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If Your New Product is Too Dependent on Outside Help...Look Out!
By James F. Riordan
PART ONE
Almost all products depend on outside suppliers for SOMETHING. In general, they might depend on:
1. The existence or sales of other complementary products (for example, a CD player and the CDs it uses).2. A supply of critical material, parts, or components.
3. Outside vendors who supply critical parts or components.
4. Other companies who provide labor, technical, or professional services.
5. Ownership of intellectual property, patents, trademarks, licenses, etc.
6. Dimensional and/or weight restrictions and criteria when the products have to fit into other products or spaces.
RIORDAN'S LAW states: "Dependence on outsiders = lack of control over your future."
Winning products are those that can be made totally from scratch from several types of materials, in your own facility, and which are not required to fit into existing products, holes or spaces.
Take my word for it--dependence on outsiders is one of the most vial factors to consider. In order to properly evaluate the impact of this factor, the evaluator must:
1. Evaluate the Trend of Demand for Products Your Sales Depend On--For example, if you're going to manufacture an audio tape cassette, you'll want to evaluate the present demand for audio cassette players. If demand has peaked and is declining, look out. You may get your product on the market just in time to watch the demand fizzle out for the product upon which yours depends.2. Evaluate the Trend of Demand of Each Critical Material, Part or Component You Plan to Use--You would do this before finalizing the production drawings and specs. I have personally witnessed production lines grind to a halt many times, over the lack of a single component. Several times at Fortune 500 companies. The worst possible situation is to have a lot of money invested in inventory, have the entire production run almost ready to go, and then find you're lacking one part and you're unable to ship the product to your customers. You can then kiss your cash flow goodbye.
Look out if the sales of a material or component are slacking off in other markets. Here's a sample horror story.
Company A produces a custom electronic widget which you plan to use in your product. Company A sells the widget mainly to company B, Company C, and you. When you ask Company A how many widgets they produce (to be sure they are selling enough of them to assure you that they will be made in sufficient quantities to keep the production line going and the costs down), Company A assures you they they produce "100,000 widgets per year, which are delivered all over the U.S." Company A further states they they can "ramp up" to meet your needs.
What Company A doesn't tell you is that 90,000 widgets go to a single buyer, that Company B's facilities throughout the U.S. are the largest users , and his only other customer for the product is Company C, which buys under 10,000 widgets per year.
Seeking to expand their market, Company A gives you good quantity pricing on the otherwise very expensive widgets. They promise to meet all your delivery dates.
Three months into production, when you're ready for your next "just-in-time" shipment of assemblies, you get THE CALL from Company A. "Sorry, but Company B canceled all orders for the widget, and we can no longer afford to continue making them. Therefore we will have to cancel your shipment.
And Your Assembly Line Stops.
The same company which today treats you like a king because you're developing a sunrise market for what they know is a sunset product, can tomorrow give you the kiss of death by discontinuing the critical component once you're the sole customer and when you're depending on it the most. Beware of buying custom components from companies with few customers and few or no other products. Better to take the time to check them out thoroughly than to be caught with maximum money invested in incomplete assemblies. Also, your credibility instantly turns to mush when you become delinquent on your deliveries.
NEXT ISSUE: More on Outside Help
The above article was taken from James F. Riordan's classic book, HOW TO EVALUATE THE POTENTIAL FOR SUCCESS OF A NEW PRODUCT OR TECHNOLOGY. Riordan's highly-acclaimed, 36-point system is a valuable tool for inventors, product evaluators or anyone interested in the invention process. Each section is followed by a comprehensive questionnaire that can be used to evaluate your product.
The highly-recommended book can be ordered through the Dream Merchant, 2309 Torrance Blvd., Suite 104, Torrance, CA 90501. The phone number is (310) 328-1925.
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