Chapter 58 - Original Equipment Manufacturing (OEM) Factory

Chapter 58: Original Equipment Manufacturing (OEM) Factory
Translator: 
Nyoi-Bo Studio 
 Editor: 
Nyoi-Bo Studio

On the 17th of January, after another week of modifications, improvements and upgrades, the
Wa-wah: First Generation
cleaning robot was successfully finalized!
Its basic functions and parameters were as follows: The product dimensions were a length of 345mm, a width 345mm, and a height 506mm; weight was estimated at 5.8kg; the battery was a 15V/ 10200 mAh lithium battery; the power rating was 65W (sweeping) / 75W (mopping); the working duration was 160 to 180 minutes (sufficient to finish cleaning a 200 square meter house); and the cleaning index was 99.6% to 99.8%
That’s right, Chen Jin had set a target of 99.9% for the crucial cleaning index, in order for him to claim that it could get rid of 99.9% of all rubbish and dirt. But, due to the layout of a room, its various installations and the material of the flooring, it was difficult to reach such a target. It could only be achieved in the most ideal working environment.
Therefore, Chen Jin did not push for more. A cleaning index of 99.6% and more was already very high. Not only did it surpass all the cleaning robots in the market, it was also better than what the housewives could do; they could only achieve an index of about 70% to 75%.
The
Wa-wah
robot’s index of 99% and above could be said to be very shocking.


It’s just that the excellent properties of the
Wa-wah
robot was built upon a higher production cost.
Su You Jie read aloud the contents of a purchasing list.
The motherboard for the robot’s electrical circuit costs $75 per unit; the mid-range 8 core CPU costs $132 per unit; the 2GB DDR3 built-in internal storage plus another 8GB DDR3 storage have a combined cost of $168. The parts for the 12 million pixel HD camera costs $119; importing a japan-made brushless motor and working parts for its mechanical arms costs $315 and $364 respectively. A 10,000 ampere-hour lithium battery costs $89. Including the costs for the plastic outer shell, the audio equipment, a Wifi connection chip, the charging chassis, the centrifugal drum needed for cleaning the brush, as well as the assembly costs for the OEM factory and various labour costs….Chief Chen, the total cost of the hardware needed for the production of one
Wa-wah
robot is an estimated… $2,518.
With a grave expression, Su You Jie said,
Chief Chen, the cost of the hardware is too high. After producing the product and introducing it to the market, with the added costs from the distributors, the
Wa-wah
robot might have to be priced as high as $4,000 or $5,000 for us to see any profit!

He asked,
Will consumers buy into a robot that is selling for $4,000 to $5,000?


Exactly!
Zhou Kun nodded.
This price is so high that one might even retreat from it. I’m afraid that most consumers would not be able to afford it.

Wu Lei said,
Chief Chen, we should think of ways to reduce the costs of some of the hardware. It would be ideal to reduce it to $2,000 or below, otherwise, we would not have any competitive advantage in the market.

Others nodded in agreement. Zhang Zhi Wei commented,
If we slightly reduce the the quality of some of the equipment and do some cost-savings at every stage, it would not be a big problem to lower our costs to $2,000 and below.

However, Chen Jin shook his head repeatedly.
No, we can’t lower our costs. We have to ensure the quality of our products! To reassure our users that they can use it without worry, we will also provide free maintenance and repair services for a minimum of 3 years. We’ll build an excellent after-sales service system and offer at-home servicing at any time of their convenience.


What?
Wu Lei exclaimed in shock,
Wouldn’t that increase our costs? The sale price of each robot would have to be $5,000 or more!

Su You Jie couldn’t hold back his agitation any longer. He quickly advised,
Chief Chen, How about this; we’ll develop two robot models. One model would be a low-ranged one; we’ll lower the parameters of its various configurations. Its sale price would be about $3,000 and it would be targeted at consumers looking for a low to mid-range model. The other model would be a high-end robot that uses luxurious and grand configurations. The various materials used to make this model would be the best we can get. Its sale price would be $5,000 and above. We’ll cater to consumers at all levels, what do you think?

Zhou Kun nodded in agreement,
What Su You Jie said makes sense. By segmenting the market, we’ll get the most users.




No!
Waving his hand forcefully, Chen Jin said,
The way you think is not wrong. But now is not the time to take such actions. As Xing Hai Technologies, our
Wa-wah
cleaning robot has no reputation in the market at all. How are we going to attract high-end customers to fork out $5,000 and buy a cleaning robot from an unknown brand? Making a low-end robot is an even bigger no! If quality issues appear on a large scale, it can’t even be guaranteed that we’ll able to attract the low-end customers! Right now, the first model of cleaning robot that our company launches has to be of superb quality without any shortcomings, and possessing functions that are an entire era ahead of other similar products. It has to be an instant hit in order to get good reviews from customers of all levels. Only when our first product model has gained an auspicious beginning and won the customers’ praise, can we do market segmentation. This is the natural order of success!
Hence, cost-cutting would have to come after quality considerations.
The audience nodded as one. Chief’s words made sense. If they only cared about profits in the beginning at the expense of quality, they could face a terrible ending. The product’s reputation remained unknown, it might even receive waves of bad reviews and thoroughly flop. Moreover, it was not impossible to reduce the hardware costs of the
Wa-wah
robot.

Su You Jie, if I gave the OEM company a production order of one million units, could the costs be reduced by 20%? To about $2,000?


One million?
Su You Jie opened his mouth and stuttered,
It shouldn’t be a big problem, but one million… This…
This quantity was too ridiculous!
Chen Jin asked,
As for market sales; we could cut out the intermediate dealers. What if we don’t sell via the distributors and instead, sell all of the units directly to consumers via the internet? Each robot will be priced at only $3,299. Can the customer accept this? Will we earn any profit?

$3,299?
After some consideration, Su You Jie replied,
No problem, this price is very attractive to the middle-class. With the robot’s excellent functions, they should be willing to buy it. We’ll also be able to earn a minimum amount of profit of at least $800!

Multiply that by one million units. If they could sell all of them, the company’s profits would be…
Everyone sucked in a deep breath. They were filled with expectant hope. But logic repeatedly told them that the probability of that scenario being realized was extremely low. Moreover, the risks were huge. Even after Chief Chen got an OEM to take an order of one million units, one million multiplied by the production cost of $2,000 equalled two billion. Did he have this astronomical amount of money?
Facing this worry, Chen Jin only smiled blandly, as he was already prepared for it.


……..
On the 18th of January, in Su Hong City, which was a second tier city that was only tens of kilometers away from Shang Hai City, there was a company called Ling Feng Jing Mi Technologies, Private Limited! This was a domestic electronics OEM company in Z country. It had only been established for a few years and it was not well-known. However, its technical standard was not too bad.
Wang Quan Long was a 43 year old, glasses-wearing middle aged man. He had a doctorate degree and a background in the navy. Previously, he had worked in a large international OEM company as a high-ranking technician. Responding to a summon by the country to come back and build a business here, he invested billions to establish Ling Feng Jing Mi.
However, in recent years, competition within the OEM industry was fierce. The company’s growth for these past few years had been lackluster. It had only survived by taking government contracts. This caused Wang Quan Long to feel very anxious. Because of his worry, he suffered from severe hair loss and serious middle-aged balding.
But today, an out-of-this-world order contract worth two billion was presented to him. Wang Quan Long was so shocked that his mouth hung open. Looking blankly at the young man sitting there, his attitude changed to one that was respectful and serious. With a pleasant expression, he asked,
Chief Chen, you’re not joking about this huge order worth two billion for the production of one million units of robots, are you?

Chen Jin shook his head.
No, I’m serious.


Ling Feng can accept this order and we have the ability to complete it, but….
With some suspicion, he asked,
According to industry regulations, the client company has to pay 50% of the order capital before we can start production. That is one billion dollars.

Chen Jin shook his head.
Um, I don’t have so much capital on me right now.

Wang Quan Long said,
40%! Ling Feng is willing to bear a portion of the risks.
This super big order worth two billion was equal to the the value of last year’s total orders. He did not want to miss this opportunity.
Chen Jin shook his head again.
I don’t have a capital of 40% either.



Wang Quan Long compromised again.
Then, let’s sign an order contract for five million robots! Depending on the situation, we can sign the contract for the next five million units.
5 million units with a 40% deposit was only $400,000,000. That was not much.
Chen Jin explained,
Chief Wang, I only have $200,000,000 available. I can only pay a deposit of 10% for an order of one million robots. I’ll have to wait for the robots to be sold before I can pay the remaining funds in installments.

Wang Quan Long frowned. Shaking his head, he said,
Then, I can’t take this order. The risk is too great. If it goes wrong, my factory will collapse. Actually, you can reduce the size of your order. For example, we can accept and complete 200,000 units.


200,000 units is barely enough to offset our costs. It has to be one million units or more. How about his, Chief Wang, I’ll introduce the product that our company developed. You can see for yourself its market potential before considering new ways to collaborate.

Wang Quan Long nodded.
Ok!

After which, Chen Jin let Su You Jie and his team bring the prototype over. They found a factory room for the robot to clean. By the end of its work, the room was spick and span without any hint of dust. It even just barely attained the standard of a
low dust factory production room.

Wang Quan Long’s eyes brightened,
Not bad! This product is very good, it has great potential in the market. I’m certain you can sell many of these robots!
He had easily noticed the market potential for this model of cleaning robot. At last, he compromised yet again and accepted a plan where they met halfway. The order would be for the production of one million robots. Chen Jin would first pay a deposit of 10%. Within the next two months, he would pay another 10%. The rest of the funds owed would be paid within six months after the product was sold. If financing problems were met halfway, Ao You Xing Hai Technologies would bear full responsibility.
Even so, the Ling Feng Jing Mi company would also be undertaking an exponential risk. They had to pay a sum worth a few hundred million and purchase all the necessary materials. If Xing Hai Technologies ran away or met with some unfortunate event, Ling Feng Jing Mi would collapse for sure!
Wang Quan Long still planned to bear this risk. For one, he did see a positive market outlook for that model of cleaning robot. Two, a lack of funds was a common problem that new businesses faced; it was the norm! Startups that possessed sufficient funds were very rare. If an enterprise wanted to develop and grow in size, it had to carry out some risky activities. This was called
Seeking riches in uncertainty!

Even Wang Quan Long could not believe what he did. He actually bound the life and death of his company to a small enterprise and a young fellow 20-odd years old? Did he have an intelligence that could perceive what others could not and got a blue chip for himself? Or did he sell his soul to the devil to get the order? No matter why he signed the OEM contract, after signing, the fates of these two newly established companies would be firmly tied together.


Just as he was leaving, thinking of the 20 days left until the Lunar New Year, Chen Jin urged Wang Quan Long to let his staff work overtime and take on extra shifts. Su You Jie and his development team would also be stationed in the factory. They would strive to produce the first 1,000 units before the Lunar New Year. It did not matter if the production costs of this batch of robots were higher. He would foot the workers’ overtime pay. However, he must have this first batch of robots before the Lunar New Year. This would be very useful!

Ok, 1,000 units is no problem at all!
Wang Quan Long nodded. The schedule was a little tight, but it was not a big issue.