With everyone in the industry doing more with less, i.e., cutting costs, finding the ideal manufacturing and design partner has become one of the biggest challenges for OEMs.
Price/performance curves, time-to-market, and design cycles are now more critical than ever. The technology is becoming increasingly complex, often delaying programs because companies are attempting to do them (usually wireless) in-house when they don't have the technical expertise. Testing is also up for grabs as the industry looks for new ways to get products to market faster, while constantly flexing and changing the way it does business.
"Trying to maintain a full engineering staff is just not an economical way to do business today, especially with so much convergence of technologies," says Jim Caraccio, manager of Arrow Electronics' Arrow Consulting Engineering Services (ACES). Formed in March 2002, ACES seems to have found a niche by providing what amounts to a referral service for OEMs. ACES tries to locate the design talent and other engineering resources companies need to get products to market faster. "We're seeing customers who have a lot of their own competencies but may need help with a single element of their total design, and that's what they're looking to outsource," says Caraccio.
Essentially, ACES is doing the kind of due diligence that any OEM might perform when looking for a design or manufacturing partner, but in more depth. In the process, it has put what amounts to a "Good Housekeeping" seal of approval on selected design and manufacturing sources.
The apparent need for this service has enabled ACES to ramp up business quickly. Caraccio and Tom Swist, another ACES manager, started by developing a list of 250 companies that offer a variety of design services and narrowing it down to 30 they considered to be Best In Class. They next spent about three months on the road, putting these companies through an audit as if they were going to contract them on their own. Then they cut the list to eight third-party companies, which formed the nucleus of a Phase I ACES program.
"We looked at their unique set of expertise in areas we thought were emerging and growing. But we didn't want clones. Some focus on wireless, some on ASIC design," Caraccio says. The list also includes embedded hardware designers and software developers.
FINDING A PARTNER
In the past, OEMs worked directly with their component suppliers and assembled subsystems and boxes in-house. Today, the process is much more intricate as electronic-manufacturing-service (EMS) firms, as outsource manufacturers are known, have taken on entire design, manufacturing, packaging, test, distribution, and even servicing programs for their customers.
The big trick for most OEMs is to determine what to look for in a manufacturing or design partner, and what to expect once you're on board. Gartner Inc., a business research and consulting firm that has studied outsourcing in the electronic industry for a long time, says that when things go wrong, the customer is frequently as much at fault as the provider of outsourcing services.
One of the most common mistakes, according to Gartner, is short-term focus. Executive management sees outsourcing primarily as a way to cut costs in the short term without considering the long-term implications. Poor communications is another issue. Staff members are often not informed about outsourcing plans.
Also, it's not unusual for there to be no benchmarks for analyzing the service provider's performance. That's almost always an issue, says Gartner, because most outsourcing contracts aren't designed to cope with changes in business requirements. Insufficient resources and poor budget planning can become a problem as well. Then there's the failure to recognize risk—that is, customers entering into manufacturing partnerships without considering their own risk and how those risks can be mitigated.
Wipro, an India-based information-technology (IT) services company, has grown into a $900 million-a-year operation by diversifying into other areas, including custom chip design. It has come up with a set of guidelines, a sort of Outsourcing 101, to help its prospects work through the finer points of determining what's important in selecting an outside service provider.
The company's first rule is: "Identify what to outsource." It's supported by a "diagnostics" framework, which helps identify applications that are particularly suitable for offshore development. Another rule is: "If you're going to trust someone with a critical part of your business, make sure they understand it very well." Among other points to consider is a partner who can scale up quickly, which can mean anything from changing specifications to adjusting the size of the design team. Also, are there contingency plans for systems, data, people, communications, and locations?
Natel Engineering, whose specialty is high-frequency manufacturing, has developed its own checklist of what's important in choosing "the right" manufacturer, and it jibes well with Wipro's guidelines. But Natel added a discrete short list of points in selecting a domestic versus an offshore manufacturer. According to Natel, the most important issue in this process is defining the complexity of your design.
Offshore manufacturing, notes Natel, often presents challenges in communications, scheduling, and design revisions. Natel suggests that you calculate your expected volume needs. If your volume is exceptionally high, an offshore vendor may be the most affordable solution. Natel also recommends identifying the aspects of manufacturing that are most important to you.
OEMs should keep in mind that high volume requirements with a very low-cost bill of materials (BOMs) suggest that offshore manufacturing might be the best solution. However, issues like direct design assistance and dealing with proprietary issues may call for a domestic manufacturer.
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