In this episode, we have our guest Andrew Lees, who discusses how engineering can work effectively with manufacturing vs outsourcing and finance teams. He also provides several strategies in working with overseas vendors and contract manufacturers to mitigate financial risks. Finally, he has described how CFOs can budget and plan engineering initiatives and work with engineers effectively.
Andrew Lees helps people bring their ideas to life with product development engineering and launch strategy consulting. He has a background in mechanical and aerospace engineering, and he has launched both B2B and B2C businesses, including Stoke Ventures. He also co-hosts a podcast for entrepreneurship called That Entrepreneur Life.
I’ve got these backup plans. I’ve got these ideas from a design perspective. Now I can communicate better with the manufacturer about offering ideas. I think most design engineers want to offer ideas, but then they’re not necessarily sure exactly how to help.
Growing a business requires a holistic approach that extends beyond sales and marketing. This approach needs alignment among people, processes, and technologies. So if you’re a business owner, operations, or finance leader looking to learn growth strategies from your peers and competitors, you’re tuned into the right podcast. Welcome to the WBS podcast, where scalable growth using business systems is our number one priority. Now, here is your host, Sam Gupta.
Hey everyone. Welcome back to another episode of the WBS podcast. I’m Sam Gupta, your host, and principal consultant at a digital transformation consulting firm, ElevatIQ.
New product development is complex, especially when you might have to decide between in-house manufacturing vs outsourcing. There are financial risks associated with research and development. The experience could be even more frightening if you’re new to R&D, have a tight budget, or work with external or overseas partners. While you might perceive that the risks may be lower with internal initiatives, it may not be true as it’s harder to track the internal opportunity cost and stay on track with other competing priorities.
In today’s episode, we have our guest, Andrew Lees, who discusses how engineering can work effectively with production and finance teams. He also provides several strategies in evaluating manufacturing vs outsourcing. Finally, he has described how CFOs can budget and plan engineering initiatives and work with engineers effectively.
Let me introduce Andrew to you.
Andrew Lees helps people bring their ideas to life with product development, engineering, and launch strategy consulting. He has a background in Mechanical and Aerospace Engineering. And he has launched both B2B and B2C businesses, including Stoke Ventures. He also co-hosts a podcast for entrepreneurship called that Entrepreneur Life.
With that, let’s get to the conversation.
Hey, Andrew, welcome to the show.
Hey, Sam, how are you doing? It’s great to be on here.
It’s amazing. I’m super excited to discuss just because you have tons of design background, and also the manufacturing background, especially if the companies that are starting with their product journey or the design journey or evaluating manufacturing vs outsourcing, I think they will have a lot to learn from you. So just to kick things off, do you wanna start with your personal story and your current focus?
Yeah, sure. So again, Sam, thank you for having me on here. I’m excited to talk to your audience today. I got a background in mechanical engineering. I went to Lehigh University in Pennsylvania. And from there actually kind of took it a step back before college. I knew I wanted to be an inventor. I thought that was pretty cool. I was always taking things apart and putting them back together.
So I wanted to create products. And I was always coming up with these different ideas for things. But I didn’t really know exactly what I wanted to how I wanted to turn that into a professional career. So engineering made a lot of sense. My grandfather was a mechanical engineer. I started to really love what he did and love math and physics.
And so that’s what got me into engineering. When I was in college, I thought maybe I wanted to get into aircraft design. So I was major in mechanical engineering and a minor in aerospace design. I got really into that.
I thought maybe I wanted to work for a Boeing or Lockheed or NASA or something like that, which would have been cool, except that it really didn’t align with my entrepreneurial spirit. I always had that inventive entrepreneurial type spirit. So I wanted to ultimately want to do my own thing. And I actually worked with a guy, one of my bosses, at a product development firm. He used to work for GM.
And he said there were guys that would just work on the cupholder, and they’d be like the cupholder guy for their entire life, and I’m like, No way I’m pigeonholing myself into designing one thing, that people take for granted in this in this big product, right?
So I really wanted to focus on things that I could do from idea through, like take the entire idea to concept development, design, detailed design, engineering, prototyping, and then get it through to production in various settings including internal manufacturing vs outsourcing. So really, it really made a lot of sense then that I would start to focus after college after I work for a big company. I started working for a really small product development consulting firm.
And then from there, I spun off my business Stoke Ventures where I help inventors and startups develop their ideas, take their idea, and then turn it in to bring them to life, design engineer, prototype, and then help guide people with manufacturing as well.
And then from there, I noticed a lot of inventors, a lot of startups really, really don’t know, they don’t understand the startup process, really what they need to do, to take an idea, bring it to life, and make money with it. And so I came up with another service that I offer called Stoke strategies. And with that, I help with launch consulting like launch strategy consulting.
Okay, so I absolutely love your background. And the reason for that is because I don’t think we have had any inventors or engineers on the show. And as we are slightly more CFO and COO community, so obviously, we love innovation as long as that produces some money.
Exactly. That’s the thing, right is, yeah, I think people sometimes especially as a consultant, or even I’ve seen it with manufacturers where they don’t want to talk to an inventor, they don’t want any part of that sometimes, because it’s pretty risky, they might feel that inventor might not have an idea of what the heck they’re doing.
And so with my strategy product, which is actually something that I’m really trying to focus on now, in addition to product development, is I really want to give people the tools that they need to start and launch their product.
And what’s cool about that is that it makes them smarter; like for manufacturers, for IP attorneys, I’m trying to kind of guide them and help them on their journey. But also the kind of the byproduct of that is that they become more educated clients so that when they do go to a manufacturer, they know what they’re doing.
And they might be an inventor, but they have a strong foundation, and they understand the financial part of it, they understand what they’re getting themselves into what the costs are, what the lead times can be, what the challenges are, all the logistics and everything that’s involved, so they’re so it makes them a lot less risky.
So to the manufacturing community, that’s something that hopefully my, my strategy service kind of, hopefully, that helps with that kind of thing.
Yeah, so we are going to dig into all of that. To be honest, I mean, we are going to be talking about a little bit of intrapreneurship because those traditional manufacturers are not going to be really in the startup phase, but they have similar challenges as the entrepreneur.
So we are going to be talking about all of that. But before we do that, we have one of the rituals here that we do on the show. And that is going to be one of the questions that we ask every single guest, and that is going to be your perspective on business growth. What does business growth mean to you, Andrew?
That’s a loaded question, but I love it. There are so many. What’s cool is there are so many different ways to look at business growth. I mean, you and I offline were talking a little bit about our personal business growth with our consulting businesses. It’s tough. We kind of go through growing pains, and there’s so much to do it, but it really depends on what kind of business you’re trying to grow.
I have a product-based business called Grass Racks. We make bamboo board racks for like display racks for boards, bikes, and skis, and that is totally different. Like the growth strategy for that company is totally different than the growth strategy for my consulting business. I mean, at the end of the day, it becomes really simple to get more clients to get more customers, right? But the way that you go about doing that for different businesses can be wildly different.
So for B2B, I think that one of the most important things you can do is network is to do things like this, get on podcasts, put content out there, connect with other people who are in your space, and do it purposefully so you don’t necessarily just talk to anybody but do it purposefully where you’re trying to help somebody else who’s in your space and in turn a lot of times what will happen is you know they’re going to help you they’re going to think of you, hey I know this manufacturer or whoever you know whatever you’re doing, you’ll be remembered because you’re the manufacturer who’s out there trying to help people and try to connect with as many other people as possible.
So yeah, I think that’s in terms of like growth mechanisms that’s really important and then finding other professionals like what I’ve done one of my growth mechanisms is, is talking to manufacturers and saying:
Hey, you guys, your injection molding company or CNC machining or whatever it is that you’re doing metal forming. I’m a product development engineer, I have a lot of clients who need manufacturing, I’d love to send work your way, do you have anybody who might be coming to you a little too early, and that happens a lot, a lot of manufacturers, get customers of all different at all different levels that could be, large, even larger companies who don’t have, they might not have CAD files, or they need to dial in their design a little bit more before they can really dig into manufacturing. So then they’ll refer to me, I refer work to them. And so that’s a really great way to kind of grow.
Yeah, so let’s actually dive into some of the engineering things that are actually going to excite you, I guess, as an engineer, so one of the comments or stories that I have from one of the episodes that I just did recently and this notion of engineering, or I don’t know if I should be using the word conflict between the engineering vs manufacturing.
So in our client base or the listener base, when we look at the kind of companies that we deal with, they are either going to have the in-house manufacturing capabilities, or they are going to be working with the contract manufacturer. So they need to evaluate manufacturing vs outsourcing.
So obviously, the engineering is great, but one of the comments that one of the contract manufacturers made is, hey, look, well, from the engineering perspective, your product may be great, but sometimes you might not understand the nuances of making parts such as gears.
Now, gear making is very, very different; it’s going to have its own nuances from the process perspective. The material that you may have chosen in your design may not work in the physical world, from the supply chain perspective, from the manufacturing perspective.
So there is always this sort of conflict between engineering vs manufacturing? Have you seen something similar in your experience? If you have, what would be your advice, let’s say for the engineers or the CFOs? How can they work in the contract manufacturing situation? Or even if they are doing this manufacturing internally, what will be your advice to sort of work with your manufacturing team? And how to be slightly more receptive, how to be a better listener overall?
Yeah, that’s a great question. So what comes to mind comes to the top of my mind really for this is I deal with it a lot with going from prototyping to production manufacturing, yeah, because prototypes can be so different. With our product development, we’re not just designing something that looks cool but that can be manufactured either through internal manufacturing vs outsourcing. It can be prototypes. It can be 3d printed, but it can’t be manufactured in production, but even when you’re designing something that can be prototyped and manufactured in production, there’s still how it performs with a prototype like with 3d printed parts isn’t necessarily exactly how it’s going to perform with production parts.
And so yeah, I deal with that all the time is kind of helping clients to understand. This is good for engineers to understand, too whether you’re a product development engineer you’re working doing consulting work for other people or whether you’re part of an internal team engineering department of a larger company, it’s so important to realize and really wrap your head around it and really be more open to the fact that when you start producing production parts, it’s almost like a new product development phase.
It’s not like starting your product development over, but when you start with production, you can expect that boom, this is going to pop off the machine. It’s going to work exactly as the prototype did. There are different limitations to it. And there are different outcomes that you’re going to get with those parts and your assemblies, and so you’ve really got to you’re gonna have to take your first production parts off the line and test them and iterate that process over again a little bit.
You’re usually going to have to rework at least something, depending on the complexity of the parts. So yeah, that’s something that I see all the time. And it’s really important to be open-minded about that and to be and to not get too frustrated with manufacturers, because I’ve seen that too, where it’s like, hey, why doesn’t this just work? And engineers and clients are getting mad at the manufacturers and manufacturers like, Whoa, we’re making this to spec, but we’re using a process that you didn’t use in prototyping. So you’ve got to, you’ve got to understand that it’s going to be a little different.
Yeah. So, why is this a challenge? Let’s say in the ideal world, if everybody was listening the way they should be listening right. Then we would probably not have as much friction.
But why do we have so much friction? Do you have any examples or stories that you might be able to share in terms of what the problem was? Was that really the process differences? Was it more of the ego issue? Is it really the communication? Do you have any stories in terms of what was the core issue in dealing with the situation?
Yeah, so a product that I developed, it’s a fishing product. It’s a small product. But man, we had to pack a ton of functionality in this tiny little product, and it was injection molded; it’s got basically a small razor blade that’s embedded in the product that’s assembled into it.
And that cuts the line, and it’s got to be at the right angle, it’s got to be sharp enough, there are a few nuanced criteria to it, that seem it doesn’t, seem like it has to be that specific or that getting that angle of the blade just right relative to the other features on the part would be supercritical.
And so when we were we got it to work again, it’s one of those things where it worked perfectly during prototyping. And then we got to production, and it didn’t work perfectly. But one thing that I had to really, I had to really get wrap my head around with the manufacturer is, and we were working with a manufacturer overseas, in China through a company here, who is a little bit more than a broker.
They do like project management, that kind of stuff, too. But it was like a communication breakdown. That’s perhaps the real difference between internal manufacturing vs outsourcing. But it wasn’t. They didn’t understand what we were looking for exactly. It was that I was saying, hey, this is what we need, we needed to function exactly like the prototype, just let’s just get there, I don’t care how you do it, we just need to get there.
And they were kind of like, Well tell us. So I mean, I think I gave them one idea at the beginning of like, hey, this, this might be how we could solve it, that didn’t work. And then it just ended there. So instead of taking instead of, like where a lot of companies might say, Okay, I understand what the end goal is.
So I’m just going to get there. And I’m going to really think about all the different possibilities, all the different ways that we could get there. And we’ll try some different things. And we’ll figure it out. Instead of that, it was kind of like, Hey, we tried this thing, and it didn’t work. So it won’t work.
And you should do this instead. And we’re like, No, we can’t, we can’t just completely change the functionality. The part has to work this way. It can work this way. And so what I realized was that especially, and this is specific, I think sometimes dealing with overseas manufacturers, is you have to give exact guidance, you have to tell them, hey, these are the options, let’s think through this.
And also, don’t be afraid to kind of, to kind of think through it yourself. And sometimes that’s tough, but it’s important that you have to give and take because, as an engineer, I understand the design the best. And the design intent, the best and engineering part of the product, but the manufacturer understands the manufacturing process better than I do.
So I was hoping that I could rely on that a little bit. Sometimes you really have to, say hey, these are the options, test these three things and see what works.
So tell me a little bit more about that story. So is it primarily because engineers don’t have as much manufacturing exposure, or is every process going to be different? So it’s just hard for them to be able to visualize the kind of challenges you are going to run into the manufacturing? Is it really the communication barrier from the overseas perspective?
But I have seen this in the case of, let’s say, the customer-vendor situation as well. Because at the end of the day, when you look at the vendors, they have financial motivations as well. If you change a lot of design, from the manufacturing perspective, they have to change their tooling. They have to try this right. So I don’t know whether you are paying during the tooling process, but it’s a lot of work for them.
So that might be one of the motivations. So tell us a little bit more about what kind of challenges do you see? What can we do to sort of fix that, and what can we do to make this process slightly more streamlined? Both from the engineering perspective, both from the CFOs perspective, I mean CFO is going to be at both sides, the customer side as well as the vendor side. Right?
Exactly. And I think, and yeah, manufacturers, I think I’m sure they know that they want to figure out what the most streamlined process is. And it is tough because manufacturers know their processes the best. And then the engineer who designed the product knows what they need out of the product the best.
And so, sometimes, getting on the same page can be tough. But I think really understanding really going through the product in a thorough way at the beginning of the product, and the project can be really helpful, and kind of getting on the same page of the engineer might say, hey, we needed to function like this. And I’m not as familiar with your processes because there are so many different processes that are design engineers aren’t like intimately knowledgeable about, they might understand it, but they might not really know exactly what the limitations are.
They’re just communicating that saying, hey, this is the process we’re going to use. And here are the major limitations. And here’s what we could, here’s what we could run into with apart and just saying that is really important, you might not run into these issues.
But just laying this out there. And setting those expectations upfront is huge because then it could get like, as a design engineer myself, that would get me thinking, Okay, now I get it, okay, so I can start thinking about alternatives to solve the problem. And while they’re starting on the tooling, usually you have to get something done right before you even test it to know whether or not it’s going to work while the manufacturer is working on that tooling. I could be thinking of, hey, if this doesn’t work out in this way, I’ve got these backup plans. I’ve got these ideas from a design perspective.
Now understanding the manufacturing process, now I can communicate better with the manufacturer about offering ideas because I think most design engineers want to offer ideas. They don’t just want to lob it over to the manufacturer and say, hey, you will figure it out. They want to contribute well, but then they’re not necessarily sure exactly how to help.
Yeah, so let’s bring some dollars into this equation. We, as the CFO community, right? Obviously, the design is cool. Disruption is cool. That’s great. But when we talk about the hard dollars, I mean, that’s where the things get slightly more difficult, right?
So in your experience, I don’t know what relationship you have had with this manufacturer. I don’t know if your contracts are going to be primarily parts-based. Let’s say you produce these many parts, and I’ll pay you this much, or that I’m going to be other incentives.
So what has been your lesson learned in working with these manufacturers and your suppliers and understanding what kind of different contract arrangement might be there? And what do the manufacturers need to know about these contracts on websites while working with the contract manufacturers?
So, in other words, what kind of cost structure are we looking for, as designers or clients?
So there might be several different ways of structuring a contract when you’re working with the supplier. One would be I’m looking for these many parts. It could be as simple as that. Now, if you make five revisions in the design, that’s going to be a financial loss from the vendor’s perspective.
So I don’t know how long they can continue with that. As you have mentioned initially, that is what they are looking to deliver based on the spec. So if you know what you are doing, then I can print this whole day. There is no problem at all because everything is defined, right.
But if you don’t know if you’re more in the R&D phase, at this point of time, somebody has to bear that that financial loss, either it has to be that manufacturer. So those clauses are going to be part of the contract, right? When you are going through the legal process, when you are going through the financial process, somebody has to bear that loss. So in your experience, what are some of the ways to mitigate this risk for both the manufacturer as well as for the designer?
Yeah, that’s a great question. So again, I think it comes back to setting expectations at the beginning of the project. You say, hey, these are the costs associated with developing this tooling developed, developing the manufacturing process for these parts. And so we’ve got that cost, we’ve got some unknowns, we’re not exactly sure, as much as possible, within the scope of that of those parts not changing, really, at all.
If there are any changes that need to be made, I would consider that generally out of scope and generally something that the manufacturer should not have to eat the cost of it through the process if there are some tweaks that need to be done with the mold, that’s kind of that is something that I would expect the manufacturer to do. And as long as they’re not major modifications, I’d expect that that would be kind of in their estimated cost from the beginning.
But yeah, if the engineer or the client comes back and says, you know halfway through the project and says, hey, can we just like modify this a little bit or change this feature or that feature, it at that point, it’s really should be on a client to pay whatever costs the manufacturer is going to incur.
And I think Sometimes manufacturers are a little bit gun shy to go back and say, Hey, we’re gonna need more money. But if the scope changes, that’s totally fair. I’ve definitely run into that where, for whatever reason, we’ve needed to make a change. And we, we say, hey, we understand that this is out of scope, we’d like to make this change, and there’s who kind of get some pushback, and really, all we want to know is what’s the cost.
And if the cost is $100,000, and our budget to make this change is $10,000, well, that it’s not going to work. And we say, okay, just keep going the way that you were going, that’s fine. I think just knowing the numbers and having those costs, and making informed decisions is critical when it comes to differences in manufacturing vs outsourcing.
And as a manufacturer, you kind of can’t be shy to just say, hey, this is what it costs. This is going to be out of scope. And this is what it costs, and boom, there it is. Do you want to move ahead with it or not? And I think most designers or most clients, they’re going to respect that.
From your experience, do you have any sort of best practices for the engineers? And again, I’m going back to my example. Let’s say if you have printed the same part 5000 times, then there is no variability in the process. Right? And your partner knows what they are doing. Do they already have the manufacturing process? Well, there is no variability as such, right.
But if you are, in your case, anything, you are trying to design something new, completely new category, right? So what are the best practices in terms of financial management? Let’s say if I’m the engineer, and I am working with my COO or CFO, they don’t like to see any risk, as they don’t like to see any sort of uncertainty in the process.
So obviously, let’s say if you are trying to pitch to me, Andrew, I’m going to ask you, okay, how much budget Should I keep? Is it going to be 100,000? Is it going to be 5,000? And what am I going to get out of this? And there is always going to be a little bit of friction between the engineering and finance team, because when his team is looking for certainty, an engineering team cannot provide that certainty, because obviously, we have not done this, what are some of the best practices, from your perspective for both sides of the table to just reduce this thing? Make a slightly more streamlined,
Man, you hit the nail on the head. I mean, that’s something that I deal with as a consultant. There’s uncertainty with what I do. Yeah, and I’m trying to mitigate that risk. And taking on a new project sometimes can feel a little bit just like diving in with your eyes closed, you’re like, Well, I really cuz you really, really want to, I don’t think anybody or most, most engineers, most manufacturers, irrespective of whether you are working with internal manufacturing vs outsourcing, don’t want to take on a project just to get the money, they want it to work out.
And especially with manufacturing, you have an increased incentive to work out. Because if it does, then you can be, like, once you reduce that risk to almost nothing to where you’ve got the project or the product all figured out, you can just make 1000s of parts a day, or whatever it is, and you’re, you’re essentially printing money at that point. So you want it for many different reasons for, integrity for financial reasons.
You want it to work out. But yeah, you’re so right, there’s that risk. And uncertainty is like, it’s tough, and no company wants to take that on. So yeah, I will say that I think, in general, product developers and manufacturers are, by nature, a little less risk-averse than maybe other companies because we are doing something that is unknown. And that had, and it is, but it hasn’t been proved exactly on a regular basis.
But I think to reduce that risk, one way to do it, and, and I do this in my consulting business, too, you can do with manufacturing, I think as long as you’re super clear, again, everything comes back to setting that clear expectation and beginning, you could say if it’s a little bit of a riskier project, say, Hey, I this is the estimate, this is what we think the cost should be. We don’t expect the cost to go over. But there is a chance that it could, and here’s why.
And we’re honest. We’re not going to know exactly what the additional cost is until we get there. But we have to get there, and we have to figure it out. And if everything goes really well, you’re not going to go over this cost, but just so you know that there, there could be some additional costs associated with it. This will be true whether you compare the internal opportunity cost with manufacturing vs outsourcing.
If you could always not exceed a number that hey, this is going to be $50,000 not to exceed 75 or something like that. So I’ve seen that happen. And then for obviously for projects that are less risky than you really know, hey, there are things that can happen here that we’re not exactly sure of because it’s a different product.
But we’ve done a lot of products that are similar to this, so we feel very confident with it. We feel very confident with the process, so you can really dial in your number a little better, but the riskier it is, the more you want to let your engine engineer, the design engineer, the client that you’re working with just let them know, here’s what the options are. I think people respect that because then they know, Okay, wow, this is a little more complicated than I thought it might be.
And I understand what could happen. I think if a client is like, if you say, hey, there’s gonna be $10,000, this project, whatever it is, whatever the scope of work is, and they say, okay, it better because I don’t have $10,001, then that’s probably not a good client, right? Yeah, because they’re like, right on edge there on that, man, there’s no room for error. And in this in product development and manufacturing, there is air. So you have to have everybody’s got to understand that. And everybody’s got to realize that you have to have room for error.
Okay, amazing, Andrew. So that’s it for today. Do you have any last-minute closing thoughts, by any chance?
Nothing in particular, but I’m really excited to, again, connect with your network. And if anybody has any questions about what I do, as a product developer, if you have any clients who you think if you’re out there, and you’re manufacturing, you have anybody who’s coming to you, who’s not ready for manufacturing, but they might need some design and engineering work, I’d be happy to work with them.
And also, I do startup strategy as well. So it seems like everybody’s got a good idea, but I’m trying to help more and more people figure out how to get that idea and turn it into money. So happy to help with those two things.
Okay, amazing. And my personal takeaway from this conversation is going to be it comes down to communication. So just be open-minded, irrespective of whether you are an engineer or in the finance community, irrespective of whether you are working with internal manufacturing vs outsourcing. It’s all about communication. So communicate, communicate and communicate. On that note, I want to thank you for your time. It’s been super insightful and fun.
Thanks, Sam. Yeah, I had a great time. I really appreciate it.
I can’t thank our guests enough for coming on the show for sharing their knowledge and journey. I always pick up learnings from our guests, and hopefully, you learn something new today. If you want to learn more about Andrew or understand how he can help you develop and launch your idea irrespective you need help with manufacturing vs outsourcing, head over to stokeventure.com And listen to his podcast about entrepreneurship at theentrepreneurlife.com. Links and more information will also be available in the show notes.
If anything in this podcast resonated with you and your business, you might want to check out the related episodes, including the interview with Dave Hataj, who describes the role gears play in our society. Also, the interview with Matt Guse from M.R.S. Machining, who discusses the challenges associated with manufacturing complex parts in short runs.
Also, don’t forget to subscribe and spread the word among folks with similar backgrounds. If you have any questions or comments about the show, please review and rate us on your favorite podcasting platform or DM me on any social channels. I’ll try my best to respond personally and make sure you get help. Thank you, and I will catch you on the next episode of the WBS podcast.
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