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Establishing a supply chain for your product + finance/accounting questions.

Freedommachine

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May 13, 2020
I did not want to hijack Covenant mfg's thread so I started my own.

The core of my business is built around the design, manufacture and retail sales of my own products. I have zero debt but I am not swimming in cash either.

My production runs are usually 100-300 units at a time and all of my products are assemblies; nothing is 'machine one part and sell it'. Keeping quantities low (300 units is low) allows me to spread my time and money across multiple products; building my brand and not getting stuck with stagnant inventory.

My flagship product is one that I know very well. I know exactly how long it takes to make and I am comfortable enough to calculate the cost of goods to produce it in any quantity.

I recently worked out a deal with another retailer to carry this product. They want up to 200 units a month. They also requested I make another product - a different variation of the one I already make. When I do, they will buy even more of those. It is truly a blessing, I am very thankful and excited for the work.

The problem I am running into is that I am struggling to get a material supply chain in place. I have never done large quantities so I am not exactly sure how to go about it.

What I need to end up with is 3 different size blanks; all cut from the same 4140 material; 0.242" +/- 0.003 thickness. The length and width of the blanks are not critical, +/- 1/16" is fine.

I wanted to be able to order a sheet of 1/4" 4140 decarb free in a specific length and width; have the supplier ship this plate to the laser shop where they would cut my blanks for $350. The laser shop then sends the blanks to another shop of my choosing get Blanchard ground to thickness; I would then pick up the blanks from the grind shop.

You'd think I was trying to organize a space mission or something. The material supplier is not allowed to quote over the phone so I have to spend 3 days emailing to figure out what size material is even available. Then, he tells me that inventory changes all the time so I can never request the same size plate. The story goes on and on...

Is there a way that I can order this material already taken to thickness on a giant belt sander or something to remove the grinding op? I only use decarb free because it is oversized to allow for grinding. If I used standard 4140 in 1/4" thickness would it be easier to obtain?

How do you guys figure this kind of stuff out when most suppliers just want to quote and be done with it, rather than actually helping to solve a problem? I know what I need, I just don't know the best way to get there if you know what I mean. Either way, I need the first batch like yesterday so it's getting to be a real problem.


Next question;
When you buy a new machine, how do you structure the finance and ownership of that asset?

In order to reduce liabilities, I do not want my manufacturing business to own many assets. Ideally, I would like to finance a new machine in my own name, transfer the asset to a holding LLC and then lease it to the mfg company at a rate equal to the monthly payments. Is this a common practice?

Sorry about the wordy post and unrelated questions. There is a lot running through my head, sometimes you've just got to get it out. 🙂
 
In my experience, the more common arrangement is to buy from either the laser cutter or the blanchard grind shop, and they go back to their suppliers to get the materials. A lot of plate companies have their own blanchard grinders and oxy-fuel/plasma/laser cutting in house to produce surface ground profiles from plate.

Trying to buy material from one place and then get it processed by a few different companies is likely going to be more challenging as a lot of places don't like dealing with customer material.
 
Can't help with the sneaky ownership issues, but per the material issue, is there a benefit to buying the material from an unkown source and having shipped to the lazer outfit? Any reason not to just ask the lazer guys supply the material? They buy a LOT more material than you doo, I am sure they git a better price.

???

--------------------

I am Ox and I approve this here post!
 
For a make-or-break in house product line, it might be wise to have a couple different ways to make it. As you see, material can be a massive bottleneck. Of course having multiple vetted material vendors would be great too. But that sounds like a problem for future Freedom.

Maybe make these parts from flatbar and skip the outside vendors just to keep customers and resellers happy. You might break even or lose money on an inefficient process, but it's better than bad reviews and soured relationships.
 
This thread is gold. I am in a similar position right now; I hooked a whale and now have a million things running through my head.

How do I find time to keep up with my other products?
How do find time to finish my building and roto-phase?
I need to buy a wire EDM, what kind?, how to structure financing? ...oh wait, my building isn't finished!

I know for 100% certainty that I can and will deliver but there is a lot to learn and real fast.

If this is a new distributor for something that you already produce, and they say that they can market these at WAY higher qty's that you have been .... apparently you already are familiar with the market since you are already in it ...

"Does the market have the demand that they are saying?"

Maybe they already move the same parts and would be dropping a previous supplier (or prefer to buy it from you, rather than produce in-house?) and so they have history to back that up?

But sometimes folks will think that the market is a bottomless pit as well. Will the demand stay flat, or will these elevated qtys flood the market, and then you are back down to lower qtys, but tooled (overhead)for higher?


I was involved with a job once several yrs ago where a customer was wanting a cold headed part modified, at the qtys of up to 1,000,000/month. Yeah, we could tool that up with 3 machines likely, but I'm expecting that by the time unit #3 comes on-line, that the initial market, warehouses, and retailers would be stocked, and then down to consumer demands of somewhat less, and there I sit all tooled up for a [50%] pipe dream. At least that's what my gut was telling me...

The customer ended up finding a header that said that they could produce [close enough] to what they wanted, so they ended up not needed us in the end.


--------------------

I am Ox and I approve this here post!
 
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Can't help with the sneaky ownership issues, but per the material issue, is there a benefit to buying the material from an unkown source and having shipped to the lazer outfit? Any reason not to just ask the lazer guys supply the material? They buy a LOT more material than you doo, I am sure they git a better price.

???

--------------------

I am Ox and I approve this here post!

It's not sneaky, it is a common practice called a holding company structure - I just don't know how to do it yet lol. https://www.wolterskluwer.com/en/ex...ating-company-structure-to-help-mitigate-risk

"In a typical holding company structure, the subsidiary companies do manufacture, sell, or otherwise conduct business. These are called operating companies. Other subsidiary companies hold real estate, intellectual properties, vehicles, equipment, or anything else of value that is used by the operating companies."

About the stock; I have this bad habit of trying to control everything and tripping over a dollar to save a dime. The laser shop certainly does get a better rate than I would but every time I use vendor supplied material, it ends up costing more than I can buy it for direct.
You are right though, it was stupid of me to not even ask what it would cost.

In the beginning, I was funding product development from overtime money at my day job. I had to spread it thin and find the cheapest way to make a high quality product.

The situation is different now, time is taking the place of money as the scarce resource. It is hard to change that way of thinking though.

For a make-or-break in house product line, it might be wise to have a couple different ways to make it. As you see, material can be a massive bottleneck. Of course having multiple vetted material vendors would be great too. But that sounds like a problem for future Freedom.

Maybe make these parts from flatbar and skip the outside vendors just to keep customers and resellers happy. You might break even or lose money on an inefficient process, but it's better than bad reviews and soured relationships.

Good point. I had planned to use flat bar in the beginning but the tolerance on it's overall thickness created a problem. I need to revisit this idea though because that material will always be easier to obtain.

They still need to be ground for appearance though. Being a consumer retail product, the appearance is very important.


First call a new supplier. They should be able to talk on the phone, quotes in writing are standard stuff
Can the steel supplier cut the plate?
.003 ought to be in the wheel house of a modern VMC gawd I hate paying people to do things I can do.

They can cut the plate for $25 per cut. I gave the sales guy my blank dimensions and quantities. I also gave specific instructions to quote my specified widths x whatever length they had that would be divisible by each length of my blanks.
This way, I could saw it myself in a minimum amount of time. Well, 2 days later I get the quote and he did exactly the opposite; minimizing their cutting. I tried to explain it to him but he didn't see the difference. I tell him; "I need 1.75" wide stock that I can saw to 7" lengths. You quote 7" wide stock... You don't think it will take longer to saw through 7" of material on a band saw???

He refused to requote saying that he wasn't sure if they could supply those dimensions. I said; "yeah, you didn't know if you could supply these dimensions either until you checked and gave me this quote."

Anyway... I have faced them in the past but that is a no-go. Some of the plates are too big for a single pass and I hold them in a 6" vise to machine them. The step left by the overlap from a face mill or fly cutter is no good. It also takes more time and the thickness varies. Things go a lot smoother when all of the stock is the exact same thickness and all I have to focus on is cutting the parts.

These are 2D parts. The Blanchard ground faces are the finished faces of the parts. The parts are tabbed and cut out by full slotting with an end mill... I really need a wire EDM lol.
I have made thousands of parts this way though and it is definitely profitable so I can't complain.
 
Last edited:
I did not want to hijack Covenant mfg's thread so I started my own.

The core of my business is built around the design, manufacture and retail sales of my own products. I have zero debt but I am not swimming in cash either.

My production runs are usually 100-300 units at a time and all of my products are assemblies; nothing is 'machine one part and sell it'. Keeping quantities low (300 units is low) allows me to spread my time and money across multiple products; building my brand and not getting stuck with stagnant inventory.

My flagship product is one that I know very well. I know exactly how long it takes to make and I am comfortable enough to calculate the cost of goods to produce it in any quantity.

I recently worked out a deal with another retailer to carry this product. They want up to 200 units a month. They also requested I make another product - a different variation of the one I already make. When I do, they will buy even more of those. It is truly a blessing, I am very thankful and excited for the work.

The problem I am running into is that I am struggling to get a material supply chain in place. I have never done large quantities so I am not exactly sure how to go about it.

What I need to end up with is 3 different size blanks; all cut from the same 4140 material; 0.242" +/- 0.003 thickness. The length and width of the blanks are not critical, +/- 1/16" is fine.

I wanted to be able to order a sheet of 1/4" 4140 decarb free in a specific length and width; have the supplier ship this plate to the laser shop where they would cut my blanks for $350. The laser shop then sends the blanks to another shop of my choosing get Blanchard ground to thickness; I would then pick up the blanks from the grind shop.

You'd think I was trying to organize a space mission or something. The material supplier is not allowed to quote over the phone so I have to spend 3 days emailing to figure out what size material is even available. Then, he tells me that inventory changes all the time so I can never request the same size plate. The story goes on and on...

Is there a way that I can order this material already taken to thickness on a giant belt sander or something to remove the grinding op? I only use decarb free because it is oversized to allow for grinding. If I used standard 4140 in 1/4" thickness would it be easier to obtain?

How do you guys figure this kind of stuff out when most suppliers just want to quote and be done with it, rather than actually helping to solve a problem? I know what I need, I just don't know the best way to get there if you know what I mean. Either way, I need the first batch like yesterday so it's getting to be a real problem.


Next question;
When you buy a new machine, how do you structure the finance and ownership of that asset?

In order to reduce liabilities, I do not want my manufacturing business to own many assets. Ideally, I would like to finance a new machine in my own name, transfer the asset to a holding LLC and then lease it to the mfg company at a rate equal to the monthly payments. Is this a common practice?

Sorry about the wordy post and unrelated questions. There is a lot running through my head, sometimes you've just got to get it out. 🙂
Without divulging too many details, can you share the size of the part or the blank you need in 4140?
 
If this is a new distributor for something that you already produce, and they say that they can market these at WAY higher qty's that you have been .... apparently you already are familiar with the market since you are already in it ...

"Does the market have the demand that they are saying?"

Maybe they already move the same parts and would be dropping a previous supplier (or prefer to buy it from you, rather than produce in-house?) and so they have history to back that up?

But sometimes folks will think that the market is a bottomless pit as well. Will the demand stay flat, or will these elevated qtys flood the market, and then you are back down to lower qtys, but tooled (overhead)for higher?


I was involved with a job once several yrs ago where a customer was wanting a cold headed part modified, at the qtys of up to 1,000,000/month. Yeah, we could tool that up with 3 machines likely, but I'm expecting that by the time unit #3 comes on-line, that the initial market, warehouses, and retailers would be stocked, and then down to consumer demands of somewhat less, and there I sit all tooled up for a [50%] pipe dream. At least that's what my gut was telling me...

The customer ended up finding a header that said that they could produce [close enough] to what they wanted, so they ended up not needed us in the end.


--------------------

I am Ox and I approve this here post!


I don't want to go into the details of the customer's business. However, the mutually beneficial nature of our relationship is transparent. Our businesses are complimentary, not competing. I know how many units they need and while I am running these, I will be designing the next one they need as well. I have very little concern about the stability of our agreement.

I do know the market very well. They have a much bigger retail presence than I do. They also have a much larger selection of inventory which attracts a larger portion of the customer base.

Worst case scenario, a year or two from now, they tell me that they no longer want to continue selling this product. I finish the run, sell them myself and keep on going with the next thing.
 
Can you run a big facemill for such a shallow cut? How about vacuum fixturing so the part doesn't bow in the vice, if that's an issue? What machine are you milling these with? It sounds like the unique material finish/dimension and/or the blanchard grinding is the hangup, so I'd do everything I could to either secure a vendor that's happy with providing that, or doing it in-house. I try to avoid special material/finishing as much as possible so I'd go with the in-house option if it's workable.

As to financing I think an Equipment Finance Agreement is probably the way to go. I like Stearns Bank. You should be able to purchase it under the name of the holding company, or under your own name, and transfer it. There isn't a title to equipment so there's nothing officially recorded outside of the loan docs, so if your name is on it and you want to move it to the holding co. I think you'd just do a bill of sale between the holding company and yourself, but I don't think it would mean anything unless you had the machine paid off. The point of the holding company is normally liability protection against lawsuits. If you did get sued, and somebody saw that you or your mfg co. were named on the loan, but the holding co. was making payments, I don't think you'd have protection. You probably want the holding co. name on the loan.
 
I recently worked out a deal with another retailer to carry this product. They want up to 200 units a month. They also requested I make another product - a different variation of the one I already make. When I do, they will buy even more of those. It is truly a blessing, I am very thankful and excited for the work.
Be careful that you don't oversupply the market. That's not to say you shouldn't work with them, just that you should only commit to quantities that makes sense to you.

You'd think I was trying to organize a space mission or something.
I'd always recommend staying in control of your own supply chain.

1/4" 4140 plate is something your laser shop should be able to source quite easily. Talk to them about optimizing yield, i.e. the entire plate, and order the appropriate quantities. Send laser cut parts to a metal finishing shop with a Timesavers, which is much faster than Blanchard grinding.
 
It's not sneaky, it is a common practice called a holding company structure - I just don't know how to do it yet lol. https://www.wolterskluwer.com/en/ex...ating-company-structure-to-help-mitigate-risk

"In a typical holding company structure, the subsidiary companies do manufacture, sell, or otherwise conduct business. These are called operating companies. Other subsidiary companies hold real estate, intellectual properties, vehicles, equipment, or anything else of value that is used by the operating companies."

About the stock; I have this bad habit of trying to control everything and tripping over a dollar to save a dime. The laser shop certainly does get a better rate than I would but every time I use vendor supplied material, it ends up costing more than I can buy it for direct.
You are right though, it was stupid of me to not even ask what it would cost.

In the beginning, I was funding product development from overtime money at my day job. I had to spread it thin and find the cheapest way to make a high quality product.

The situation is different now, time is taking the place of money as the scarce resource. It is hard to change that way of thinking though.



Good point. I had planned to use flat bar in the beginning but the tolerance on it's overall thickness created a problem. I need to revisit this idea though because that material will always be easier to obtain.

They still need to be ground for appearance though. Being a consumer retail product, the appearance is very important.




They can cut the plate for $25 per cut. I gave the sales guy my blank dimensions and quantities. I also gave specific instructions to quote my specified widths x whatever length they had that would be divisible by each length of my blanks.
This way, I could saw it myself in a minimum amount of time. Well, 2 days later I get the quote and he did exactly the opposite; minimizing their cutting. I tried to explain it to him but he didn't see the difference. I tell him; "I need 1.75" wide stock that I can saw to 7" lengths. You quote 7" wide stock... You don't think it will take longer to saw through 7" of material on a band saw???

He refused to requote saying that he wasn't sure if they could supply those dimensions. I said; "yeah, you didn't know if you could supply these dimensions either until you checked and gave me this quote."

Anyway... I have faced them in the past but that is a no-go. Some of the plates are too big for a single pass and I hold them in a 6" vise to machine them. The step left by the overlap from a face mill or fly cutter is no good. It also takes more time and the thickness varies. Things go a lot smoother when all of the stock is the exact same thickness and all I have to focus on is cutting the parts.

These are 2D parts. The Blanchard ground faces are the finished faces of the parts. The parts are tabbed and cut out by full slotting with an end mill... I really need a wire EDM lol.
I have made thousands of parts this way though and it is definitely profitable so I can't complain.
You need a different supplier.
I am small, but have never had anything but sunshine and daisies from most of my suppliers

NOw I mostly deal with aluminum, but one extrusion comes in with a big tooling line across the face[WHYWHY WTF WHY] so I face it in the Brother with some toolpath Fusion comes up with. 4x4.5 inch . Pretty fast and even when I let the 3/4 end mill get beat, the pattern disappears in the tumbler.


I have used full profile with tabs for one offs, but seems time intensive.
I do a few parts that need machined 4 sides[OK they are plastic, but hear me out]
All the details op 1, flip to soft jaws side two, outline and back deburr. I am thinking of trying a corner radius endmill to make the part line disappear.
A lot of guys start with thicker stock and machine the surface away, but that seems a lot of work
Point being, no full width milling, maybe .03 off a side.
Even if this is a fully contoured part, where the blank meets the vise you are saving a bunch of time.

Anyway, not pretending I know more, just food for thought
 
Be careful that you don't oversupply the market. That's not to say you shouldn't work with them, just that you should only commit to quantities that makes sense to you.


I'd always recommend staying in control of your own supply chain.

1/4" 4140 plate is something your laser shop should be able to source quite easily. Talk to them about optimizing yield, i.e. the entire plate, and order the appropriate quantities. Send laser cut parts to a metal finishing shop with a Timesavers, which is much faster than Blanchard grinding.


Yeah, I had wondered that as well:

Why are you buying strips of material at all?
I would fully expect that the laser joint would put a full sheet i the machine, and git out of it all that it can.

I understand that we don't see what you see, and I understand that you need to be vague as well, but I'm not following your BOM thought process at all?


------------------

I am Ox and I approve this here post!
 
Sure.

(62 pcs) 1-3/4" wide x 7" long.

(14 pcs) 5" wide x 6" long.

(44 pcs) 2-3/8" wide x 6" long.

For each assembly, you need 120 blanks? So for 200 assemblies a month, you need to process 24000 pieces?

If so, stop farting around and just buy a double disc grinder, or a Blanchard grinder at least.

A fiber laser that can cut 1/4" steel isn't that expensive either. The labor hours to pick off 24,000 pieces a month shouldn't be underestimated, though.

On the other hand, if that 120 blanks is the total quantity needed to do your runs of 200 per month, then just buy a used medium sized 3 axis power feed surface grinder and do it in house after laser cutting. Have your laser cutter buy the material as a full sheet. Cutting charges from sheet suppliers suck, and they're rarely willing to quote tolerances, much less actually deliver them.
 
The plate is the obvious problem .....why not go with standard spec materials,full size sheets ,and as mentioned get the cut shop to source it ,and deliver the cut item .................cut shops generally make something on the side from the leftover sheet ,grilles ,artwork ,what have you..............lotsa machines is nice for some ,but every machine brings new headaches and dramas.
 
Be careful that you don't oversupply the market. That's not to say you shouldn't work with them, just that you should only commit to quantities that makes sense to you.


I'd always recommend staying in control of your own supply chain.

1/4" 4140 plate is something your laser shop should be able to source quite easily. Talk to them about optimizing yield, i.e. the entire plate, and order the appropriate quantities. Send laser cut parts to a metal finishing shop with a Timesavers, which is much faster than Blanchard grinding.

I use a friend's time-saver and own a good Blanchard. I feel the Blanchard is faster and eats mill scale like nothing. And Blanchard parts are actually flat.
 
What machine are you milling these with?
A CNC knee mill. I dug it out of the "last chance" pile at HGR a few years ago.

Don't laugh, that old girl has made more than $150k in the last 3 years and it will do it again in the next 9 months. I have a cinci arrow 500 that will be running in another month or so as well.

Once they are both running jobs, I will finish insulating the building and hit up Makino about getting a wire EDM. Then all of these parts will run lights-out on that machine.

It sounds like the unique material finish/dimension and/or the blanchard grinding is the hangup, so I'd do everything I could to either secure a vendor that's happy with providing that, or doing it in-house. I try to avoid special material/finishing as much as possible so I'd go with the in-house option if it's workable.

Grinding is not really the problem. I mean, eliminating a step process would be nice but I found a few local shops with Blanchard's that could grind the plates. The hard part right now is getting someone to actually sell me the material.

I should have asked the laser shop to quote it like a few guys here mentioned. That was stupid, idk why I didn't.

I received an order of parts from them yesterday that were water jet cut. The material looked like it was run on a belt sander but it was all 0.250 +/-0.002". I bet it was one of those timesaver machines that orange vise mentioned. If they could get the material and knock the thickness down that way, I could avoid grinding all together.

As to financing I think an Equipment Finance Agreement is probably the way to go. I like Stearns Bank. You should be able to purchase it under the name of the holding company, or under your own name, and transfer it. There isn't a title to equipment so there's nothing officially recorded outside of the loan docs, so if your name is on it and you want to move it to the holding co. I think you'd just do a bill of sale between the holding company and yourself, but I don't think it would mean anything unless you had the machine paid off. The point of the holding company is normally liability protection against lawsuits. If you did get sued, and somebody saw that you or your mfg co. were named on the loan, but the holding co. was making payments, I don't think you'd have protection. You probably want the holding co. name on the loan.
Thank you for the info. I agree that it wouldn't serve much use until the machine was paid off. It would still be easier for me to set it up this way right from the beginning though. If I put it off, there is always the possibility that it never happens.


I have used full profile with tabs for one offs, but seems time intensive.
I do a few parts that need machined 4 sides[OK they are plastic, but hear me out]
All the details op 1, flip to soft jaws side two, outline and back deburr. I am thinking of trying a corner radius endmill to make the part line disappear.
A lot of guys start with thicker stock and machine the surface away, but that seems a lot of work
Point being, no full width milling, maybe .03 off a side.
Even if this is a fully contoured part, where the blank meets the vise you are saving a bunch of time.

Anyway, not pretending I know more, just food for thought

To provide a size comparison, there are 4 parts made using this method. One piece is the size of a dime; one the size of a quarter and two the size of a silver dollar.

The whole assembly contains 30 pieces including hardware and springs. If I could show what I am doing, it would make more sense.

When I first started making these 4 years ago, I tried laser and waterjet; both had garbage results and waterjet was even more expensive than milling. I had them quoted for EDM but it was way too expensive.

I spent a lot of time trying various work holding methods and even more speeds, feeds and end mills. I must have reprogrammed the tool paths 100 times or more as well before I finally got it dialed perfect in 2022.

I load one of those 5" x 6" plates in both vises; drill all of the holes, put in an end mill and let it run. I come back 1hr and 45 min later and there are 48 dime sized pieces; all finished and sitting in the strainer below the material. One end mill cuts 2 plates, or 96 of those little pieces per cycle. (2 vises per cycle)

The other 3 parts run in a very similar way except I get less per plate. While that runs; I can deburr parts, drill the housings, wind springs, weld, work on the building or whatever. No one gets paid here, all $ goes back into the business.

I'll let it run while I'm mowing grass, eating dinner, ect. My wife can even swap plates if I'm not there, as long as I have extra tools built - she doesn't know how to touch off tools yet. We can keep that rattley old knee mill screaming at 5k rpm non-stop for 18 hours, even with manual tool changes because there are only 2 tools. So while I agree that it is by no means an "efficient" way to make them; we are doing it with extremely low overhead, zero debt and hardly any inconvenience, so it works.

Things are changing a bit now though. Bringing the VMC on line will definitely allow an increase in production but I need that machine for other products as well.

This job can pay for a brand new wire EDM by itself guaranteed. Being a home based shop I think it would be foolish not to do it. I have multiple products based on this one and even more in development right now.
 
Are the parts hardened? Is that why 4140?

Do you need through hard? Can you use carburizing or nitriding?

I ask because there are other, more common materials than 4140.
 








 
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