A consumer small appliance company was growing rapidly, but was stymied by capacity limitations, quality issues and cost of goods with its European manufacturer. To support burgeoning sales, the company needed to significantly expand manufacturing capability, improve quality and lower costs. They attempted to resolve issues with their current manufacturer but were unsuccessful. In reviewing their options, the management team concluded that cost of goods would still be prohibitive with other European manufacturers. They decided to look for a suitable manufacturer in Asia.
The company co-founder and COO, now a E78 team member, determined that their best options would likely be found in Japan, Korea or perhaps China, ultimately determining Korea to be the best option. He traveled there to meet with three manufacturers, accompanied by an experienced translator (who was later hired to a full-time position in the company). One firm clearly emerged as the leading candidate.
The E78 team member worked to craft a carefully worded nondisclosure agreement to ensure the company’s intellectual property rights would be honored and to establish the U.S. as the site for all dispute resolution. Once the NDA was signed, the company shared new product designs with the manufacturer and entered into preliminary discussions regarding the manufacturing relationship. This included manufacturing engineering, component sourcing, sub-assemblies, final assembly, quality control procedures, packaging and pricing, shipping and payment terms and conditions.
After a manufacturing agreement was signed, the company’s engineers and the Korean manufacturing engineers worked together over a six-month period, including several rounds of prototyping, to develop the first model ready for production. For the first production run and periodically thereafter the company sent an engineer to Korea to participate in the quality assurance process.
- The company’s appliance immediately became the market leader in the U.S.
- Sales grew rapidly, and the Korean manufacturer expanded capacity — the company added a second model a year later
- Sales increased from $4M to $58M over a three-year-period at excellent gross margins and profits
- The company was later acquired by a leading major small appliance firm that continued with the same Korean manufacturer