Startups are challenging, but the intricacies of global supply networks may make running hardware businesses even more so. The essential components of your physical product may distributed throughout the world, exposed to global economic instability, rather than being within codebase behind a screen. On the ground in Mexico, Hungary, Taiwan, and China, I have spent the majority of my career creating global supply chains and manufacturing lines for 3D printers, electric bicycles, and home exercise equipment.
Murphy’s Law is a regular friend in the hardware industry, as I have learned the hard way. However, after working on three continents for more than a decade, there are a few lessons I have learnt that will help you avoid making costly blunders.
Expect price changes, particularly in currency and shipping
Shipping actual goods differs from “shipping” code in that you must pay a significant sum of money to transfer goods around the world. Of course, once shipping expenses factored into the entire company strategy, they become just like any other line item. The problem is that such expenses fluctuate on a regular basis, often dramatically.
A shipping container from China cost $3,300 this time last year. It is now about $18,000, a more than fivefold gain in only a year. Most 2020 company plans, it is reasonable to assume, did not factor in such a significant expense rise for a critical line item. It is far more expensive to send a defective hardware product than it is to ship a defective software product. Recalls, irate consumers, returned cargo, and other concerns can quickly escalate into existential threats.
Currency exchange rates provide similar challenges. Contract manufacturers typically enable you to keep cost agreements for swings of less than 5%, but the dollar has fallen considerably more than 5% versus the yuan in the last year, forcing hardware businesses to renegotiate their production contracts. You have two alternatives when exchange rates decline and transportation costs rise: operate with reduced margins or pass the expense on to the end customer. Neither option is great, but they are both preferable to going bankrupt.
Critical parts are over ordered
Many companies have lost billions of dollars in market value in the last year because they did not purchase enough chips. You will face comparable dangers as the proprietor of a hardware store. Certain components, such as computer chips, have a finite supply, and shortages can occur fast if demand rises or supply lines are disturbed. It is your responsibility to identify possible supply chain bottlenecks and build redundancy around them.
