How to understand purchasing through the eyes of the buyer and seller: Buying the right book on manufacturing techniques can be much less expensive than even one mistake of using the wrong process or vendor.
At some point in the development of our inventions, we have to purchase parts or services. The most crucial purchases occur when we are producing a finished product for sale; every two dimes spent needlessly means we have to add a dollar to our selling price if we are going to cover all of our costs and make a reasonable profit.
Even if our intention is to license our patent, we may produce a limited quantity to demonstrate that our invention serves a ready market. It’s a lot easier to find a licensee if you can prove your invention is selling.
Several years ago, I started a prototyping and short-production-run business. At its peak, I had 12 employees. I managed it for six years, but the inventor in me itched for greater adventure. When I had an offer I couldn’t refuse, I sold Short-run Precision Fabrication and went back to designing tooling and processes for an aerospace manufacturer.
Earlier in my career, I was manager of materiel for another aerospace producer. The purchasing function was one of my responsibilities. So I’m going to share what I learned about purchasing from the viewpoints of both buyer and seller of production parts and services.
Learn the buying process
The buying process begins with negotiating the price. Note that I said negotiating, not haggling.
If you’re dealing with an ethical vendor, there shouldn’t be any back and forth on the price. But some vendors justify fudging their pricing just a bit. Professional buyers are protected by knowing the most suitable vendors for their needs and being able, you might say, to play one against the other. These buyers usually solicit three price quotes from three different vendors.
But we little guys don’t have validated sources with which we are reasonably comfortable. We are also inexpert in the technologies available for producing the hardware we need. So how do we overcome our lack of knowledge and experience?
First, you must learn about processes and tooling. Many colleges now teach up-to-date manufacturing technology. Visit the bookstore of one near you and ask to see the textbook used for the manufacturing curricula. You may be able to buy a used copy of a very helpful book. Such books aren’t cheap, but they’re much less expensive than even one mistake of using the wrong process or vendor.
Amazon.com sells two books that I can recommend without having read either. I was able to read the table of contents and a few pages from a representative chapter or two. They appear to be excellent sources for inventors—and at the low prices for a used copy, you can’t go wrong by buying both: “Making It: Manufacturing Techniques for Product Design” by Chris Lefteri, $13 used, $23 new; and “Manufacturing and Design” by Erik Tempelman and Hugh Shercliff, $17 used, $62 new.
You will be guided to the approximately correct process by studying the two books I recommended. However, there are subtle variations of processes, so don’t take for granted that you know everything you need at this point.
I urge you to visit potential vendors, discuss your objectives, and always ask, “Is this the right process for the quantity I intend to buy?” Also ask, “Is there a manufacturing process that fits my quantity range better than your process?” You will probably want to get by with the smallest quantity with the least total cost per part. And you will often find yourself soliciting a price quote from a vendor whose process is economical for larger quantities than you wish to buy.
Finding vendors for your chosen process requires a patient search. The Thomas Register of American Manufacturers, now known as thomasnet.com, is a good source, but many of its listers don’t tell you the city or state where they are located. You can look them up on the internet. Another source is jobshop.com—and, of course, the Yellow Pages if your directory is still available. Also, your library and chamber of commerce may have a list of industries in your area.
In any case, be sure to find out two things for each potential vendor: What manufacturing processes do you specialize in, and what is your preferred manufacturing quantity range? These two questions will disqualify those who want long production runs, and who often discourage short-run people such as inventors who are starting out.
Present a good RFQ
Next, armed with your list of potential vendors, begin your solicitation of price quotes. The industry standard form is titled “Request for Quotation,” commonly referred to as the RFQ. These items must be on a good RFQ, other than your contact information:
- Quantities (Optional quantities you may order. Example: 50, 100, 300.)
- Non-recurring software charge
- Non-recurring tooling charge
- Setup charge
The range of quantities for Item 1 is traditional because most vendors have a setup charge—a charge that covers preparing all machines to produce your part, etc.
Item 2 consists of either amending a digital file that you provide, or the vendor creating a file for CNC machines. (CNC means computer numerical control.)
Item 3 consists of tooling that is not a normal part of the vendor’s production tooling such as a stamping die-set, plastic injection mold, etc.
Items 2 and 4 are sometimes covered together as NRE, nonrecurring engineering, or some similar phrase. This is a vendor who is being less than open about his or her pricing. You have the right to know the components of any such NRE, etc. Ask to be requoted with the prices spelled out.
Item 4 is normally not spelled out but is “spread” into the price per piece at each quantity level being quoted. If the vendor is willing to quote you a flat price per piece plus the setup charge, you can then buy any quantity that suits you. Let’s say that for some reason you are going to make 68 pieces. So why not buy 68 pieces, or maybe 75 in case you have some fallout in production? This enables you to keep your costs down and not tie up money in parts that you may not use for a year.
When I had my business, I voluntarily quoted setup as a separate item and quoted a flat price per piece at any quantity. Many of my clients were delighted with the arrangement and ordered odd quantities, such as 33 pieces. Well, one fellow likened my setup charge to a “dealer preparation charge,” accusing me of trying to sneak in something that wasn’t justified. He was happier when I spread the same charge into the per-piece price, disguising it so he wouldn’t think of my business as if it were a car dealership.
Most vendors probably won’t want to work with you this way, but it won’t hurt to ask. Also, it tells the vendor that he or she is not working with a naive buyer.
Items 2 and 3 are standard and critical to wise purchasing. I have known vendors to charge non-recurring software in their unit price on second, third and all orders into the future if not called out on doing so.
Know lingo, and vendor types
Special tooling obviously must be quoted as separate from production parts. A mold, for example, may cost $50,000. But some tooling, such as shaped cutters, cams, etc., may be less than $100, and you want to know this for future purchases—especially if you change vendors.
One of the best tactics for obtaining fair prices is to look professional on paper and speak professionally. Know the language of the trade, which you can learn from the books I recommended. Above all, present a professional RFQ.
One last tip: Vendors generally have one of two philosophies—short runs, possibly including prototypes, and long runs. The long-run fellows tend to be in business to make money, and we often annoy them with our relatively small quantity needs.
The short-run fellows are more like inventors; they like the variety and challenge of lots of small orders. Making money is secondary to having fun in the business they’re in. I know. I was one of them.