How can OEMs maximize their product portfolio through contract manufacturing?
W. Scott Fillebrown, President & CEO, ACD
When I first got into the electronics industry, there was a ‘we must do it all’ mentality from most original equipment manufacturers (OEMs). In fact, at one time I was told by a major telecom, “It’s not that we don’t like your company. In fact, we think you are the best. We just really do not like any of you.” Wow, we were the best of the worst; let’s put that on a banner.
The same telecom company now outsources the vast majority of its design and manufacturing. Why? In one word: expertise. A properly formed contract manufacturer/electronic manufacturing service (EMS) relationship will turn an EMS provider into a part of the corporate team, which is no different than a department within the organization. They should be the expert at manufacturing your product, freeing up the resources for the OEM to do what they do best: design and market the product.
The manufacturing process is both people and capital intensive. It can be hard to scale up or down in a timely basis. Other factors include attaining the proper certifications and coping with environmental concerns, not to mention maintaining facilities. All of this takes capital and budget away from an OEMs core expertise. However, this is the world that a quality EMS supplier excels within. We bring the manufacturing expertise, coupled with balancing capacity demands, ultimately optimizing delivery to you or your customer.
By freeing up the money that would go to the manufacturing process, the OEM can move those funds to further product development, improve a current product, or create the next best thing. Not to mention, they also can move some of the funds to marketing, allowing them to strengthen their position in the marketplace. Either way, an OEM should focus on their core competency and find strategic partners to handle the rest.
Mike Tendick, Medical Market Sector Vice President, Plexus
The world of contract manufacturing has greatly evolved over the past decade. Today, many leading contract manufacturing companies have moved to strategies focused on specific types of products or market sectors in order to provide more value to OEMs. One of the keys for a successful partnership is choosing a contract manufacturer (CM) that matches with the OEM’s product or market sector.
The ability of a CM to complement an OEM’s core competencies is a critical factor to consider as well. Engaging with a CM in areas that are not considered core competencies is an ideal method for portfolio maximization.
Service offerings such as board and box level Design For eXcellence (DFX) are often the first engagement an OEM will make with a CM. By leveraging these services, a product’s design can be optimized both for industry standard best practices and for the CM’s specific capabilities, best practices, and supply chain. The earlier an OEM engages with the intended CM for DFX services the better. Design decisions as basic, yet important, as processor selection or injection molder selection, when influenced by the CM, will help ensure the OEM minimizes both supply chain risk and unit cost. Lowering this risk directly links to less “line down” situations and a reduced need for “cost down” design programs. In turn, an OEM can have their engineering teams focus more on new products and growing their product portfolio, instead of simply maintaining their current one.
OEMs that look to their CM to provide cradle to grave solutions for products can rapidly increase their product portfolio. This allows the OEM to truly focus on core competencies and enables the CM to provide the OEM real solutions to meet their market challenges. In these cases, the CM will often help an OEM conceptualize products, provide turnkey design solutions, manufacture products to the finished level, and ultimately provide fulfillment and sustaining solutions. This level of partnership requires confidence and trust, but once it is achieved, OEMs will be best able to maximize their product portfolio.
Wally Johnson, Vice President, Sales & Marketing, Spectrum Assembly
The key benefit of any contract manufacturing relationship is that it allows an OEM to focus on its core competencies. From a product portfolio standpoint, that can translate to more dollars available for R&D, or a more robust process for new product introduction.
For example, several of our customers have no desire to have internal manufacturing capabilities. We work directly with their engineering teams to produce their product. In that scenario, the role of the contract manufacturer (CM) is threefold:
First, the CM provides a scalable manufacturing capability. The OEM pays only for the capacity used, which allows very flexible support. Conversely, in an internal manufacturing scenario, product portfolio decisions might be constrained by available capacity or technology. This infrastructure can be helpful in penetrating new markets.
Second, the CM provides a disciplined approach to manufacturing. While an OEM designer might focus on adding functionality or developing a next generation product, the CM focuses on potential manufacturing issues.
Finally, the CM provides a broader base of expertise. For example, if the OEM is upgrading from one component packaging technology to another, the CM may be able to share design guidelines and expertise that eliminate the learning curve. If the product is adding additional functionality, such as communications capabilities, the CM may be able to provide both design and test expertise.
In short, the answer of how an OEM can maximize its product portfolio through contract manufacturing tends to vary based on the OEM’s internal capabilities and goals. OEMs that spend time discussing ways that their CM can fill the gaps in their organization tend to get the best value from outsourcing.
Chris Munroe, Director of Engineering, EPIC Technologies
This question can be subject to wide interpretation in terms of what maximizing product portfolio really means. In the broad sense, OEMs can take advantage of a technology or capability of a contract manufacturer (CM) in such a way that the OEM’s product is improved or gains feature sets obtained through the CM’s knowledge.
For example, we have one customer that has a CM scorecard that asks, “Does the supplier offer technology that will enhance our product design?” This measures suppliers’ technological differentiation. A solution in this case would be our ability to place part-on-part (PoP) technology, helping them develop smaller footprints for their products.
The strongest way a contractor can enhance its customers’ portfolios is through formalized, value-engineering teaming efforts. Contractors learn and grow technically through the products they produce and the institutional knowledge that can be applied to other customer products. Design groups use experience in a similar fashion.
In a smaller sense, manufacturing efficiencies gained through continuous improvement efforts, such as lean manufacturing, can also be used to help improve product portfolios. For example, when pull systems are applied between the CM and the OEM, gains in capability of end-of-life configurations may allow the OEM to offer a more flexible solution. This is due to the fact that many OEMs restrict flexibility because it adds part numbers, and part numbers add inventory. However, using lean flows and standard product types that can be configured just prior to shipment eliminates the need for that constraint, increasing the takeaway.
Good CMs don’t simply build product, they are experts at efficient product realization.