Director of Beihang University’s Cloud Manufacturing Center.
“This will give next-generation hardware companies their competitive edge,” predicts Zhang. “A stronger ability to customize manufacturing to better meet different demands.” And they will be able to focus solely on their core competencies.
For instance, let’s say you have a drone company that wants to take a payload to underserved areas. With cloud manufacturing, this company can focus solely on the design and prototyping of their drone. They don’t need to focus on who’s going to build the propeller or other parts, they’re going to design the propeller and have someone else build it.
Freedom From Capital Investments
Without the burden of machines, companies are free to experiment and innovate their products. No longer married to materials and processes resulting from previous capital investments, the priority will be the product and easy access to manufacturing services.
Let’s say a company manufactured its first-generation product with a specific type of material or process, but later realized that they could improve the product’s performance and reduce their production costs if they switched to a different material or process. Had they built up a machine park for the original material with specific processes, they likely couldn’t explore new material or process options or create new prototypes to justify their big upfront investment, which in turn limits their ability to innovate. It would be vastly more difficult to continue innovating and making incremental changes to improve the product. With cloud manufacturing, changing the material is as simple as adjusting your order and placing a new one with a different material.
Accessing quality manufacturing services through the cloud levels the playing field by lowering the financial barriers to entry, and in turn gives hardware businesses more control, allowing their ingenuity and product development effort to become the crucial ingredient for their success.
Product (Not Manufacturing) Driven Businesses
Hardware could very well enter a renaissance in the coming years. As next-generation hardware companies accelerate the speed of developing new and improved products, manufacturing costs will likely also decline. The combination of time and cost savings set up the perfect conditions for more substantial – and specialized – investments in product development. “Specialization means better products for less costs,” says Tuechelmann.
“In the past, hardware companies were obsessed with knowing everything about manufacturing. The future hardware companies are not like this at all,” according to Tuechelmann. Instead, they’re all about the product. As we can see with a company like Apple, this emphasis on being product-driven can lead to revolutionary new products in the market.
It’s Time to Get On Board
If you’re a traditional company with a large procurement team and legacy systems, can you become a next generation hardware business? Absolutely. It’s not a matter of if, but when you make the shift in order to remain competitive. It doesn’t matter if you’re an established business or nascent startup, in the end, you need to embrace the next generation of hardware development. The sooner you do it, the better. Not only to save money but also to increase your speed of product development and keep up in today’s competitive market.
In the increasingly digital and connected product development industry, businesses need to consider some important questions:
What type of business are we at the core? What value are we creating? What is our business model going to be in the future? How will we make money in the future?
Once you’ve established this, you can begin to find places where you can decrease your resources invested—for instance in traditional manufacturing practices that require a lot of resources and bound capital. With new technologies like cloud manufacturing, you can free up this capital and put the investment into one of the core competencies you’ve identified, and begin creating real value for consumers.
Do you want to learn more about how you could begin to incorporate cloud manufacturing in your company? Download our Playbook: Bringing Hardware Products To Market Faster With Cloud Manufacturing. This playbook will provide you with a practical framework for getting your products to market faster, and at a lower cost with cloud manufacturing.