Virtual manufacture

A brand startup needed a fast, lean way to manufacture its products in an ambitious growth plan. The business case was to launch and establish, then scale through acquisition by an overseas candidate, most likely with production capabilities of their own.

The product design strategy hinged on readily accessible industrial capabilities, harnessing surplus capacity that, although sophisticated, was spread across an entire industry.

An agile plan was designed that minimised capital investment in fixed production assets, yet still provided many of the top priorities: technology; flexibility; and incentivised R&D and IP.

An innovative organisational structure was created around licensing rather than contracting per se. A design that leveraged existing infrastructure provided by stakeholders in return for exclusivity and a program of managed cross-industry collaboration. The plan was strongly embraced by state and industry advocates.

Around six private companies formed the core group. Giving the startup an instant and secure supply-chain with state of the art technology, ready expertise and facilities; low capital investment and no incumbent production assets.

Within 3 months of start up the first 7 products were launched and within two years the entire range of 90 products were available around the world.

Small flexible batches allowed QA, process and design to iterate. A sequence of centrally managed process steps progressed each piece towards completion, across a virtual multi-site factory. Over 150,000 high quality items were produced in this way, in over 150 start-to-finish production batch cycles.

Some may think this to be classic 'outsourcing' but it is not. Outsourcing suggests single linear transactions, where one may 'outsource' the entire finished product. In this case, the startup wanted to manage each increment of manufacture for the dual benefit of iterative product development. Something not easy in classic outsourcing without high cost, and usually volume.

The use of licenses, and especially cross-license obligations, bound the parties in two ways: reinforcing parties as both 'suppliers' and 'supply-chain' in multi-lateral relationships. Metaphorically suppliers were like spokes in a wheel. At the hub in the centre they were connected to the startup by way of orders and directions, and at the opposite end connected, as in a wheel rim, to the entire group through the licenses.

This model ensured a closed system for IP and technology development, further reducing capital legal costs with a degree of assured confidentiality.

Summarised benefits were:-

  • a read-made production capability;
  • systemic quality control;
  • systemic protection of design IP;
  • open exchange of production IP;
  • flexible capacity from prototype to tens of thousands;
  • central production control;
  • a modular, transferable business capability and asset.

This business case and enterprise were recipient to multiple government grants and endorsements for innovation in industry collaboration.

Stefan Kahn