JDM Operational Excellence in NPI

For companies large and small, the Joint-Development Model (JDM) for new product development has been increasing in popularity. Compared to the Contract Manufacturing (CM) model, JDM is where the manufacturing partner takes on the heavy lifting for the engineering and design of the product based on requirements and specifications provided by the brand. For companies executing with a lean team, it’s an attractive proposition: outsource design and engineering headcount while still controlling the product requirements.

With careful sourcing management and negotiation, NPI with JDM models can sometimes be cheaper than CM models. All too often, however, companies strip their teams down too lean – forgetting about operations and quality responsibilities – which is a recipe for disaster. Building a successful JDM practice requires the right internal support, cultural support, and follow-through. Failing to do so can lead to unexpected costs, delayed schedules, and other pitfalls – not just during NPI but also in production.

It’s crucial for companies to do the research, compare costs, and establish best practices from Day 1 to have the most productive and advantageous relationship they can with their JDM.

Who is JDM for?

Many companies execute a mix of JDM and CM products within their portfolio and think about the trade-offs on a per-program basis.

JDM might be the right choice for your program and team if:

• The program is a “speedbump” (not a new generation) and the JDM has experience with building the prior version.
• You’re an incredibly lean team and don’t have the resourcing to hire full-time engineers to cover partial needs in RF/antenna design, electrical engineering, etc.
• You need to defer the NPI costs until production to pay for the program.

JDM is a risky or fraught choice for your program and team if:

• This is your “flagship product” that anchors the product line.
• You are really pushing the envelope on innovation with the product — JDM partners will not do this. You’ll need to own those parts in-house, consider CMs or building your own factory.
• You are working with a new or untested factory partner.

Keep in mind it’s also possible to supplement a JDM arrangement with specialized engineering resourcing on your side – leading to a bit of a hybrid approach without having to take on full ownership of the design. For example, this might make sense if your innovation is in the RF/antenna and its resulting software or if a significant amount of novel testing will be needed for a first-of-its-kind product.

Best Practices

Choose your payment plan carefully

JDMs are an attractive alternative to CMs because they offer in-house engineering design. They typically operate with two different payment arrangements:

• Free non-recurring engineering (NRE) with a 5-10% bill of materials (BOM) cost adder. This is a solid option for smaller teams with less cash to provide upfront and unclear sales volumes. If volumes are ultimately very high, this approach can result in overall higher costs over the term of the contract.
• Paid NRE with deep involvement in sourcing and pricing. This model enables renegotiation of BOM costs before or in production when both sides understand them better – creating an opportunity for 10-20% lower BOM costs compared to the CM model. This option makes the most sense when margins are sensitive and volumes are very high.

Experts agree that once you select your manufacturer, you lose a lot of leverage in negotiating their NRE, BOM, and costs of quality. One expert suggested mitigating this by separating an “early-development engagement” so that you can be involved in trade-offs prior to a finalized quote. Your JDM is also well-positioned to leverage reference designs to take advantage of reduced development time and pre-negotiated, high-volume orders on the associated components.

Go hybrid to keep your secret sauce bottled up

For companies that are very concerned about their innovative elements or core intellectual property being exposed in such an intimate relationship with a JDM, it’s possible to solve this problem by working in a hybrid model. Your team takes ownership of the components with that special IP and the test stations that will verify it works and leverage the JDM for everything else in the design. While it’s never possible when you’re working with any partner to lock down all of your IP, this is how many companies reduce the risk.

Staff production the same as you would a CM

There’s no such thing as a “Joint Production Model” – the D in JDM is for development. The model is about outsourcing and accelerating development. It’s not about outsourcing production, quality, and oversight. We wrote an accompanying guide to best practices in JDM in production here.

Foster an ownership culture where “Nothing is the JDM’s fault”

Since JDMs take on the responsibility for the engineering design, it’s easy for some teams to outsource the feeling of ownership as well: if something goes wrong, the default answer becomes “it’s the JDM’s fault.” Leaders must ensure they foster an ownership culture where nothing is the JDM’s fault. If there’s a massive recall due to a quality lapse, the brand is on the hook. If the product is late, it’s the company that suffers.

Control the inputs and outputs – the JDM handles the middle

Spend time to carefully construct and specify the Statement of Work (SOW) and product requirements, as well as the functional test, reliability test, final inspection criteria, and Ongoing Reliability Test (ORT) plan as early as possible so you aren’t changing the goalposts on your JDM (which can cause cost negotiations). Allow the JDM to own how they get from the inputs to the outputs.

Things to Watch Out For and Mitigations

Choose the right partner

In general, it’s very difficult to choose the right partner and frame the relationship correctly in terms of incentives. The better partners often require much higher volumes to be interested in working with you.

Mark Watson, who was responsible for manufacturing partner selection at Microsoft, Fitbit, and other companies said, “If you don’t have the size, you better have the relationships.” You want to be between 10-15% of that JDM’s business to ensure that your success will be aligned with theirs– any smaller than that and it’s difficult to get the A-team and leadership to give the product the focus it needs. Relationships are why people like Mark are in high demand.

If you’ve chosen incorrectly, you’ll know by EVT when things start to feel like they’re going sideways. In reality though, you’re locked in at that point. Moving partners is not generally a viable option; you’ll just need to invest more people than you might have previously planned to correct the design and monitor quality closely.

Put the right contract structure in place

Seems like a no-brainer, but make sure the contract you are using is tailored to the JDM model.

• Since JDMs are responsible for the design, the cost of yield fallout should be more heavily weighted on the JDM.
• IP ownership should be a work-for-hire so that the company retains full ownership, not the factory.
• Keep an eye out for indemnification of third-party claims if leveraging the JDM’s IP – negotiating that could take some time.

Don’t let the fox watch the henhouse

While it’s tempting to cut the development team down to the bare bones in a JDM model, according to Bill Carter-Giannini, "teams need at least one system engineer per program that’s not part of the JDM because otherwise, you have no visibility to the real risk to your business,” and ideally more. The systems engineer is responsible for understanding what decisions are being made and watching out for the best long-term interests of the brand – identifying where there might be risks, highlighting specifications that are needed, etc. Bill, who formerly worked in a JDM model at Fitbit and has multiple experiences supporting JDM clients at Ronin, explains that JDMs are motivated to get brands to buy volume, and will obfuscate poor yields and quality problems, while actively working to solve them on the side. That can lead to financial issues as well as quality escapes into the field.

You’ll also need at least one project manager on the bench who’s responsible for keeping all teams on track to hit the schedule – which is one of the most important metrics for any NPI program.

When you move to production, you’ll still need operations oversight and an engaged in-house quality owner – just like you would in a CM model. Even at small companies, this is typically more than one person to be able to cover the full supply chain footprint of the product. This is critical to ensuring you have the oversight to dissuade funny business from your manufacturing partner or their suppliers, and for ensuring everything that’s shipped meets your expectations, whether it was in the specification or not.

Technology can potentially help to reduce the headcount needed to provide for oversight in production. Real-time test station yields and input metrics provided through an ungameable (first-party or third-party) system, like Instrumental's AI-enhanced automated visual inspection systems and AI manufacturing solutions are a good first step. A 100% unit-level traceability system for manufacturing helps to reduce the risk of a people-intensive and line-blocking failure analysis process if something does arise, as do manufacturing data analytics. When I started Instrumental, I didn’t imagine our AI solutions for manufacturing would be particularly useful for JDM programs, but our customers have taught us otherwise. This enables them to push production staffing down without sacrificing quality in the field.

Remember: You Have the Most To Lose

If you follow best practices and ensure you’ve worked out the details of your partnership, working with a JDM for NPI can be a strategic advantage. The possibilities of lower costs are attractive, but companies that think they can outsource production operations and quality to the JDM take on unnecessary risk. While the incentives between the company and the JDM are mostly aligned – both only make money when the product gets to production – the company has more to lose. It’s critical for your company to stay engaged in every detail of your partnership.