Do we live in a world where a manufacturing network could be not-for-profit?
October 10, 2010 7:58 PM   Subscribe

Can anyone tell me whether a non-profit decentralized manufacturing network is feasible? Interested in opinions both legal and financial in nature.

This is a specific question that is part of a broader idea that is being discussed as part of an apprenticeship I'm currently in the midst of.

In a nutshell, the idea is to have small shops across North America all producing the same product (bikes in this case), that will then be sold locally. The designs will be the same, and the apprentices (such as myself) will all be trained at the same facility, a non-profit community bike shop/manufacturing facility/educational center on the West Coast.

After you're done with your apprenticeship you go back to where you came from, and start building these bikes you were taught how to make. The idea of the network is to have everyone supporting each other, and reducing costs by doing group buys, joint purchasing of heavy tooling (powdercoating, CNC, etc), centralized ordering, and generally sharing information and expertise.

Looking for opinions from folks who have heard of such a system working (or not working, for that matter), and also if there are any legal experts out there who could tell me whether such a venture could receive non-profit status.

If there's anything else you need to know to make this clearer to you, ask away. It's a complicated idea that hasn't been completely fleshed out, but I will do my best.
posted by seagull.apollo to Grab Bag (20 answers total) 2 users marked this as a favorite
 
What is the benefit to society of this venture? That's what you need to determine regarding its non-profit status.

But why would you want to organize this as a non-profit anyway? It sounds like a business, albeit of a rather unusual nature.

I don't understand what you expect to get by incorporating as a non-profit that you couldn't by just incorporating normally.
posted by dfriedman at 8:07 PM on October 10, 2010


Sure, manufacturing has worked under that model. Budweiser breweries, for example, have many breweries that serve regions, using the same recipe and process. They attain a very high level of product homogeneity despite having so many facilities.

Keep in mind that in this case, customer expectations of your product is now hampered by a new factor, "how come I got a better one at another shop in alaska?"

Also, I also do not understand what you are getting out of nonprofit status. It seems that it hampers your ability to compete in the marketplace in terms of quality perception in exchange for a tax benefit?
posted by wuzandfuzz at 8:25 PM on October 10, 2010


I should have said in my description that the perceived value to society is the promotion of bicycles as an alternative form of transport, specifically cargo bikes. The idea of the network is to provide a fairly priced and domestically produced product, the availability of which would make it easier for consumers to minimize their usage of automobiles, without having to change their lifestyles dramatically.

The way it has been explained to me here is that being a non-profit would allow us to apply for grants, potentially large grants, that could aid the expansion of the network. There is not a lot of liquid capital in the center, and most of the people who come to do the apprenticeships are, like me, idealistic twenty-somethings, who do not have very much capital either.

wuzandfuzz, are you saying that being a non-profit would affect the perceived quality of our product?
posted by seagull.apollo at 8:55 PM on October 10, 2010


yeah, but that's me talking out of my ass. I think nonprofit manufacture, I think garbage. Look at OLPC, for instance. Those things were a cool idea, but garbage in the end.

You need hardcore process engineering dudes to make function-heavy products that stand up to the really good things on the modern marketplace, and nonprofits are more concerned with a concept (saving the world) than making something that the market will choose. I think nonprofit made/designed, I think a thing made for the sake of making it, for changing the world in a way that the manufacturer wants, not something that meets all my needs.

I would be highly suspicious of anything that was made just for the sake of making it, not for making sure I would buy it. Sure, the bike might fit some of my needs, but it was primarily designed to fit someone else's, and I don't think crushing the competition was the first thing the designers thought of. Maybe this is a personal bias, but it is my general feeling.
posted by wuzandfuzz at 9:13 PM on October 10, 2010


Frankly I would strusture it as a for profit business and solicit investors.

How do you know that there is grant money available for this endeavor?

I mean, if I were in charge of disbursing grants I'd look at this idea and think to myself "wow, thats a really complex thing they're envisioning here. Let me fund something simpler."

I just don't see an enterprise this complex surviving as a non-profit, unless it were funded with a sufficient amount of capital to get qualified operations managers and back end systems designers and all the other labor necessary for this kind of distributed business model.
posted by dfriedman at 9:26 PM on October 10, 2010


I should have said in my description that the perceived value to society is the promotion of bicycles as an alternative form of transport, specifically cargo bikes.

I'm gonna make some lists.

There are two philosophies of business:
1. Sell the customer what the seller thinks the customer needs.
2. Sell the custoomer what the customer wants to buy.

Philosophy 1 can only succeed if it overlaps with philosophy 2. Philosophy 1 without philosophy 2 is the foundation of hundreds of well-meaning business failures.

As to the "nonprofit" part, there are two ways of doing that:
1. Fail as a business. (You're non-profit because you're losing money.)
2. Satisfy certain IRS regulations.

I assume you don't want your business to be a failure, so presumably you have a specific IRS non-profit category you hope to qualify for. Which is it? You don't get to avoid paying taxes just by saying, "We're too noble and high-minded for that." (And even if you do qualify as a non-profit, you might have to pay Social Security and other employment taxes.)

All successful business endeavors begin with recognition of an unserved or underserved market:
1. Identify your prospective customer base.
2. Figure out what they want to buy.
3. Figure out whether you can build it, and offer it for a price the customers are willing to pay.

If you don't do that, you're simply laying the foundation for failure. Trying to create a market, by offering something new for sale and then trying to convince people to buy it, is really, really, really difficult and risky. It's not something for a wet-behind-the-ears newby to be trying to do.
posted by Chocolate Pickle at 10:28 PM on October 10, 2010


Also, even if you qualify as a non-profit, if you're selling things you may have to collect and pay sales taxes (in states which have them).
posted by Chocolate Pickle at 10:29 PM on October 10, 2010


Sipping the non-profit part, this really sounds similar to a retailers cooperative, like Ace Hardware or Best Western. The collective buying and networking part is pretty standard and probably not the part to worry about. The issues raised by Chocolate Pickle are and tank many businesses.
posted by cftarnas at 12:22 AM on October 11, 2010


You need hardcore process engineering dudes to make function-heavy products that stand up to the really good things on the modern marketplace, and nonprofits are more concerned with a concept (saving the world) than making something that the market will choose.

That might be the case if you're making OLPC, a laptop unlike any laptop that has come before it, and the market for which is totally untested.

But a bicycle? Surely you just need a pipe this long, one this long, and one that long, then you cut the ends and weld them like so. And the market for bicycles is quite well established, assuming the bike isn't completely different to bikes that have come before it.

Admittedly things like rear mechs and hub gears have some complexity - but you could buy those in if you wanted to.

The idea of the network is [...] reducing costs by doing group buys, centralized ordering

Some places I've worked have started out with good intentions of saving money with centralized ordering, but then they've standardised on a supplier that's more expensive than another supplier, so people have found it cheaper to bypass the centralized ordering procedure.

Aren't there already trade suppliers of many bike parts? Presumably bike stores are getting their stock from somewhere?

joint purchasing of heavy tooling (powdercoating, CNC, etc)

1. For many light manufacturing processes there are already companies out there who will run your job on their machines, for a certain per-hour cost.
2. If someone on the east coast wants to powder-coat a bike frame and the co-op's only powder-coating machine is on the west coast, it's going to cost them to ship it two ways. There might be a local powder-coating company that can do it without the shipping costs.
3. If some people make heavy use of the machines and others don't use them at all (as they're on the other side of the country) how will you divide the machine purchase costs?
4. What if someone hits the CNC machine spindle into the table and the machine needs costly repairs? If you need a dedicated operator to check programs and machine set-up, how will that be paid for?

Overall, though, I think it's an interesting idea.
posted by Mike1024 at 12:59 AM on October 11, 2010


The non-profit part...I don't think it's all that feasible.

As for the network, sure. But I think the smarter way to set it up would be to concentrate the heavy work requiring special machines in a central location and have the assembly be the local bit. I further would posit that allowing customers to customize their machine by discussing options and costs with the local expert and then watching it all come together would potentially be appealing.

In this scenario, frames, etc. would be manufactured in a central location, but the assembly of the frames into cargo bikes would happen at the local locations.

As a customer, I wouldn't be suspicious or less likely to buy from a non-profit, I guess, but it would be very odd. I would be very much into buying from a for-profit company which was worker-owned, was transparent, didn't pay its executives like they wiped their asses with gold leaf, etc.
posted by maxwelton at 2:25 AM on October 11, 2010


Mike1024: You need hardcore process engineering dudes ...

Surely you just need a pipe this long, one this long, and one that long, then you cut the ends and weld them like so.


But it's a tube, not a pipe, and is formed of a particular alloy, using a particular technique, at a particular wall thickness. Choose the wrong materials and techniques and you end up with a frame that's either heavier than it needs to be, prone to failure, or both. You do need the engineering dudes, especially for the frame. The rest of the components are likely to be purchased from other companies anyhow.

2. If someone on the east coast wants to powder-coat a bike frame and the co-op's only powder-coating machine is on the west coast, it's going to cost them to ship it two ways. There might be a local powder-coating company that can do it without the shipping costs.

I think this is a great point. It sounds like the OP's organization has a vague idealistic notion that producing things 'locally' is a good thing, but the virtue in that whole 'buy local' notion is all about keeping money in a local economy and reducing long-distance shipping of goods, both of which are incompatible with the use of jointly-owned CNC and powdercoating facilities that are likely to be on the other side of the country. I think they're headed for an organization that builds frames in one place, buys other components from scattered suppliers, and ships the whole kit to a 'local' shop for assembly -- just like your typical bike manufacturers and local shops. Except they're trying to sell something that there isn't much of a market for.
posted by jon1270 at 4:07 AM on October 11, 2010


Hughes Aircraft was a not-for-profit, as I recall. Had no impact on the quality of the fighter jets or spacecraft they made.

While there is something attractive in this idea, generally, I am not sure how it would work. At some point, at least the suppliers would have to make a profit, and without an ROI, where would the capital expenditures come from and what would justify them?

Also, you can't really run on grants. It's not sustainable, IMO.
posted by FauxScot at 5:19 AM on October 11, 2010


But it's a tube, not a pipe, and is formed of a particular alloy, using a particular technique, at a particular wall thickness. Choose the wrong materials and techniques and you end up with a frame that's either heavier than it needs to be, prone to failure, or both

You could measure wall thickness from a competitor's frame with a chop saw and a vernier, and you don't need that much engineering expertise to say an aluminium bike would probably use the strong, easily-available 6061, 6082 or 7075 alloys.

Now, I'll agree it would be tempting to make a bike that was heavier than it need be because you'd err on the side of making everything strong - but depending on the market you're targeting, that might not be a problem. If you're making carbon fibre racing bikes then sure you want them light, but I see plenty of steel-frame bikes on the road (mine is one of them) because not everyone is looking to shave off every last pound of weight.

I think they're headed for an organization that builds frames in one place, buys other components from scattered suppliers, and ships the whole kit to a 'local' shop for assembly -- just like your typical bike manufacturers and local shops. Except they're trying to sell something that there isn't much of a market for.

They could have some sort of long-tail mass customization plan - offering things like extra-strong bikes for the heavier customer, bikes with extra carrying capacity for deliveries, etc.

I don't know how large the market for that would be, though.

Another possible problem: How fast are people going to be able to produce these bikes, how much are they going to be paid per hour, and what's the final retail price of these bikes? I mean, a factory doing batch production can keep equipment out and use jigs to hold parts, cutting down setup times, meaning more bikes produced per worker-hour. If the local producers were mostly producing one-off bikes, setup times would be longer and that would make the bikes less affordable.

I suggest before setting up dozens of local producers, you first set up a prototype workshop and make sure you can make bikes fast enough to make a decent hourly rate.
posted by Mike1024 at 5:57 AM on October 11, 2010


Ooo, and another reason decentralizing will be painful to cost target is lost capacity. You inevitably will be paying people to sit around and do nothing, as demand will fluctuate from region to region, where some will work overtime (big labor cost loss) and others will sit idle. Having an accrate, stable sales forecast may be critical to success as well.

As for Hughes Aircraft, that was a completely different era of manufacturing, and would probably not pass the quality litmus today. With modern approaches, like six sigma/lean, Kaizen techniques, etc, those companies look like custom shops in comparison. Even a GM plant of the early 80's looks like a custom shop these days. (Is your bike shop custom, by the way? It seems that your plan is focused on bulk manufacturing)

Also, I agree with Mike1024. A bike in and of itself is not difficult to design. However, it may be tough to manufacture at the right price. you can move the spec as far from the failure point as you want, but that will just make it more expensive, and inspection costs will be insane if you have to check every part as long as the process stinks. This would be the primary concern for me.
posted by wuzandfuzz at 8:48 AM on October 11, 2010


I don't know anything about the laws involved, but the problem with being non-profit is that you probably don't have a cushion of cash to protect you against the ups and downs, unless you're soliciting donations and grants, which looks silly for a manufacturing company. If you want credit to see you through a rough patch, you have no profit to point to to convince the bank to pony up. You can be unofficially non-profit by banking whatever surpluses you have, up to a point, and adjusting the price of your goods to try and anticipate a break-even point. That also has some weird optics though, right? "Hey how come these bikes are all cheaper than they were last year? I want a rebate!"

Something the comes to mind is Mountain Equipment Co-op in Canada that is hugely successful, but non-profit. The pour their surpluses into R&D and various causes, as well as expansion. Members start out with a share and are awarded more based on how much stuff they buy, but the shares almost never pay a dividend.

I'm not an expert on these things, but I like the idea. If you can't swing the no-profit angle, try the low-profit angle and be an ethical organization.
posted by klanawa at 8:51 AM on October 11, 2010


Okay, I'm on my lunch break; I'll try to address some of these questions/concerns.

Retailer's cooperative, yes. This is one part of the idea we're going for. There are a number of large bike parts suppliers in North America, and also a number of wholesale companies for frame parts such as tubing, dropouts, fork ends, etc. All of these companies will allow you to buy in bulk and drop ship the purchased products to any number of locations. Economies of scale etc. Because everyone in the network will be building the same central group of designs, we can save in this way at least up to a point.

The joint purchasing of heavy tooling is dependent on where the shops are located. A couple of you brought up the powdercoating, and yes, thank you, we understand that it costs money to ship bikes across the country, and no, it no longer qualifies as local. Say there were three facilities in the New York area producing these bikes. Then maybe you could look at going in on a powdercoating facility. Unless there are no local options, we're not shipping any more than we have to. CNC in bikes applies mainly to small parts, such as head tubes, bottom bracket shells, dropouts, couplers, and the like; those parts are easily and cost-effectively shipped.

To clarify, these shops would be autonomous. The idea I'm talking about here is to have an umbrella organization (this is the part that would be either non-profit or for-profit) who's stated aim would be to increase efficiency in its member shops, and encourage this niche of the industry to grow.

These bikes have already been designed. They have been being built in a small shop here on the West Coast for 25 years now. They're steel, with some aluminum parts (racks, kickstands, etc). Most of them are designed to carry cargo, but there's a folder, and a couple recumbents too. This is the bikes' creator's idea for spreading this product that he has successfully created, as he doesn't like outsourcing, he likes local industrial production, doesn't like shipping etc. The idea is to first establish a network using his already proven designs. Once established, network members build the bikes, and deign new ones, in turn rolling them back into the network. When a bike is produced, its creator receives royalties to offset the cost of R&D.

These wouldn't be full production shops. We wouldn't be running assembly lines or using lean techniques, for the most part. On the flip side, these shops wouldn't be custom, unless the shop owner decided to go that route. The idea we've been bantering around is artisanal production, in that these bikes would be being made by hand, by talented professionals, but also using methods taken from the manufacturing industry in order to cut costs, streamline supply chains, and ensure quality at a reasonable price.
posted by seagull.apollo at 1:00 PM on October 11, 2010


In order to get people to invest in equipment and set up shops, they'll want to know they can make at least enough money to pay for what they've spent.

Here are the questions I'd want to ask the bikes' designer:

How many bikes does he sell per month?
What is the final cost, to the customer, of the bike?
Of this money, how much does he see (after any retailer's cut, any sales tax etc)?
How much do the parts, materials and consumables for each bike cost?
How many man-hours go into making each bike?
What equipment is required to make the bikes, and how much does that equipment cost?
How much space is required?

Assume you pay for the equipment over the course of two years - so divide the total equipment cost by 24 to get the equipment cost per month.

Bikes sold per month * money he sees per bike - Bikes sold per month * cost of parts, materials, and consumables - equipment cost per month = money left over per month = his monthly salary.
Money left over per month / (bikes sold per month * man-hours per bike) = his pay rate per hour.

You'll also need to make sure the numbers are accurate; I've seen people give 'off the top of their head' estimates that were wildly off as it's all-too-easy to miss the $100 per unit spent dollar at a time on a bottle of MIG gas here and a can of paint there, etc.

With projects people have done as their hobbies, or where they aren't used to keeping proper track of parts and materials, I've seen skilled guys making less than minimum wage, or even losing money on each item sold. That's fine for the guy doing it as a hobby, but might make it unappealing to people hoping to make money to pay for rent and health insurance.

Also, if you're hoping to get bike shops to sell or manufacture-and-sell, I'd have thought they'd want to know what these bikes offer that other bikes don't. Why sell people your bike instead of one of the many other bikes bike stores usually have on display?

It sounds like an interesting project - you'll have to tell us how it goes!
posted by Mike1024 at 3:20 PM on October 11, 2010


As for Hughes Aircraft, that was a completely different era of manufacturing, and would probably not pass the quality litmus today. With modern approaches, like six sigma/lean, Kaizen techniques, etc, those companies look like custom shops in comparison. Even a GM plant of the early 80's looks like a custom shop these days.

@wuzzandfuzz....

Bullshit. I'm guessing Hughes AC knew quite a bit about manufacturing, despite the era in which it operated. Buzzwords aren't experience.

Consider for a moment that the bikes being discussed here are not exactly

1) 6 sigma worthy
2) kaizen appropriate
3) going to be run by anything other than trained bike techs
4) racing bikes that cost $10,000
5) high performance

The quality demands of this concept seem to me to be low. Our hero is talking about distributed assembly of klunkers, not forging steel for exotic racers.

I've set up such operations for brief manufacturing runs rather often. Consistency and control are every bit as important as arbitrary quality specs, since they will allow any level of quality to be achieved. It has zero to do with the business model.

Further, a large portion of the product design in this concept can be deferred to subcontractors and suppliers. OP envisions limited models of product. His need for local engineering should be rather low, too. Again, he appears to be talking assembly and distribution, not a vertically integrated enterprise.

The salient questions in this seem to be (to me):

1) is there a business model that can produce a competitive price/performance item without consideration to customary returns (i.e., ROI, ROE, etc.)?

2) would it be worth doing and is there a simpler way to achieve the primary goal, which is to sell a lot of local freight bikes for the sake of their environmental impact?

For the first, I am skeptical, since some capital would be required, if for nothing other than inventory. To make it a neutral enterprise, some pricing burden would have to be allocated to offset fixed expenses. It could be small, but his goal is to net zero income or loss, and even in assembly, there are expendables involved, as well as maintenance, physical asset depreciation, and fixed overhead.

For the second, I think contracting a bike manufacturer for a brand-labelled, low tech, simple product would get OP to his goal faster. He would also be able to establish this with low tooling requirements, low non-recurring expenses in general, and could test his market at a very low level to determine if the concept had merit.

Quality or no quality, nothing happens until you sell something. Six sigma is a hobby that demands volumes that warrant it. Perfect hardware sitting on a warehouse shelf is worthless.
posted by FauxScot at 5:39 PM on October 11, 2010


Good series of questions from Mike1024:


1.) How many bikes does he sell per month?
2.) What is the final cost, to the customer, of the bike?
3.) Of this money, how much does he see (after any retailer's cut, any sales tax etc)?
4.) How much do the parts, materials and consumables for each bike cost?
5.) How many man-hours go into making each bike?
6.) What equipment is required to make the bikes, and how much does that equipment cost?
7.) How much space is required?


Numbers are something I don't have access to right now. Guesses?

1.) 5
2.) $2600
3.) 100% minus sales tax, although I think that's only if he's shipping out of state. No sales tax in Oregon what! He has in house powder but most probably wouldn't, say subtract $200 for a decent paint job?
4.) If I had the answer to that I probably wouldn't be posting on AskMefi. Cromo is what, $6 a foot? These bikes have maybe 30 feet of tubing in them, so $180 for the tubes, another $50 for the machined parts, and a shot in the dark $100 for consumables. Does $330 sound low? I can try to find out more about that. Not counting overhead into that, depends of course on where you set up. Say another $100? $430. What else am I not thinking of? Add $200 for that. $630. Oh, and components, say the high end estimate of solid bike components at $400, bringing our total to, say, $1030 to make the thing.
5.) The fastest he ever made one of these bikes was 20 hours, so let's say 40 hours for a rookie.
6.) You could get set up for 20 grand. TIG, oxy/acetylene, lathe, horizontal mill, belt sander, hand tools, drills, computer with necessary software, fixtures, everything. Not everything would be new but it would be good enough until capital could be raised to upgrade.
7.) More than enough space. You share this with another person and that would be fine.

Those numbers sound low to me, but it's all I've got off the top of my head at 1am. Industry people, tell me what I'm missing.

Fauxscot, are you involved in manufacturing?
posted by seagull.apollo at 1:15 AM on October 12, 2010


seagull.apollo....

I am now only tangentially involved in manufacturing, but in the past, have been heavily involved in manufacturing consumer and industrial electronics, large machinery, and aerospace hardware (including remotely operated vehicles and a variety of missiles).

I am currently just doing product design, but obviously this entails manufacturing considerations.

As to what you are missing above....

Probably a lot. Not that that's bad, it's just that the only way to accurately estimate is to look back on what happened, most often! In the super short term, half your revenue and double your expense and schedule and if it still looks like you are either break even or losing very little, that's a good sign. If numbers suggest you might be betting the farm, opt to get everything done at minimum investment.

Also, with a single prototype built, you can do show and tell and solicit orders with a comfortable lead time. One piece will be expensive, compared to building 10 or 20, but will flesh out the design and fab issues, show you are serious to buyers, and highlight supplier, assembly, and design problems. Building one in a row is a good idea.

When I do product design, I use a three phase process.... concept demo, functional prototype, and pre-production. They go from lower cost to higher cost, and higher risk to lower risk. Prove the concept, build a really nice prototype and stop. Get some hard quotes on sub-assemblies, based on your prototype. Then, do some economic analysis for 5, 10, 20, 100 units. Big questions... how much money will I have to invest to get this many sets of parts? How long will it take?

As far as your quality issues are concerned, and your super high volume kanban, six sigma, iso9000 crap, it does not apply whatsoever to your prototype. You only have to build one in a row. It can be damned near perfect. Just make it so.

Show it off. Find a buyer or two. If no buyers, you are SOL. If buyers, you are golden.

There are really only two problems in business.... not enough business or too much business.

Nothing happens until somebody sells something. Of all the products I have designed, the most successful weren't the best, but they were sold well.

If you run into problems getting any of the above done, memail and we'll chat. Folks fear manufacturing like Southerners (me!) fear Manhattan. It's unwarranted.

Rock on. If you are passionate and persistent, you can accomplish a whole lot more than anyone would ever believe.
posted by FauxScot at 6:44 AM on October 13, 2010 [1 favorite]


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