…How Companies Like Apple Are Using The “Component Control” Method To Protect Their IP, Increase Profit Margins And Guarantee Quality Products – Without Ever Owning The Factories
When I first got started in China, I went to three factories every day for two years.
Now, you don’t have to do the same to turn your product idea into a successful business, but you do need to understand why I did it.
Because, here’s the thing:
When most people have a great idea, they will go to Alibaba and work with the monster factories.
Ridiculous overheads… huge marketing budgets… and way too many english-speaking staff.
When using China as our manufacturer, we want most of our investment actually going to the chinese, right?
The worst part is that these guys don’t have a lot of supply chain – they don’t really do much manufacturing in house.
So, they’ll grab all of the orders and outsource them to smaller factories.
Less control. More fingers in the pot. And way more chance of something going wrong.
Now look…here’s the reality:
To really succeed… you have to get every single component manufactured in a different factory…
That’s the bad news.
The good news is that you don’t need to build a relationship with 200 factories to do this, like I did.
I’ll get to that a bit later.
Who am I?…
…And what do I know about the “component control” method that Apple is using to control 100% of their manufacturing process?
(Without owning any of their factories.)
My name is Josh,
and I lost $10k with my first attempt at manufacturing in China…
…which is pretty normal for people like me. (People who like to move fast and break things)
Thing is… It wasn’t like I didn’t put in the necessary work up-front.
I did my due-diligence – I spoke to 13 different factories before putting my faith in one of them.
But I quickly realised that even when you think you have engineered everything perfectly, there are always problems in manufacturing.
You could spend months preparing for your first run. But good preparation doesn’t guarantee that it will be smooth.
I found out the hard way that you need great relationships with different specialist factories to help you fix problems on the fly.
After my first failure, I realised that the question we should be asking is not: “How can I better prepare myself to prevent something from going wrong?”.
Rather, we should ask: “How can I work with better factories who are motivated and skilled at solving problems when something goes wrong?”
To answer that question, let me take you back to the beginning of my story…
So I got involved in the crowdfunding space back when it was still a buzzword – back in 2009.
Websites like Kickstarter and Indiegogo were becoming more popular every day. (Start-ups use these sites to find funding for their idea)
I had a winning campaign up on Indiegogo for headphones – called HeadCase Sound. Backers agreed $20k.
But, when I went down to the factory in China, I realised that the factory had made a terrible prototype.
So I had a $20k campaign on my hands with no way of delivering. And I had already put $10k of my own money into promoting the project.
Long story short… I had to retract everything and the entire campaign fell apart.
I felt ashamed admitting to everybody that my “successful” campaign had actually lost me $10k.
When I finally came out of that, I wasn’t ready to throw in the towel – mainly because I came so close to success with my campaign.
I became obsessed with finding a way to get manufacturing done in China from people that I could actually trust.
And I wanted to be able to have 100% control of the process.
Little did I know, this obsession was the seed that eventually became the component control method that I’m about to show you.
So I moved to China in 2012 and started analysing everything that the top factories were doing.
Thing is… I’m a six foot one tattooed white guy who speaks fluent mandarin, and so it was easy to get into some pretty high level circles that I didn’t necessarily belong in considering I didn’t have much money back then.
I got to know some of the guys at Foxconn – they do all the manufacturing for Apple.
I realised that Foxconn had engineered this entire thing perfectly.
While I couldn’t compete with the kind of budget that Foxconn had, I was able to reverse engineer what they were doing.
This is where the “component control” method comes from.
Now, I’ve created a process that the “little guys” can use to copy the supply chain systems of the top companies in the world.
So, here’s the deal:
Foxconn knew that you have to be obsessed with controlling every detail of your product’s development…
…and they understood that if they had a different specialist creating each component of the product, it would result in cheaper costs and better quality.
In a moment, I’ll show you why this is true. (And you’ll see how we got 200 specialist factories to do it for us)
In theory, everything sounds simple… we just need to find one factory for each component of our product.
Execution – that’s a different conversation.
Like I said, for me to create systems like Foxconn, I went to 3 different factories every day for 2 years.
I found one specialist factory for leather, one for wood, one for plastic, one for metal…etc…
…and then I gave them opportunities to do tiny things.
I tested over 750 factories – giving them small projects to see if they were legit. The ones that had good communication, good quality, and fair pricing, I gave them bigger projects.
Slowly… I eliminated the weak performers.
Over time, I used these factories not only for my own products… but I also started helping some of the early pioneers on Kickstarter and Indiegogo with their manufacturing too. Eventually, they became my customers…
(Like Dan Provost & Tom Gerhardt, who were one of the first guys to ever secure over 6 figures in funding on Kickstarter – we handled manufacturing for the Iphone 4 mount that they got funded for back in 2010)
Word of what we were doing started to spread. It spread quickly.
Before Iong, this method had become so widely accepted as the trusted way to manufacture, that kickstarter and indiegogo openly recommended us on their websites, as you can see here:
At this point, I have a team of 40 and have a rolodex of 200 factories that we work with on a regular basis – component specialists that we know we can trust.
Nowadays, crowdfunded campaigns are just a small piece of what we do.
Because we also have a book of successful western businesses consistently using this supply chain, it means that we are often responsible for 80% of a particular factory’s business.
And when you totally dominate a factory’s income in that way – you get special treatment.
When we say jump, they say “how high?”.
Now, we don’t abuse that power. But we definitely use it to our advantage.
It’s a good feeling to know that when you walk into a factory in China, you have everybody there respect you and give you the attention you deserve.
In short – we get cheaper prices, faster response times and better quality control because of the relationships that we have spent many years building with these factories.
Now that you have learned how the component control method works, you might be thinking:
How do you get a factory to specialize in just one component?
Well… it’s actually pretty easy. Their life becomes a lot easier as soon as they do. Let me explain…
When a factory only has to worry about building one component, their margins are almost set – this is because costs and profit levels become crystal clear.
When only doing one component, it becomes way easier for factories to come up with an equation that gives them an “X per unit profit”.
(They know they can design the product for X, charge Y and Z is their profit.)
They know that they can always make the component to a high quality standard, and they know they can make it quickly… (Because they have made it a million times already)
…And they know they can make it cheaply. (Because they know exactly how much it’s going to cost to build the component – and they don’t have to hire extra people or reinvent their process every day)
Thing is… when a factory doesn’t know with 100% certainty that they can make something fast and cheap, they will start charging us more.
This is because there is a lot more risk for them.
If they are in control of connecting multiple components together, there is more chance of things going wrong.
If they make a batch wrong and have to start over – it could destroy their income.
And so factories that are responsible for too much of your product’s design will always charge you more – to cover them in case something goes wrong.
When a factory is only building one component, they don’t have any risk, and they only care about the profit on that component.
They couldn’t care less about how the rest of it is made. They already have peace of mind because they know their income will stay the same every month.
For factory owners, having that certainty is life-changing for them.
So, here’s the bottom line:
With the component control method, we focus on developing specialist factories in our supply chain.
We nurture those relationships and deliberately give them enough volume so that we become their primary source of income. (Then they care about us more)
These factories make each component quickly and for a cheaper price than if more people were in the pie.
We then put all of these components together in a different factory where we have 100% control over everything – and nobody but us knows how to build it.
The end result?
Our IP is protected. Our product’s quality is guaranteed. Our delivery is quick…
But most importantly…
When a problem arises…(manufacturing is messy and there will always be problems.)
…we have the long-term relationships with the specialists to get those problems fixed quickly.
And while we are talking about problems…
I want to share a story about one of our customers…
How the component control method saved Cubcoats
Cubcoats secured $4.85 million in seed round investments, and quickly became a household name for their 2-in1 children’s product. (A hoodie that turns into a toy)
It’s a good example to look at because there isn’t a factory in the world that has ever made a hoodie that turns into a toy – and so we can see how the component control method thrives in unique situations.
Zac, the founder of Cubcoats came to us back in January 2017.
He came to us with his first prototype, and let’s just say that it wasn’t quite ready to be marketed yet.
The zippers were assembled by tapes, and the eyes were drawn on by hand.
So, we put a specialized team together – one was a member of the Chinese national garment association, another was one of the very first suppliers who produced plushie toys for Disney, and we also had a printing supplier who has done work for Apple.
The rest of the team was made up of our quality control managers, a paper pattern master, and our COO.
We went through hundreds of revisions in 10 months, version 57 looked like this:
Our key supplier Mrs liu would always joke about bringing Cubcoats to life – she’d say that it was easier to give birth to a baby human than one of these cubs.
But, eventually we made it happen.
Check out this video by Cubcoats to see this cuddly toy turn into a hoodie that a child can wear:
Here’s a breakdown of the 8 components involved when manufacturing one of these products:
- Material for the owl – super soft fleece.
- Material for the hoodie – 70% cotton and 40% polyester for the Jersey, 100% cotton for the lining, 100% polyester ribs.
- Zipper – A branded double sided metal zipper with a silicone piece for the logo.
- Dye – Marl (heather)
- Eyes / Eyebrows – embroidery
When you only work with specialists, even a complicated product like Cubcoats can be chunked down into an easier process.
Now, let’s talk about your idea – and how you can use the component control method too.
Want to implement the component control method yourself?
It’s been a decade since I began this journey in China.
And now you have seen how the component control method can take your idea and turn it into a successful business.
By setting up our supply chain in this way, we are able to access specialist factories – connecting them together in a way that drives our costs down.
However, it may come as a surprise to hear that I didn’t start Morpho MFG with lowering manufacturing costs at the top of my mind.
When I had to hold my head in shame, and tell friends and family that my “successful” $20k campaign was actually a sham, I wasn’t thinking about shaving a few dollars off my costs.
All I wanted was to be able to do business in China like the Chinese.
I wanted fair and equal treatment. I wanted factories to treat me with respect…
…And I wanted to never again experience sloppy, half-committed factory workers.
I never wanted to fail because of an error that was outside of my control.
But now, the component control method has brought the entire Chinese manufacturing process under the control of western business owners.
And sure… we still encounter problems every day in our supply chain. That’s manufacturing. Problems are inevitable.
But what I am most proud of is our ability to fix those problems on the fly.
When I first began building Morpho, I knew that China was going to be the manufacturing hub of the world for decades to come.
Nothing has changed.
That’s why I learned to speak like the Chinese. And that’s why my team is fluent in both English and Mandarin – so that we can tap into China’s unfair advantage and bring it to the west.
But you will never hear any of us talking about beating the price of other factories.
You have already seen how the component control method drives our costs down by default anyway.
Rather, as I close this off, I want to celebrate something else, and urge you to look for the same thing as you seek manufacturing in china…
Factory owners that you do business with need to have good communication and react to problems quickly.
When something goes wrong (and it will), how fast will somebody reply to your email? How much do they care about fixing the problem?
At the end of the day, factories are people.
And if you can’t trust those people. You can’t trust that your product will come out as you hoped.
Now, if you want to explore what it looks like to setup your supply chain within our network of factories, here’s what you need to do:
Click on the link below, which will direct you to a page where you can submit a few details about your project.
Go ahead and do that, and a member of our team will reach out to schedule a call with you.
If your idea for a product makes sense, we can begin building your team of specialists – people who are selected because they are experts at creating components specific to your idea.
To your success in manufacturing,
P.S – Please remember that we see 10 different product ideas every day.
Not everybody that gives us their project details will go on to speak with a member of our team.
If you want to make sure that your project gets the attention that it deserves, then make sure you give enough detail when submitting your project for review.
P.S.S – Got any questions for me? Post them below: