CMs Fail to Meet Outsourcing Criteria

Reading time ( words)

ALAMEDA, Calif. Though the option of outsourcing has proven attractive to OEMs, Technology Forecasters Inc. (TFI) reveals a disconnect between what electronics companies want and what they say they are receiving, in its report based on interviews with about 130 managers at more than 100 OEMs. Estimating that "nearly 20%, or around $200B, of global electronics manufacturing was outsourced in 2005," the report covers trends, expectations, and best practices, and offers performance ratings of 16 contract manufacturers (CMs) and original design manufacturers (ODMs).

The EMD/ODM Report Card and Buyer's Guide's performance ratings of 12 electronics manufacturing service (EMS) providers and 4 original design manufacturers (ODMs), which together accounted for 50% of global EMS and ODM business, was prepared by Matt Chanoff, senior consultant, TFI. He found that the distinction between EMS providers and ODMs is not always clear, as "many suppliers offer both services." EMS providers performed similarly to ODMs, the report noted.

Respondents included OEM executives and senior managers responsible for outsourcing decisions. TFI interviewed anonymous respondents split evenly between Asia, Europe, and North America. They used a scale of 1 to 5, with 1 being unacceptable service and 5 meaning that the ODM or EMS delighted customers. Other factors, including existing supplier relationships, product quality, and global footprint, also received consideration.

OEMs stated their top priority with CMs to be reducing cost of ownership, which includes the cost of manufacturing a product, logistics, management expenses, and other expenses. Asian CMs, on average, outperformed Americans and Europeans in cost reduction. Overall, respondents were least satisfied with their CMs' performance in this category, in particular, the performance of North American suppliers. Design for manufacture (DFM) services due to reductions in setbacks further along in the manufacturing process were identified as the most effective way to reduce total cost of ownership, followed by the standard tactic of designing contracts with periodic price reductions.

Of the OEMs interviewed, 64% said that communications with manufacturing suppliers occurred by phone, fax, and e-mail not through enterprise resource planning (ERP) systems even though the majority of companies run automated ERP systems. TFI found that the majority of ERPs appear to lack connectivity, which was a source of frustration for those surveyed.

The report examined four other categories of concern to OEMs, including (in order of importance): global supply-chain coordination, contractors' responsiveness, leveraging technology, and environmental compliance services. Key questions included whether or not CMs provided "specific metrics and benchmarks, bill-of-materials (BOM) reviews, engineer training, and complex ERPs." TFI found an "inverse relationship" between the value of a category and a respondent's satisfaction with it. On average, the highest ratings in all five categories went to CMs in the $5B to $10B category. Slightly smaller companies those with annual revenue of $1B to just under $5B scored poorly. The report presents data analysis for each major electronics industry segments by region, type of service, and company size.

TFI reviewed Asustek Computer, Celestica, Flextronics, Foxconn, Jabil Circuit, Quanta, Sanmina-SCI, Solectron, and others. They rated each company according to its performance in the five categories and by region of the world. In some cases, type of service provided was a factor.



Copyright © 2019 I-Connect007. All rights reserved.