Part 6 in the Product Disaster Series
A couple of years ago, the five of them had been highly successful engineers by day and regulars at the skate park by night. But the farther along in their careers they got, the less time they seemed to have to do what they loved. Jake Wright, an electronics engineer at an aerospace corporation, was the one who came up with the idea that they quit their jobs, pool their money, then design, build, and market the “mother of all street skateboards” so that they could do their jobs and do what they loved at the same time. And that’s pretty much the business plan that got Diamondz Skateboards rolling.
Everyone agrees that the Stoked was a masterpiece of skateboard design, engineering, and sizzle. The real hunger to have a Stoked had nothing to do with its deck’s polished veneer of Brazilian Cherry. Nor was it the Light-Up Risers from Tireflys that came as standard equipment. It was the 8 hardened miniature yet loud omnidirectional speakers — 4 aft and 4 stern — mounted on the titanium alloy trucks that got the bloggers, press, and skateboarders at trade shows like the Consumer Electronics Show and Toy Fair buzzing last winter.
The genius was in the gloves. Embedded within the Kevlar padding of the Stoked’s black leather, fingerless gloves was a miniature sound synthesizer and wireless transmitter that activated the speakers. Using four fingers on either hand, you pressed touch-sensitive regions in the palm to broadcast 1 of 8 sounds — motorcycle exhaust, death ray, wild applause, tires squealing, a Road Runner “beep-beep,” a motor car racing by, a woman’s voice screaming “watch out! watch out!” and the opening bars of Also Sprach Zarathustra.
Retailers had heard the buzz and seen the crowds. At the trade shows, they surrounded Jake and one of his partners, Ali Larijani, head of finance and sales, wanting to get in on the action, and they’ve been hounding them for product ever since. Eventually, the retailers placed 200 orders totaling 10,000 Stokeds for the next holiday season. Everything had been a blur of activity since.
Jake and Ali as well as their partners Craig McCoy, who served as VP of operations, and Joey Tripp, who handled purchasing, had made the rounds in China right after the trade shows looking for a contract manufacturer (CM) who could handle making the Stoked, including the gloves with their intricate electronics. They found what they were looking for at XI Manufacturing in Guangzhou. After about three days of negotiations with Yang Ran and his associates, Ali cut a large deposit check so that Mr. Yang could purchase the materials needed to get production on the Stoked up and rolling fast.
Now, it was August, and McCoy (no one called him Craig) was antsy to get shipments to retailers going. The initial manufacturing run had gone smoothly, but that was only about 500 Stokeds. XI Manufacturing had delivered everything on time. The quality was good, and the handful of retailers who got a shipment were already sold out. They wanted more — a good sign.
Kareem “Nups” Jaffe, the fifth partner and Diamondz’s manufacturing engineer, was ready and waiting for the first of five large shipments of Stokeds to arrive at Diamondz’s distribution center in Glendale, California, for final assembly, when McCoy walked into his office.
“Nups,” asked McCoy, “heard anything from Yang?”
“I tried calling him yesterday, but got voicemail,” said Nups, turning from his computer to face McCoy. “I’ll shoot him an e-mail right now.”
“Hmmm. They got some holiday going on? Joey said he got voicemail a few days ago when he tried to check in with Yang’s program manager — Mr. Wu — about the parts Jake needs for the Stoked 2 he’s been designing,” said McCoy. “You’re really all set, right? Ali is getting calls from all over the place asking us when we’re shipping. He’s telling them two to four weeks.”
“It bounced,” said Nups. “My e-mail to Yang bounced. ‘Delivery aborted.’ That means that there is no address.”
“That’s not right. Maybe their server is down,” said McCoy.
“No. When that happens, you get the message that the e-mail can’t be delivered or is delayed,” said Nups. “I’m trying it again. Nope. Same thing. The address is right.”
McCoy stuck his head out the door of Nups’ office and yelled for Jake, Joey, and Ali to come in. “It’s 5:30 here. They’re 15 hours ahead of us, so it’s 8:30 AM their time. They start at 7. We’ll call Yang and figure out what’s going on.”
Jake, Joey, and Ali came into Nups’ office wearing the look of people who do not want to hear what they are about to hear. McCoy quickly related their two attempts at e-mailing Yang.
“So, we’re going to call Yang,” said McCoy. “Put it on speakerphone, Nups.”
McCoy banged in the telephone number that went directly to Mr. Yang’s desk. As often happens, they first got a message in Chinese but, instead of the customary beep to leave a voicemail, they heard a second message in English saying “the number you have reached has been disconnected.” Thinking that he dialed the wrong number, McCoy dialed again, only to hear the same “disconnected” message.
“Wait a minute,” said Nups. “Let me call Wu. “I have his cell number.”
Nups dialed the number and in a few seconds a man’s voice came out of the speakerphone.
“Mr. Wu? Hi. Kareem Jaffe at Diamondz Skateboards here. Listen. We’ve been trying to reach Mr. Yang but our e-mail bounces and we keep getting a message saying that his phone has been disconnected. What’s going on at XI Manufacturing?”
“Kareem,” says Wu. “I, too, would like to know where the owners are. All of us showed up for work on Tuesday and the gates were locked. A message on the gate said XI Manufacturing was closed. Out of business. Things had been slow since the economy went bad last year and then our biggest customer went out of business three months ago. Except for you we did not have much work, but we did not think that things were that bad. The police told us to go home and they will tell us if they know something.”
“I’ll let you know if I find out something, Mr. Wu,” mumbled Nups, hanging up the phone.
Groans, whistles, and muttered expletives filled the room, as everyone buried themselves deep in their own thoughts. Finally, Ali, the finance head, snatched the room back to reality.
“Dudes, Yang cashed the checks I sent him to buy the parts,” said Ali. “I’ve heard about CMs going out of business overnight. They work on razor-thin margins after all. And when times get tough like now... I just never thought about it happening to us. What are we going to do?”
“Well, we’re going to have to buy more parts and get somebody else to make 10,000 Stokeds,” said McCoy. “Ali, you keep the retailers quiet. Don’t tell them anything, yet. Figure out how much money we have left. Joey, dig up what you have on the other manufacturers we looked at. Call them. See if they can build us product pronto. Nups, you and Jake make the bid package tonight. I want to have this all figured out so that they have our proposal in their e-mail when they show up at work in China tomorrow morning or the next day at the latest. We’ll all meet in the conference room at high noon tomorrow.”
Joey immediately began dialing the bidders that Diamondz had turned down earlier in the year to gauge their interest in becoming Diamondz’s new CM on an expedited basis. He stayed late into the night, while Jake and Nups worked in the conference room re-creating the bid package that Joey would send to the CM he was trying to line up. Their night got very long.
When Jake and Nups took over the conference room, they brought with them the original bid package, a copy of the the master bill of materials (BOM) from a shared folder on the Diamondz network and a Stoked with its pair of gloves, both built by XI Manufacturing. It did not take them long to realize that not only had XI Manufacturing taken money from Diamondz Skateboards when it went out of business, but it had taken something far more valuable: their product data.
Whatever XI Manufacturing had been building, it was not what Jake and Nups were seeing in their original bid package or, more ominously, on Diamondz’s own master BOM. They knew this meant that they would have to build a new master bill of materials from scratch by comparing every part in a disassembled Stoked with the engineering and purchasing BOMs line by line. They would have to reconcile everything then enter the corrected data into a new master bill of materials before they could reconstruct the bid package for Joey.
And they had to do it all by noon the next day. They were not pleased.
When McCoy stuck his head into the conference room the next morning to see how Jake and Nups were doing, he was struck by what he saw. On the floor were pages of Excel bill of materials that Diamondz used for engineering and purchasing. On the table, surrounded by coffee cups and take-out food containers, were piles of components from a disassembled Stoked. Jake looked like an actor in some high-sea saga desperately aware that only he could save the ship. Jake had called in the two design engineers who worked for Diamondz as independent contractors the night before. They had arrived before 8 in the morning, but were already looking frazzled. Nups was clearly dazed. He had taken it upon himself to be the one to enter all the data for the re-built master bill of materials. But the tedium of going through the conflicting BOMs, matching real-world parts with internal part numbers, and the arguments that were breaking out was wearing him down quickly.
The complicated electronics in the Stoked’s glove — the secret of the Stoked’s market appeal — was proving particularly difficult to recreate. Not only did none of the BOMs agree on the approved vendor names, vendor part numbers, internal part and vendor numbers, none of the BOMs matched what was actually used by XI Manufacturing, and no one could agree on why an engineering change had been made or even who made the change and when.
“So, again. Why did we change the battery wires anyway?” asked Nups in a typical exchange.
“The first gauge was too thin,” replied Jake, “so I kept trying different gauges until we found one that didn’t break the first time you bailed hard.”
“Actually, I was the one trying out the different wires,” said one of the contract designers. “It’s on an invoice I sent you. You gave that job to me when you were playing with the synthesizer to see if you liked the death ray or machine gun better.”
“I wasn’t playing with it,” shot back Jake. “The machine gun sounded tinny. But I distinctly remember working on the wires with one of Yang’s engineers after you were through messing with it. They were too heavy for the solder or something and we knocked them down a size. I thought that I had written it down somewhere.”
“Fine,” said Nups. “I assume the ones used in the real Stoked are correct. So, what are they? Will somebody please pull out some calipers and measure them?”
And so on it went. Noon arrived a lot sooner than anyone wanted, and Jake and Nups weren’t ready to meet anyone. They had been in the conference room for 17 hours now and had no idea when they would be done. Meanwhile, McCoy, Ali, and Joey were trying to figure out money and how they were going to line up a new contract manufacturer in a hurry.
“Gentleman,” said McCoy. “It’s going to take Jake and Nups days maybe a week to figure out the bill of materials, but we’ve got to keep moving. What have you got?”
“I wasn’t able to reach our second choice in China. I think the economy wiped out his business too,” said Joey. “The one I reached can’t handle it at this time. I’m waiting for the third guy there to get back to me. That guy I can’t stand over in Alhambra says he can have us a couple of thousand Stokeds by Thanksgiving. But, I warn you. He’s going to be expensive. He started whining about taking a line away from one of his other clients, retooling it, and maybe adding another shift to make a few thousand more. The good news is that he can do it and he can lend us a couple of people to expedite the parts he’d need. The bad news is that he’s going to cost us a whole lot more to build the Stoked than Yang would have.”
“That means that we’re not going to make a dime on the Stoked,” said McCoy. “Speaking of which, I spoke with the lawyers about getting our money back from Yang. They don’t have much hope for that but are willing to try.”
“We don’t have any money for trying to find Yang anyway,” said Ali. “I think I can scrape up enough for a down payment for the CM in Alhambra. But then we’ve got to get the retailers to pay on delivery so that I can send another check for more parts. Otherwise I start bouncing checks.”
“What about the bank?” asked McCoy.
“I spoke briefly with them about extending our line of credit to cover some unanticipated expenses,” replied Ali. “I got some sympathy and a lot of double talk about startups always having problems. I didn’t mention that we spent all this money and now aren’t really sure how we’re going to build our product. Figured that would not go over big.”
“I think,” said McCoy with a sigh, “It’s time to tell the investors what’s going down. Ali, Joey and I can split up calling the retailers and telling them we might miss the holidays. We’ll all meet with the investors. When Jake and Nups get us a real bill of materials, we’ll go with Alhambra and figure out how to pay for it as we muddle along. Agreed?”
Ali and Joey nodded silently in agreement, but nobody could really believe that Diamondz’s prospects had gone from being so bright to so dark so quickly.
Nobody had to say what they all knew. Diamondz Skateboards was sinking fast. They were not going to make their ship date and cost targets. By missing most if not all of the crucial holiday sale season, they might not even be able to stay in business even if they managed to get back the money lost when their first and only contract manufacturer had gone out of business suddenly. They could see that their setback gave the other guys time to build a skateboard that could compete with the Stoked.
Even as they struggled to rebuild the bill of materials and find a new contract manufacturer, they knew that their new, more expensive CM would need a lot of time and help ramping up. Any thought of new versions of the Stoked had to be shelved while they struggled to survive this disaster, extending their losses out beyond the horizon. All hands would have to be on deck to right Diamondz Skateboards. But first, they had to get that BOM rebuilt and that was going to take something else that they had lost when the first contract manufacturer went out of business overnight: time.
Diamondz Skateboards may have made a mistake by not vetting the financial stability of its first CM as closely as it inspected its manufacturing prowess and tendered bid, but that was not the company’s biggest mistake. Companies will go out of business unexpectedly. The biggest mistake Diamondz Skateboards made was that it did not have control over its bill of materials. This left the company vulnerable and unprepared for disaster just when it needed control of its product data more than ever.
Maintain the master copy of your bill of materials and provide your contract manufacturer with a copy it can use to manufacture your product. Better yet, use a system that enables you to control your master BOM while simultaneously granting your CM 24/7 viewing access to it.
Your suppliers need to have good business sense and be financially stable as well as technically capable. Make certain that they do not rely too heavily on one customer for most of their revenue.
The bid package you submit for a quote is rarely what gets built. As you ramp up to production, you will make tweaks and adjustments to the vendor list as well as the design. Do not try to track these changes using e-mails, faxes, phone calls and notes. Track them in your master BOM.
Your contract manufacturer may go out of business suddenly, you may need to ramp another CM, or you may want to move your business to a lower-cost provider. If you haven’t tracked all your changes in your master bill of materials, you will waste time and money rebuilding your BOM and not building product.
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