“In The EMS Equation, Demand Is Easy, Supply Is Difficult”

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Reinventing the wheel in the EMS industry is rarely discussed due to high capital costs involved. Thanks to its unique business model, Karakhana IO made Rs 20 Cr last fiscal and is near Rs 100 Cr revenue this fiscal. The start-up’s Sonam Motwani and Karthik MC share the formula with EFY’s Mukul Yudhveer Singh.

Q: What is Karkhana.io?

A: Karkhana.io is an innovative contract manufacturing platform that serves as a vital link between Original Equipment Manufacturers (OEMs) and our supplier partners. Our primary objective is to facilitate the establishment of robust manufacturing supply chains for products across the electronics domain, encompassing mechanical and electrical components.

Q: Can you elaborate on the ‘supply chain’ part?

A: At Karkhana.io, we specialise in optimising the manufacturing aspect of the supply chain. By collaborating with a network of manufacturing partners, we enable OEMs to scale their production efficiently. As a one-stop solution, we connect OEMs with approximately 500 suppliers, strategically aligning their spare capabilities with the specific manufacturing requirements of our clients.

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Q: Does that mean that you have a certain number of manufacturing lines set up?

A: Rather than owning manufacturing lines ourselves, we leverage the existing capabilities of our supplier partners. We identify and utilise spare manufacturing capacities, effectively becoming supply chain partners for OEMs seeking manufacturing solutions while we bring in the manufacturing expertise for our suppliers to help them resolve production and supply chain bottlenecks.

Q: In such cases, how is the quality of the manufactured solutions taken care of?

A: Quality assurance is paramount in our operations. For instance, if an OEM in the electric vehicle (EV) sector requires components or assembly services, we not only facilitate the sourcing but also ensure the seamless integration and quality control of these components. We take full responsibility for the quality and timely delivery of solutions, by ensuring the processes and providing them with quality assurance plan in order to meet the OEM standards.

Q: Are components that go into making certain solutions also your responsibility?

A: While we don’t engage in product design discussions, we do offer suggestions for design optimisations to enhance manufacturing efficiency. We assist clients in sourcing components and provide recommendations for alternatives if necessary. However, the final decision regarding component selection lies with the client.

Q: Usually, a lot of EMS companies proactively reach out to customers about improvements in such products and also about potential new products, do you follow the same approach?

A: Initially, our approach involves aggregating demand, which allows us to uncover proactive capabilities among our suppliers. This engagement has been instrumental in understanding the evolving needs of both our clients and suppliers, enabling us to adapt and innovate within a largely supply-constrained market.

Q: Can you explain the same via an example?

A: Certainly. Take, for instance, the scenario of a supplier specialising in lithium-ion battery pack assembly. By proactively identifying this capability, we were able to match it with a client’s requirement for scaling their battery cooling systems without necessitating their transition into OEM status. This proactive matchmaking underscores our commitment to addressing supply-side challenges effectively.

Q: What happens if you do it the other way around?

A: Prioritising supply-side readiness allows us to gauge the scalability and flexibility preferences of our clients accurately. By focusing on supply-side dynamics, we can better align our offerings with the evolving needs of the market, ensuring optimal outcomes for both OEMs and suppliers.

Q: Does that mean that demand is the easier part of the equation?

A: Absolutely. Demand inherently exists and can be managed relatively straightforwardly. However, effectively managing the supply side, which forms the backbone of our business, poses more significant challenges due to the lack of comprehensive information and documentation.

Q: Is this why Karkhana was started, and why the name Karkhana?

A: The inception of Karkhana.io stemmed from a realisation of the prevalent challenges in sourcing suppliers during previous professional experiences. Recognising the widespread industry need for a platform facilitating supplier augmentation, Karkhana.io emerged as a solution-oriented venture. As for the name, “Karkhana” resonates with the industrial ethos, symbolising our commitment to streamlining manufacturing processes.

Q: Presently, are you more into built solutions, or components that go into products and solutions?

A: Our focus spans both components and built solutions, catering to diverse industries such as EVs, IoT-based consumer electronics, medical devices, and aerospace components. Whether it’s supplying individual components or delivering complete solutions, we tailor our services to meet the unique requirements of each industry segment.

Q: But what’s the trend in these industries?

A: The prevailing trend in contract manufacturing reflects a growing demand for plug-and-play solutions, signaling a shift towards increased contract manufacturing for finished products. While sub-assemblies and component-level work initially garnered traction, our emphasis on providing comprehensive manufacturing solutions aligns with the evolving needs of the market, particularly among MSMEs.

Q: What happens when a product becomes ‘big scale’?

A: As products scale up, companies often opt to engage directly with manufacturers, bypassing intermediary platforms. Recognising this trend, we prioritise serving MSMEs, offering tailored solutions and support to facilitate their growth trajectory effectively.

Q: What is the average age of the companies on the demand side you are working with?

A: We collaborate with a diverse range of companies, including startups and established firms with revenues ranging from Rs 50 crore to Rs 1000 crore. Our client base comprises a blend of youthful startups and seasoned organisations, with approximately 45% being startups and 55% MSMEs.

Q: Where is the revenue in this whole process for Karkhana IO?

A: Our revenue model revolves around the margin we earn between the manufacturing costs and the prices at which we supply products to our clients. With a revenue of Rs 20 crore last year and an anticipated figure of approximately Rs 100 crore this fiscal year, we aim to achieve a target revenue of Rs 300 crore for the next fiscal period.

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