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82 SMT007 MAGAZINE I APRIL 2020 and managers say no. Lo and behold, they are late. Hewlett-Packard made money off of being the first to market. Then, Stanford MBAs used Professor William Ireson's idea of break-even time, which the financial guys understood. Break-even time is when the profits have paid for all the R&D development money, so it's not a return on investment. After the break-even time, you're truly making a profit. Matties: You had your schedule. Holden: And if they were too late, they would pay us more. Matties: Do they agree to that in advance? Holden: Yes, before they ever took the orders. If they didn't, they didn't get any orders. Matties: I don't know many board shops that have a money-back guarantee for on-time delivery, so to speak, because it's more than money back. Holden: That's right, but they only gave us money, not time, so they couldn't possibly compensate us. If they were one day or two days late, they didn't get the next order because time is so valuable, especially in being first to market. We were only going to make the profits in the early six or eight months before everyone else jumped in and lowered the price. Matties: That was your highest margin period. Holden: Many times, we'd design the second generation at the same time as the first gener- ation. The first generation was about time to market, and the second generation was about lowering in cost. As everybody copied our first generation, we introduced the second gener- ation and dropped the price dramatically, so they all dropped out of the market. Matties: Back to external blocks, if you have a fabricator that you think is going to be on time, and then they wind up being a few days late, how do you handle that? Watson: We do our fabrication internationally, so we have less control over the fabrication processes than I would like. Matties: But when you place an order, they give you a delivery date and miss it, there's a consequence for you. Watson: Right. Often, we have to do a root- cause analysis to try to solve some of those issues in the future. Matties: If the manufacturer caused you to be late, what is the ramification? Watson: The main ramification, if they continue doing that, is I would drop them and find another fabricator that can follow the sched- ule. The fabrication industry is such a dog-eat- dog world. They will make any promise to get that contract. Matties: When you place an order, do you look for some sort of guarantee? Watson: We can't do that in our situation, but I think it's a good idea for structuring. Holden: What if they're one day early? You have to accept that if you're going to charge them for being late, you have to give a bonus for being early. Watson: Exactly. Holden: The companies that do it can take advantage of it because they're giving you a conservative time. But if they get a bonus for doing it earlier, they'll carry the stick. Watson: Right now, we are getting more and more into high speed, and that is going to require us to have specific material and control our design, especially in fabrication. The biggest problem I have in dealing with international fabrication houses is there's this "curtain" of an image that they put out. The fabrication house will say, "Yes, we can do it." Later you ask, "How did it go?" They sometimes respond,

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