– Read Part 1: When Will Issues From 2020 Normalize?
– Read Part 2: How Startups are Managing the Component Shortage
This is a conversation between Andre Neumann-Loreck, Founder and Managing Partner of On Tap Consulting, and Brian Tu, Chief Revenue Officer at DCL Logistics. They discuss how the pandemic has impacted hardware supply, how hardware companies have adapted, and tips on how to mitigate supply risks moving forward.
The TL;DR on Part 3: Tips for Sellers to Keep Meeting Demand
- Many companies have shifted manufacturing to North America.
- Postponement is trending.
- Treat your suppliers well; have an empathetic mindset.
- Treat your partners as partners, not as vendors.
Is Manufacturing Moving to North America?
Have you seen any of your customers shift toward manufacturing to the US, who normally does it overseas?
Definitely. At the height of the pandemic, a lot of startup activity slowed down, a lot of new product introduction was delayed, as companies didn’t know how to navigate the environment. And now every new client and every existing client is asking us for non-China alternatives. But, actually, I see this as a part of a longer trend that predates COVID, and the most recent foreign policy tension between the US and China. Even going back several years ago, we saw labor rates going up in China due to a scarcity of labor after Chinese New Year. People started looking for alternatives: Taiwan, Malaysia, Philippines, Thailand, and Vietnam. Well, this trend accelerated last year, and is continuing into this year. We’ve also seen more startups interested in building North American supply chains for their first or second year in the market, thinking that at some point if they need to scale further that they’ll consider Asia. We’ve seen some that are establishing their own manufacturing, internally. These are companies that tend to be lower volume, higher mix, and batch production.
Got it. That’s interesting. I haven’t heard of as many customers starting up in North America. Is that primarily Canada? I imagine that they’re willing to take the brunt of the premium on manufacturing domestically?
We are seeing it in the US and Mexico, predominantly in the US. I think you’ll see more of that later this year and early next year. The companies that I know are doing this do not have volumes at DCL levels yet, but they’ll need a company like DCL by the end of the year, or certainly into next year.
That’s actually related to what we’re doing, not by design though, rather by client need. We’re doing a lot more postponement work, flashing and special projects. It’s actually kind of becoming the norm more recently. We’ve had to scale up our value added services and hire more experienced, skilled labor to do that type of work. Again, it’s all supplemental services that we offer, but we’ve had to add that to make sure that we’re malleable, and we can adapt to our customers’ needs. In some cases they’ve asked for postponement work because they’re in a bind. I’m glad we have that level of kind of flexibility, and we have that expertise in-house.
I’m delighted to hear that. I’m a huge fan of postponement for a couple of reasons. One, from a customer perspective, if you are a startup, it means that you’re making decisions closer to the customer. Even if it’s just updating the latest firmware, if you’re doing that closer to the customer then they get the goods with fresh firmware so they’re less likely to immediately need to update before they can use their device.
Second, operationally it’s better because it takes some of the burden off of forecasting. If you have to forecast well in advance of the goods shipping from Asia, you’re going to get that forecast wrong. But, as an example, if the color assortment can be done as a postponement step, then you’ll have a better read on the consumer demand because you’re not forecasting out as far in time. Whether it’s firmware updates or color choices or some other customization, I think postponement generally results in a better customer experience.
Yeah, and I think you nailed it because we’re seeing it a lot right now, I think it’s a really smart thing that a lot of our clients are doing. Because as we know the supply chain can be very unpredictable. Some of our hardware clients would need to forecast three to six months out for certain products. But the ones that were a little more nimble, they’re doing postponement work like you said. It’s a very simple way of creating a kind of modular system, like having modular components and creating SKUs at our facilities. So they didn’t have to have this one SKU on stock and plan three to six months in advance.
Tips for Sellers to Keep up with Demand
What else didn’t we cover related to shortages?
Well, I want to go back to the three tips you asked about. My three tips for companies working component shortages are:
- Stay in front of your key suppliers. Get mindshare from them and do it in a way that’s productive, rather than confrontational or aggressive.
- Treat your suppliers well. One of the first questions I ask when companies tell me they have a shortage is “How are you on accounts payable? Are you behind?” Half the time they say “We always run two weeks behind, it’s all good.” But, you need to rethink that. Treat your suppliers well and pay them on time. Provide them with rolling forecasts. They desperately need forecasts even if it’s hard and painful for you to do. Give them at least a six month rolling forecast every month.
- Get creative with your problem solving. We touched on a number of examples through the course of this discussion of how companies can get creative. Always start with an empathetic mindset. Then, use that as the springboard to figure out how to get the parts you need. There are many avenues to explore, and many tools and tactics to utilize.
The overarching point here is that you’ve got to realize this is an ongoing process. You can’t have the supplier tell you “I’m going to ship you the part in 26 weeks”, and assume that it’s actually going to show up 26 weeks later. It’s all an ongoing process, it’s going to require constant attention.
I love that. Your points resonate with me personally and our approach here at DCL. This is a big way we think of our partnerships with companies. We need to be able to ask things and know they’re being transparent. If they provide us with ongoing information that will help us do our job better, that will give us more context on how their business is doing and how we can support them in the short and long term. We talked about the mindset of being a partner; it’s best to treat your partners as a partner, not a vendor. I always say there are lots of vendors, but there are very few partners.
I think that’s why DCL is particularly strong. I think that says a lot about how you guys manage your business.
It goes back to our roots of being flexible, and creative. I talked about the example of postponement which was based out of need. We were able to be creative and open. When the client came to us, the first thing we said was, “We’re not a CM, but we’ll do this.”
You have to strike a balance. We may not do it perfectly, but we do high quality. I think it’s why we line up well with how On Tap Consulting has managed their business and the types of services they offer. I think that’s why we get along so well, because we both have that kind empathetic let’s-roll-up-our-sleeves mindset.
About On Tap & DCL Logistics
Brian, What does 2021 hold for DCL?
Yeah, I feel like there is this mentality among our clients, like “Okay, we got through last year. Now we have to get back to business.” It seems like things have somewhat normalized, or at least everything’s a little more predictable. We saw some providers who weren’t really able to meet expectations during the pandemic, they struggled. We’re lucky to have weathered the storm well. We hit all our major metrics in terms of quality and SLAs and overall customer satisfaction. Most of our success had to do with choices we made early on in 2020. We invested heavily in infrastructure in preparation for it being a crazy year, so we were already kind of in a good space. Then in March and April, we invested heavily in more automation—conveyance planning for huge output. If we hadn’t done that, I’m not sure we would have had the numbers that we did. It really tested our cut of capability to double our output, in some cases like on the direct-to-consumer side. We really tested that. This year we’re able to expand our facilities—opening another facility in Pennsylvania, hopefully by the end of this year.
Well, my last question for you is: what do you specialize in at On Tap Consulting, and what are some of the services you provide for your customers?
On Tap provides operations expertise and sales expertise to hardware startups. We work with startups at all phases. We work in consumer electronics, medical devices, and also on products that are enterprise or industrial in nature. With On Tap, companies can accelerate their sales, and scale their supply chains and manufacturing. We also assist when they’re ready to hire regular full time employees to work in Sales and Ops.
That’s an important distinction; you’re part of the team to help them really scale their business until they can round out their team to take over.
That’s right. And as they build out their team, sometimes they’ll still call us in or or work with us if they need additional bandwidth, or if there are gaps on their team that they need filled in. We do that as well. But, because we’re highly flexible and can work on a fractional basis, it’s a very appealing model for startups. Brian, thank you for the great conversation today!