How a detailed bill of materials sets you up for success in manufacturing transfer
How medical device startups should evaluate contract manufacturers is a topic we frequently address with clients. Selecting a manufacturing partner can be an intimidating process and a lot rides on making the right decision. Developing a detailed bill of materials (BOM) will position you to receive a set of high-quality quotes from prospective manufacturers and conduct an apples-to-apples comparison before moving forward.
Imagine this (or maybe you don’t have to):
You’ve invested countless hours and many shekels of hard-won capital refining your medical device design and preparing to move into the manufacturing phase. You’ve been through multiple rounds of prototyping and bench testing. As a next step, you want to obtain production quotes for manufactured units. You call around to industry colleagues and receive some recommendations for contract manufacturing organizations (CMOs). You pair this effort with some independent research to come up with a list of CMOs to approach and find the appropriate point-of-contact for each. You then go through the process of executing confidentiality agreements with each CMO before sending over your engineering data. The whole process of requesting quotes has been much more involved and taken a lot longer than you originally thought. You eagerly await replies from the CMOs, bringing you the numbers that will inform so many of your decisions down the road.
Over the next several days, instead of quotes, most of your CMO contacts get back to you with a polite “thanks-but-no-thanks” type of reply. The project “isn’t the right fit” or they’re “not set up to meet your specifications at a competitive price point.” The few that do respond take forever to do so and the numbers they give are much higher than you were anticipating. When you ask for details on how they arrived at those figures, they’re elusive and you get the impression they don’t really want you to accept their proposal.
What went wrong?
Simply put, the CMOs got the impression this project might be more trouble than it’s worth. Startups are notoriously difficult for CMOs to work with. They come with the same (or higher) sets of management costs as larger, more established clients, but with lower volume production runs and higher associated risks (non-payment, for instance). The manner and content of your request for a quote communicates to the CMO how easy you will be to work with and how likely it is this will be a profitable relationship for them in the long term. The single best thing you can do to position yourself for success in this process is to invest time with your design team in building a comprehensive bill of materials. A complete and detailed BOM will make your life a lot easier in the following areas:
Your BOM is like a table of contents for your design transfer package. Along with your toleranced drawings, 3D CAD files, work instructions, and other materials, it telegraphs to a CMO your overall level of organization and professional competency. A detailed BOM (or lack thereof) tells a manufacturer how much “handholding” (i.e. non-billable up-front costs) a client is likely to require during the design transfer and pilot production phases. If you give the impression you’re disorganized or your project has been messy up to this point, you may receive a no-quote or inflated pricing in place of the information you were hoping for. Leading the conversation with a well-constructed BOM improves your chances of favorable responses from CMOs.
Additionally, procuring component and subassembly quotes and incorporating them into your BOM reduces the amount of legwork required by a CMO, making the prospect of taking you on as a client more palatable.
(By the way, along with your BOM, you should share details with prospective CMOs that will build your credibility: funding milestones met, management team backgrounds, etc. Think of this as a mini investor pitch–remember, you’re soliciting a strategic partner for your business!)
Deepening your Understanding of Cost Drivers
A BOM should be more than a list of components and their respective quantities. It should include part numbers, materials, processes, secondary operations, vendors, costs, and many other details. Supply chains are best built from the bottom up. By requesting production quotations for each custom component and assembly, the design team deepens its understanding of the drivers behind the final price tag on their product. This allows teams to identify and concentrate on the components that can have the greatest impact on their cost of good sold (COGS).
Identifying cost drivers will foster helpful relationships with specialty suppliers including machine shops, injections molders, and PCB manufacturers. Often, these organizations can provide expert feedback on your design, helping you select components that will not only reduce production costs, but also improve the quality of your product.
Mitigating Costs of Change
Hopefully, you’re able to find a single CMO that can meet all your requirements and form a long-term relationship that benefits all parties. However, if a time comes when your CMO relationship isn’t meeting your needs, you’ll have to be able to pivot to working with a new partner (more on that below). If your CMO has compiled and controls the whole BOM–supplier list, component pricing, and other details–your task will be much more difficult. Building a BOM in advance of forming a relationship with a CMO is your insurance policy, in case that relationship doesn’t work out in the long run.
Reducing Supplier Risk
Maybe your product contains components requiring specialized materials or processing. The number of potential suppliers for these components may be quite small–exposing risk in your overall design you haven’t yet appreciated. Building a BOM is an exercise that will help you identify and reduce these risks, forming contingency plans to mitigate potential issues. A design team that builds and controls its own BOM is much better positioned to control supplier risk than one whose BOM is assembled for them by their CMO.
Startups usually begin their product’s production phase with a small number of units. This may require finding a CMO that specializes in launching production with low volume runs. However, that same CMO may be not be set up to produce the same product cost-effectively at scale.
Horizontally-integrated CMOs have established broad networks of suppliers, assembling the subcontractors they need on a project-by-project basis. Such a CMO might focus solely on assembling the finished product, depending on other organizations for fabrication. These CMOs tend to be on the smaller side, allowing device entrepreneurs direct access to the CMO management team throughout the manufacturing planning process. The per-unit pricing of a horizontally-integrated CMO is usually higher, since it includes the cost of sourcing and managing subcontractors.
Vertically-integrated CMOs have expansive in-house capabilities, such as injection molding, machining, PCB fabrication, and precision assembly, all in a single location. These are typically large organizations with high minimum order quantities. Usually, this type of CMO won’t be a good fit for a startup just entering into production for the first time. A detailed BOM, including component and assembly pricing information at different volumes, will allow a device startup to understand the point at which it may outgrow its first horizontally-integrated CMO, moving to a vertically-integrated partner for larger runs at lower unit prices.
The points above are laid out to convince you that it’s worth taking the time to build a proper BOM prior to forming manufacturing relationships. They shouldn’t cause you to adopt an overly-defensive posture when interacting with potential CMOs. You’re forming a partnership that can literally make or break the success of your company, so tread carefully and protect your interests, but remember that trust between your organizations will be vital to your success. Developing a BOM isn’t the most exciting part of the product development process but it is a critical one you shouldn’t skip!
If you need help with your BOM or have other design-for-manufacturing questions about your medtech project, contact our team using the form on this page. We’ll be happy to talk with you.
About the image above: Exploded view of the DxTER orb from Basil Leaf Technologies. You can learn more about this project here.