Recently The Public Radio, the FM radio that I co-created, rather unceremoniously instituted a 33% retail price hike. It was a tough decision to make, and one that felt both like a capitulation and an experiment. It came about four and a half years after we first launched the product, and about a year after we relaunched it with the intention of building a sustainable, US-based supply chain. In other words, it was pretty late in the product’s life cycle to be making such a drastic change - something I thought a lot about.
For those who haven’t fully thought through what it would mean to manufacture consumer electronics in the US - and for those who’ve idly contended that we live in an age of mass customization - I offer my experiences.
How our supply chain works
Like all consumer electronics, many of the components (microprocessors, passives, electro-mechanical components) in The Public Radio are either only made in China or simply not practical to purchase from the US. For instance, the FM receiver module we use is marketed by a US company (Silicon Labs) but made in China, and even the worlds largest electronics brands would have little power to change that. Similarly our speaker could theoretically be made in the US, but to do so would effectively kill our cost structure, probably moving the radio’s retail price well above $100 from an already expensive $60.
As a result, there are only a handful of physical components which we source from the US: The mason jar that the radio is housed in (purchased from Newell Brands, which has a license on the iconic Ball jar product line) and our custom cardboard box, which is only cost effective when purchased within ~100 miles of where the radio’s final assembly occurs. We’ve seriously considered changing jars to a Chinese made version, which would probably result in a 50% price cut on that component, but the scale of our production didn’t warrant it. And besides, being able to order a few thousand jars at a time is quite appealing in contrast to the 10-20,000 unit orders that an overseas supplier would require.
Our assembly labor, however, is in the US and accounts for roughly half of our cost of goods sold. Our excellent assembly partner (Worthington Assembly) produces printed circuit board assemblies in batches of 324 (36 panels of 9 PCBs each; this number ends up working nicely with the trays we store the radios in). They then use those PCBAs, plus three mechanical components which we supply them with, to create mechanical assemblies which sit in inventory until a customer places an order. At that point a mechanical assembly is taken off of a shelf and programmed to the FM frequency the customer requested. It undergoes a full functional test and is put in the mail - typically less than a day after an order is placed. See this blog post for a more detailed description.
In other words: We’re making a piece of consumer electronics just-in-time in the US.
I can’t stress how unusual this is; it’s simply not how things are done. Most consumer electronics rely intensely on the supply chains of the Pearl River Delta - the same places where our speaker, battery clips, knob, and potentiometer (and likely a number of other tertiary components) are made. They’re made in batches between 10,000 and a million, and are then containerized and shipped to large fulfillment centers in places like Pennsylvania’s Lehigh Valley and Chino, CA. There they sit, sealed in their retail packaging until someone places an order. And when that happens, a relatively low-skilled worker picks it off a shelf and puts it in a box.
As appealing as this may sound, it isn’t a realistic option for The Public Radio. TPR is customized to one of about 300 possible FM frequencies, and unless we were willing to purchase a huge stock of pre-programmed radios (with more of the popular frequencies, just like T-shirt makers buy more medium and large sizes than XXXL) it just wasn’t practical to assemble it in China. A few proposals that we considered:
Assemble un-programmed radios in China, put them in boxes, and ship them to the US; then use a contactless programming method to program the FM frequency at a US fulfillment center. This isn’t crazy, and Josh created a pretty impressive technical demonstration. But finding a fulfillment partner was problematic, and switching to this process would effectively prohibit us from doing the laser marking that our radio station customers love so much.
Do partial assembly in China (mechanical assemblies only - no jars or boxes) and do the rest in the US. Similar to #1, finding a fulfillment house was an issue - and the laser marking would have been tricky as well. Additionally, we’d be stuck using expensive US-made mason jars, keeping our COGS high while requiring a bunch of additional work on our part.
Just add a tuning knob, turning the product from “a single channel radio in a mason jar” to “a mason jar radio.” This is a fair suggestion, but one that (for philosophical reasons) didn’t make sense for us.
In summary, The Public Radio is a relatively rare example of a consumer electronics product whose supply chain relies heavily on the greater Shenzhen ecosystem but then is assembled and fulfilled completely from the US. We’re proud of this fact, but have been pragmatic (as opposed to idealistic) about how our supply chain operates. So with that in mind: How exactly does The Public Radio end up as a $60 product?
Where the money goes
So, here are the big takeaways:
Our cost of goods sold has varied a little over the past year, but it’s currently around $18.54.
75% of our cost of goods sold goes to US vendors, and the majority of that stays in the US.
About 50% of our cost of goods sold goes towards assembly labor. Part of this is automated (pick and place PCBA) but more than half is hand assembly.
The two most expensive components in our BOM are:
Our speaker, at $2.35/ea, accounts for 12.68% of our COGS. This is manufactured in Dongguan (see here for photos of the facility) and is custom for us.
Our FM receiver module, at $1.53/ea, accounts for 8.26% of our COGS. This is a standard component from Silicon Labs, and I’m told that its claim to fame is that it was part of the original iPod Nano. This is probably the first component on our list to replace, as there are certainly less expensive chips options with all the options we’d need.
The broader story is that at our scale (5-10,000 units per year), consumer electronics is expensive. Purchases at that level simply don’t bring much leverage, and our just-in-time production model ends up being expensive on a per-minute basis (partly due to switching costs).
Here are the raw(er) numbers: