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The Sanders Guiding Principles for Manufacturing 143


If the company plans effectively from the outset, it can get to market rapidly and minimize its investment in manufacturing, whether that be in-house manufacturing or subcontracted manufacturing The key to time-to-market and product quality is for engineering and manufacturing to function well together from the beginning. Often times, engineering will build the first product prototypes and then (when the engineers have learned how to build the product) turn the process over to manufacturing. This approach leads to delays and keeps the manufacturing organization from hitting the ground running. It is wiser to give manufacturing responsibility for building all the products, including the prototypes.


A good way to leverage the firm's cash is to minimize inventory through design and by using outside suppliers. The start-up should get a subassembly supplier that will fund the inventory and give favorable payment terms. By making inventory part of the product cost, the company can convert what would otherwise have been a fixed manufacturing cost to a variable cost. It can also negotiate flexible terms for varying quantities in order to reduce the cost due to unpredictably fluctuating volumes.



Farming out everything that it can will save the new venture not only on capital equipment and inventory costs but also on personnel expense. Once a company hires someone, it has a commitment to that person. Indirect manufacturing personnel are a fixed expense, not a variable cost, and the goal of start-up manufacturing must be to push manufacturing spending into the variable-cost category as much as possible. Therefore, instead of hiring a staff of specialists and training them from scratch, the firm should use subcontractor personnel who have already passed through the learning curve. This approach is likely to be cheaper and result in the production of better products. Using a range of subcontractors does require the company to have the appropriate logistical systems and personnel to handle coordination, however.

Although most of the advice given so far has been to minimize cost and hire as few people as possible, when people are hired, it is important to hire the right ones. The head of manufacturing is one such critical hire. A materials person who understands the procurement of top-quality components is likely to produce the highest payoff A person assigned solely to work on quality will produce the next highest payoff. The final members of the team should be responsible for testing and for developing unique processes (if either of these will be done in-house).

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