Domestic Cut and Sew R&D process / billing expectations

Just want to check in with everyone and see what there experience with large scale domestic cut and sews has been. We have 4 factories making our gear and 3 of them don’t charge for development of prototypes, sourcing or initial start up costs. They work the prototype until it is fully approved and source the materials specified in the tech packs and BOM. The fourth factory will charge for almost every step in the process and if anything changes, they’ll throw another charge on there. Its getting to the point where it’s effecting the design process so that we don’t want to incur more charges to get the product to market. If the company was efficient in it’s prototyping process and we made consistent headway then I wouldn’t be opposed to it but there are constant problems with sizing, construction and attention to detail. We are currently in full scale production with them so its getting harder to pivot to a new factory. Is this how you have found most of your out-of-house development experiences or have we found an outlier? I can read the writing on the wall when it’s all typed out like that but want to make sure that I haven’t found the normal expectation with this last group.

Thanks!

We use 3 factories, only 1 is able to do R&D. The other 2 just want a spec for production. Our engineers are responsible for the entire spec package. The 1 factory certainly is great for sourcing and will give input on best manufacturing practices, but our cut & sew tends to be blue ocean, never seen in the world, type of stuff. We have access to the customer, they don’t.

For the one that does R&D for us, we insist on paying them for their services. “Free” R&D implies they would get the production. That is certainly a bad practice. We can kill the project or send production to a different factory for many reasons. Promising production through “free” R&D will just sour the relationship.

Thanks for the insight and feedback iab. For the factories that have used “free” R&D on our end, that is a bit of a misnomer. They get fully developed products with samples, patterns, tech packs and BOM’s to go off of. So there isn’t much of a spool up for them besides finding the best way to move the product through their production and sourcing the materials (which they mostly have to begin with as we use all the same stuff). We are in full production with these factories so that may factor into the development schedule as they are just continuing business with a current customer.

For the factory that is doing full development and re-patterning, I of course agree that they should be paid for their hard work because I know what goes into it. I guess my question is what the common billing schedules are in your experience? Does your factory charge an up front development fee to take care of the whole project or do they submit new bills at multiple steps along the way? They are helping with sourcing but that is also coming at a fixed price per material, per instance ordered. Feels like overkill but then again it’s business. Because we’ve had in house development for so long it feels like we’re being bled a little but it could just be the way it goes.

I don’t have experience with this on US development but I can share some experience working across Asia and Mexico for soft goods and footwear.

“Free” dev tends to be amortized in so if there are a lot of rounds it can hit the pricing. It also tends to come with a commitment to production in a certain MOQ and timeframe. Usually not a big deal in typical consumer footwear in soft goods where you do 2-3 rounds and have distribution, but for something with more R&D this might not work.

By contrast I recently finished up a medical product which has a critical softgood element. It went through 4 years of R&D and multiple factory switches. For this we paid for all development samples up front (a lot to do clinical testing) so that we could work with different factories as needed and also really ensure we controlled and owned all of the IP (another thing to think about). I brought in and worked with another former Nike colleague who was the a developer on the program. He handled all of the payments from the client to the factory but I believe they all focused on when tooling was cut (a few scrapped tools on this one unfortunately) and when samples were delivered.

I have not done a US project like this but I have tried to explore it at least lightly and there seemed like more upfront development costs.

Billing for us is on an ad hoc schedule. Since we haven’t a clue where the iterations go, it would be hard for us to manage our needs with the exactness our finance group demands. Changing a PO is a pita, it is easier to make separate ones as needed. But I work in a Fortune 300 monolith, changing course is nearly impossible. ymmv

Thanks for the feed back yo and iab, lots to think about. We have blanket PO’s already issued for multiple products so I don’t think it’s a commitment issue. We do have control of our IP throughout the whole process and have been burned by shops in the past on that (only takes once). Luckily tooling isn’t much of an issue but we are running into bottle necks with limited amounts of key machinery available. To be honest the biggest bottleneck is the availability of sewers, qualified machine operators are getting hard to come by in the states. I can only imagine the freight train that is a Fortune 300 iab, we are much smaller than that but it is still a pain to change directions.

That shortage of qualified people has been what I have run into as well. I assume demand has only cone up since the last time I tried to do something like this in the US 4 years back! Maybe that demand will turn into more capability at some point?

You might also try Mexico if that is something your org can do. Lots going on there in soft goods as well as the Dominican Republic. We explored that on a footwear project awhile back.

When you’ve had the luxury of in-house craftspeople doing dev and production work on your designs without quotes and purchase orders, it is indeed irritating to adjust your muscle memory to accept more time, more money and overkill to get the outcome you want. Especially if those same craftspeople people are doing production on other projects in the factory and their management wont let you talk to them directly.

I would suggest agreeing to a flat development fee on the front end for each project, this way you eliminate the nickel and diming along the way (and cutting additional POs) which will always soil anyone’s design process. Just negotiate once on the front end and be done with it. Add the dev fee as a single line item on the blanket PO. I’ve done this with cut and sew shops in San Francisco, Santa Barbara and Denver. Taiwan is the best of all worlds in my opinion for overseas work.

I’m recommending to all my US clients they develop as many in-house capabilities as they can afford now. Even large organizations cannot keep their overseas vendors as they used to due to supply chain and changing covid/political/economic climates. In Korea the education system is carefully structured to deliver the kind of skilled labor necessary for the next five years of economic growth which is really nice. In China, there is so much skilled labor that you feel low when you wander through the industrial parks looking at all of the prison like dormitories right next to the factories.

Good luck…

For the labor shortage, we are on backorder, no new accounts, until June. Supply is not my responsibility, but I’ll believe going off allocation when I see it.

Yo: There is a definite shortage in people learning the trades, its not only in sewing. We have plans to set up a training center to supply our production floor where we can teach people from the ground up. Our business model is MITUSA so that is a limiting factor but one we are proud of. It’s more difficult and not a lot of people are doing it but it’s one of the reasons our customer base is loyal to us still.
Designbreathing: It is definitely a convenience to be able to develop the products to the finished point, not a lot of people in our line of work get to do that. That’s part of the aggravation is that now other people are handling development and they aren’t paying attention to details, easily overlooked stuff and it’s drawing out the dev process. We have talked internally about going with the flat fee on the next projects with this manufacturer. I think will keep them accountable and cut out some of the runaround. Now with materials delays and price increases, my job is to make equipment that is cost effective to sew, efficient to produce and with enough features to go up against overseas production; who can add a gamut of features and sewing techniques I could only dream of. I can see why a lot of companies don’t want to mess around with this style of production. It does man we can pivot on new designs fairly quickly however which keeps us ahead of our competitors.
iab: We can’t backorder, gotta keep the lights on.

Our sales forces gets the majority of their commission on new sales, not baseline. Every year their baseline goes up because of them winning new accounts. Since we have the backorder and there are no new accounts, we kept their baseline to 2021 numbers, no increase until we come off allocation and can add accounts. Our lights are on and our salesforce is making money, but this lowers our operating income, which will come out of R&D budget (and other departments too). We currently have a hiring freeze until July 1. Considering we had 20% growth last year and on track to hit the projected 15% this year, the whole finance system is effed from my pov. Being beholding to shareholders is really a lousy system.