by David Dickin
Business Development Director

There is no doubt that offshore manufacturing has its place and for some original equipment manufacturers (OEMs), with the right type of product, significant savings in product cost can be achieved. However, for many, blindly chasing apparently cheaper manufacturing prices can be a strategy fraught with danger.

A culture of innovation:

The UK has a global reputation for innovation. From pioneering research in bio-technology through to the latest nano-developments, throughout history our country has been at the forefront of innovation, a position that it retains today.

Behind these ‘innovations’ there are countless small, highly skilled and creative companies that are developing new technologies. For many, success means turning their new creations into products they can sell. This is invariably an iterative process. It often involves several development stages - for example, the creation of a concept prototype, the production of models for market evaluation and pre-production models to assess manufacturability ahead of making any commitment to volume.

It can take many months (and sometimes years) to fully understand market needs and demand and to then create a stable, viable product that is ready for manufacture.

For OEMs in this situation, an early move to offshore manufacture could be disastrous. During product development, the periods of honing design and preparing for manufacture are critical times. It often needs careful, meticulous dialogue with specialists in these areas to ensure that products are fully optimised for production, test and reliability.

Many OEMs do not have electronics manufacturing skills or the resources needed to bring a product concept to market and seek third party help. Sourcing this level of support from offshore manufacturers can prove problematic. Different languages, cultures and time zones make it difficult to develop close, productive working relationships of the level required to ensure success.

Supporting the product lifecycle:

Once in manufacture some products never change. They are manufactured over and over again, often for many years without changes being made to design, construction or components. Because of their ‘stable design’ and repeatability, this type of product may be well suited to offshore manufacture.

Conversely, some product designs are more fluid – they are changed regularly, often to meet the dynamic needs of end users. These changes may be new features or enhancements, changes to the external appearance, component rationalisation or reacting to component obsolescence.

Products such as these are not well suited to offshore manufacture. Implementing changes to product design requires close dialogue and co-operation between OEM and contract electronics manufacturers (CEM) to ensure they are implemented correctly.

Achieving this can be difficult when working with offshore manufacturers. The communication problems highlighted earlier come into effect and face-to-face meetings are infrequent because of the expense and time involved. There is also an increased risk that changes can be mis-interpreted or mis-understood and, therefore, an increased chance that something will go wrong.

This is not to say that things can’t go wrong when dealing with a local CEM but the risk is much higher when working remotely.

OEMs must also consider future supply patterns. Offshore manufacturers are geared up to deliver consistent, high volume production with extended shipping times and therefore cannot easily accommodate ‘lumpy’ demand. Supply chain inertia in responding to fluctuations in demand can lead to problems in end user supply and consequently erode customer satisfaction.

Companies that anticipate fluctuations in their supply patterns must look for supplier flexibility – CEMs that have low inertia and are able to respond quickly and efficiently to changes in demand.

OEMS that produce products which frequently change in design or that have lumpy demand are much better off building a relationship with a local CEM with which they can meet and discuss finer details as often as they need to.

It’s a cultural thing:

There are many OEMs using CEMs in the Far East and it is differences in culture that seem to be the most common reason for relationships breaking down.

A recent example is where a CEM in China decided to reduce its costs by sourcing a brass nut from a local supplier rather than using the one specified by the OEM.

Seemingly innocent, you may think, but this locally produced nut has a different pull-force to the one specified. It was not until a sharp rise in field failures led the OEM to investigate that the cause became apparent.

Of course this could have happened wherever manufacturing was sourced but it helps to highlight the cultural differences between our countries. China, in particular, has a ‘cost-cutting’ culture; if money can be saved or they can find a local alternative part, that’s what they will do. In many cases there won’t be a problem – but if it happens it may not become apparent until it’s too late and this may happen on a safety critical device.

These cultural differences are also apparent in approaches to intellectual property (IP).

In China, for example, the years of communist rule created a culture where individuals could not own ideas; they were handed over and subsequently became the property of the state. Knowledge, it was considered, was better shared for the greater good of the country. It became natural for people to share ideas and the concept of IP as a valuable asset was unknown.

There are numerous examples of problems with IP which have occurred as a result of Western companies having a poor understanding of exactly what they are buying when they enter into a relationship with a Chinese firm. It is easy to hand over increasing responsibility for design and development, as well as for production, only to find that you have helped to establish a new competitor.

Although the Chinese government is following a much more market-oriented social and economic policy, and has introduced legislation for the protection of IP, it may take much longer to change the culture than it did to change the law.

Hidden cost of outsourcing:

It is also important that OEMs look at the total cost involved in offshore manufacturing - not just the unit price of the manufactured product. There are many other costs that need to be factored in. For example, the actual and lost opportunity costs associated with sending engineers to the Far East, which can be for several days in a different time zone, to discuss design changes or component obsolescence. The cost would be much lower if dealing with a locally-based company.

OEMs that successfully outsource abroad often end up employing someone who speaks the language of the country where products are being made in order to reduce risk and ensure that no detail is lost in translation. This can further add to costs, which again would not apply with a local supplier.

Offshore manufacturing has its place but requires considerable time and investment and it is important that the total costs of this are not ignored.

Going green:

As consumers and companies become more environmentally aware there has been a noticeable change to the way organisations do business and the purchasing decisions being made by their customers.

Consumers, for example, are becoming more selective about the products they purchase. In the retail sector companies are recognising this and are responding by, for example, selling locally produced products in their stores. This enables consumers to buy products that have reduced environmental impact and lower carbon emissions because there has been less transport needed to get them to the store.

Many organisations are actively reducing their effect on the environment and making, sometimes, bold public statements about their achievements and seeking environmental accreditations. It is now a positive benefit to companies to be seen as being environmentally conscious.

As consumers and companies become more environmentally aware it is important that OEMs understand how this might affect future business - particularly if they choose to manufacture overseas. In the future consumers may become more influenced by the environmental credentials of their suppliers.

Conclusion:

There is no doubt that offshore manufacturing has its place. If OEMs require predictable volumes of stable products, where large batches of the same thing are being regularly produced, then significant savings and improvements in efficiency can be made.

But if there is concern over intellectual property and environmental impact, or if less predictable or smaller volumes are required, or product designs are liable to change at short notice - as is the case for many OEMs in the UK - companies are better off looking for a trusted local supplier.

It is also important that OEMs look beyond the unit price of manufacture. There are many other costs to take into account when dealing with CEMs abroad and these need to be fairly considered when evaluating manufacturing services.

It is not just an issue of cost – it is an issue of risk. There is simply a greater chance of things going wrong if design and production are separated by time, distance, language and culture.

The most important question for OEMs to ask themselves is whether they are looking for a product or a service. If it’s the latter, then sourcing electronics manufacture locally is likely to make much better business sense.

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Why Test?
A Cost or Benefit?

by Richard Walton,
Technical Director

The prime focus of test for a contract manufacturer is to cost-effectively ensure that the quality and reliability of products meet the customer’s needs. However, ‘doing’ test doesn’t make a product ‘good-quality’ nor, by itself, does it make a product more reliable. These factors are mostly determined by the design, the materials used and manufacturing processes undertaken. So, if we build products correctly, why do we need to test them?

One view is that test does not add value but is simply a means of sorting ‘good’ from ‘bad’. Indeed, a poorly designed test strategy may offer no more than this. But such a defensive approach to test would not meet the prime focus, would offer no insight into how any failures arise, and is unlikely to be good value for money.

Prism, and our customers, need more than this. To us, test is a route to continuous improvement, the method by which we keep our processes under control. It provides essential feedback. Not just about our technical processes like pick & place, wave soldering or stencil printing, but also our systematic processes like build-documentation, training and standard operating procedures.

This feedback is essential. It is a classic example of open-loop and closed-loop system behaviour. In the open loop without test, small variations in the input (perhaps a PCB or solder short) cause large swings in the output (yield, reliability etc.). A robust test strategy provides the means of closing the loop, improving stability and giving reliable output.

So are we arguing that more test is good? Not necessarily. Test is about managing risks so, before recommending a particular test strategy, we need to understand the potential fault modes of both the product and the manufacturing processes. Sometimes, verifying components at the time of placement and a brief functional check is all that is required. Some products may need electrical safety, RF performance or automated parametric testing. They may require the rapid diagnostic capability of our GenRad in-circuit ATE or perhaps the development of a bespoke test solution. The appropriate test method depends on an analysis of the particular risks and the extent to which test was considered during the design stage.

When appropriate test solutions are applied at the correct stage, processes are maintained under control, the loop is closed. So, ultimately, we test to ensure that the product continues to be built right without surprises.

Richard Walton is Technical Director of Prism and has overseen the supply of a wide range of test solutions to major OEM, CEM and military customers since the early eighties. These include functional, in-circuit and PC-based test packages as well as full development of bespoke

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East – West………..both are best!
Dual Sourcing – Asian Bridge

By Alan Masterman,
Supply Chain Manager, Amino Communications

The headlong rush for European companies to move their entire sourcing strategy towards Asia has resulted in as many ‘bad experiences’ as ‘good experiences’.

A major cause for concern for many senior managers is that a ‘bad experience’ can and usually does, result in their company suffering major set backs in

• cash flow,
• profit,
• management time,
• reputation with their customers.
  

Having ten years of experience dealing with Asian businesses and Global CEM’s, I am acutely aware that the early part of a project and ‘ramp up’ is always where management time and costs are at a premium. A simple engineering or component issue can result in one or more key members of staff ‘out of the office’ in a different time zone, incurring travel costs of £5,000-£10,000 each.

Whilst larger global CEMs may appear to offer a full range of services which cover both new product introduction and volume production, in reality their focus is on ‘significant revenue’ and ‘volume production’ and it isn’t surprising that smaller accounts don’t get the attention span that they need.

Amino’s approach is a tried and trusted ‘Supply Chain Strategy’ which makes use of the strengths of both local and overseas CEM partners, improving ‘time and cost to market entry’, reducing business risk and managing cost reduction targets.

Our first stage is to work with a competent UK CEM that understands that its core focus is on:-

• Prototype services – with competent local engineering interface.
• Small to medium product runs.
• Kanban or next day deliveries.

These are all key supply points for developing a new product and trying to establish a market without incurring mass production costs and all the associated risks.
Once this is in place then an essential ‘Transfer agreement’ between the UK based Business and the chosen Asian CEM is established so as to seamlessly enable volume production with minimal risk.

Such an agreement covers:

• Known product issues
• BOM’s, Engineering drawings, Gerber data, Product specs.
• Product ‘Ramp up’ Asia
• Product ‘Ramp down’ UK

Any costs associated with a new product receiving ‘poor market reception’ can be minimised with regards to inventory and set up costs by delaying mass production and maintaining the UK source.

If all the issues are managed openly by the three companies involved then the costs of New Product introduction can be controlled.

The end goal is one supply chain route but two relationships.
Amino Communications’ strength is the depth of Engineering and R&D experience, the need for commercially experienced partners for supply is the corner stone for future success.

Prism now form a strong part of Amino’s supply chain strategy as a local CEM who we can rely on for fairly priced excellent service and delivery. Amino’s and Prism’s engineering personnel work together well and are achieving the expected design for manufacture improvements ahead of volume production.

Alan Masterman is Supply Chain Manager for Amino Communications, a global supplier of Set-top-box technology solutions. Amino rely on fast time to market, a flexible product offering and competitive product cost suitable for supply to a low-cost consumer environment. Alan has 20 years experience working in the electronics field with ICL, Molex Premise Networks and Dataflex Communications and, prior to joining Amino, Alan worked for CEM’s in Asia and Europe. His main role has been securing and developing Supply Chain Operations in Asia.

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