It all starts with suppliers

For any Oregon Trail players, the most critical part of the game happens at the beginning, in the general store, when you decide if you’ll be loading up on ammo or hoping you’ve got enough salted pork for the journey ahead.

So let’s start make sure you’ve got the right gear for your adventure ahead.

In my first role running a factory, I was so excited to build the product, balance assembly lines, run a fancy and foolproof OQC process, but all that fun was months down the road as we started off with “how the hell did they screw these brackets up so bad?”

Production line problems are fun, troubleshooting mechanical issues are fun, there’s an immediate gratification when they’re solved.

But supply chain problems are expensive. Sooooooooo expensive.

If you’ve got a 2 month lead time, they’ll take 3 months to solve… if your supplier is good. If you need a new partner, you’ll be lucky to see the improvements in 180 business days (you have all your foreign holidays added to you GCal right? 😉).

Even if you can identify and implement a solution to the problem today, there’s no immediate satisfaction while you patiently wait and spend your newfound free time calculating how much of your working capital you burned in the process.

So who are your suppliers today, who should they be, and what should you look for?

Well, same thing you’d want in any partner. Ideally, you’re able to swing out of your league because your idea is so beautiful and full of potential and they see that and immediately give you the pricing reserved for their larger customers.

This isn’t something you can just hire a supply chain analyst to help figure out, you don’t yet have a supply chain built. In the early stages, it’s important that you have a few critical suppliers that you can count on, especially when it comes to your most critical and most expensive components.

So treat it like a real relationship. Visit them, get to know them, wine & dine them (often a requirement), show them the ride you’re taking them on, and get them excited about the kool-aid you’re about to build.

It’s easy to get taken for a ride when someone’s looking to make a quick buck off you, but if they believe in your potential, they’ll open the doors and their books to you. They’ll show you other tricks they have, they’ll introduce you to their supplier friends, and they’ll give you advice on how to build your product even better!

To simplify it, here’s what I look for in a new supplier:

When a suppliers been willing to work with me, everything is better. Promised dates are hit. Quality issues are a short term concerns. They’re willingness to honor warranties de-risks my working capital. They introduce us to other suppliers they’ve worked alongside in the past. They’re invested in our success, and we all need that kind of support in and out of business.

Do they have relevant scale already? Every word here is important. I’ve seen suppliers in adjacent businesses with scale in their main areas who couldn’t scale in our specific product. I’ve seen suppliers promise the world, only to run into capacity constraints right when our sales took off. No problem is more frustrating than seeing your product and sales taking off only to know you can’t supply them. Adding a new supplier at this point is too long of a solve, and you’re stuck with the sunk cost. Avoid.

As far as decent pricing… how do you know? If you’re from America first venturing into the hardware world and offshore factories, or just getting out of prototyping and into the large volume world, or if you’ve only worked in industries like aviation or healthcare, you might be shocked at what’s possible out there.

Nothing on Amazon is anywhere close to wholesale pricing. Volume beats everything, and so you want someone who’s already doing proven scale. If they know what things will cost, and they’re ready for a partnership, contracts and all, best case they might be willing to scale with you and build today’s components at tomorrow’s volume.

You likely won’t get that, but with someone who’s willing to grow with you they’ll be much more inclined to give volume pricing, to eventually open up their books and show you their BOM pricing, and to start to work with you on payment terms as your relationship develops.

To actually know how decent your pricing is, the best rule is Elon’s Idiot Index. You’ll never hit raw material costs, but it’s a good place to start.

Lastly… make sure it’s easy to visit them. Long-distance relationships are always harder, but they can be managed for the right partner.

But even if they’re halfway around the world, maybe they’re next to your COO’s vacation home. Or perhaps you already have 4 suppliers in the same city.

If you’re in New York and you have 3 suppliers in Shenzhen, adding another extends your quarterly trip by 1 day. If you want to add a supplier in Germany, that’s an entirely different 4 day trip and $2,000, which needs to be independently justified or else they’ll be forgotten. Keep your teammates where you can easily see them.

Of course nothing beats them being someone you can visit on your regular lunch break. If you’re still in the stage where it’s easy to set up shop around your existing industry, do it. The returns will pay off in spades.

So that’s it. You want suppliers you know personally, you can (and do) visit often, who are invested in your success. And of course, yeah you want a good price.

There’s a ton more… contracts, payment terms, consolidation, dual sourcing, etc.

But for now, finding singular good suppliers you can trust will compound and make all the rest wayyyy easier.

Happy building!