-
- News
- Books
Featured Books
- smt007 Magazine
Latest Issues
Current IssueBox Build
One trend is to add box build and final assembly to your product offering. In this issue, we explore the opportunities and risks of adding system assembly to your service portfolio.
IPC APEX EXPO 2024 Pre-show
This month’s issue devotes its pages to a comprehensive preview of the IPC APEX EXPO 2024 event. Whether your role is technical or business, if you're new-to-the-industry or seasoned veteran, you'll find value throughout this program.
Boost Your Sales
Every part of your business can be evaluated as a process, including your sales funnel. Optimizing your selling process requires a coordinated effort between marketing and sales. In this issue, industry experts in marketing and sales offer their best advice on how to boost your sales efforts.
- Articles
- Columns
Search Console
- Links
- Events
||| MENU - smt007 Magazine
Small Contract Shops Speak Up
December 31, 1969 |Estimated reading time: 11 minutes
Reports of the demise of smaller contract manufacturers (CM) are exaggerated. In fact, while most not only report no downturn, some actually are experiencing steady growth that has continued without a hitch throughout the financial "crisis."
By Joyce Laird
Over the last two quarters, almost every industry analyst has reported that the major CMs have experienced drastic financial setbacks, prompting layoffs, division cutbacks and heavy reorganizations. These dire observations further included predictions that a backlash to the industry-wide "belt tightening" would mean that small- and medium-size CMs will feel the impact even more than the giants.
State of the Industry The overall theme of recent reports seems to be that there is no place for the small electronics assembly shop in today's marketplace. If they want to compete, the thinking goes, either they must grow, merge with an established CM giant or go out of business "tier one or none" is the hasty verdict. However, numerous tier-two and tier-three manufacturers remain the backbone of the industry. Moreover, as Merrill Lynch analyst Jerry Labowitz (Cnet News) reports, although the mega electronics manufacturing service (EMS) providers account for 49 percent of the predicted $81 billion market in 2002, 51 percent is left to be accounted for elsewhere. If not the giants, who makes up this balance?
Photo courtesy of Milwaukee Electronics.
Meet Some Successful PlayersWho are some of these successful shops and what are they doing to ensure healthy growth while the giants are feeling such pain? Three of them shared their strategies. Although they are in different stages of growth, have different goals and occupy slightly different niches in the marketplace, they have common threads:
- Bema Electronics, Fremont, Calif., is barely three years old but exhibits a strong desire for growth.
- Express Manufacturing Inc. (EMI), based in Santa Ana, Calif., is 20 years old and well established as a mid-size shop; however, it boasts a division in China that offers local customers the cost benefits of tier-one CMs.
- Milwaukee Electronics, 47 years old with a division in Oregon, zeroed in on a successful market throughout a half-century of the industrial roller coaster: subsystem design, development and building.
Bema Electronics is the creation of Helen Kwong, who also serves as president and is well known for developing highly successful companies. "We work with mid-size manufacturers, many of whom are rapidly growing companies, by offering full service and anything between. In prototypes, we may see runs from only one to perhaps 25. Standard runs can vary from as low as 50 up to 3,000 to 4,000 units. We also try to keep our customer mix carefully balanced as a hedge against a single area becoming greatly affected by any financial downturn."
C.P. Chin, EMI president, heads a firm specializing in printed circuit board (PCB) assembly on a consignment-lot basis while also providing turnkey solutions. "The consignment model worked very well for us for years and we still provide this service," he reveals. "But, today most of our customers prefer turnkey solutions taking it all the way from initial design to final box build.
While we consider ourselves a third-tier operation compared to the giant CMs, we also are able to compete. That is our strength. Our purchasing group is so diverse that we can procure inventory at highly competitive offshore rates from China, Hong Kong, Taiwan, Singapore, etc."
Photo courtesy of Express Manufacturing
Milwaukee Electronics comes from a totally different viewpoint. Rick McClain, general manager of the Northwest Div. (Oregon), explains the company's basic strategy: "We service a steady industrial base of customers rather than the super-high-tech and telecommunications companies that the major CMs cater to. We also do a lot of concurrent engineering, and have a substantial staff of engineers that can take a customer's bare-outline concept and create the design that will fulfill it. We provide design for manufacturability and also build test fixtures as needed. You could say that we almost become an extension of the customer's company."
A Flexible StrategyFor all three, flexibility to give the customer exactly what is needed is imperative.
"A mid-size manufacturer needs a CM that can tailor its service," says Bema's Kwong. "The large CM is highly structured. As such, with his high-volume customers and large staff, he must be able to 'float' the materials, the product, while streamlining the entire process. With small volumes, however, you can't do that. Rather, you are continually changing setups and that means you need flexibility. A very structured company would have a hard time making these rapid changes."
Run size is not the only place where flexibility counts, adds Milwaukee Electronics' McClain. Tailoring services to specific customer needs also requires a level of flexibility that is just not profitable for the large contract houses, he says. "We will step in at any point at any stage of the project, including building the prototypes, and then help to move that into manufacturing. We have to practice quick-change, cell-type manufacturing, which is not the type of production for which the large CM can install a line or get a good return."
"Flexibility of personalized service is very important," confirms EMI's Chin. "The large CMs can really swallow up small companies; they will only warrant second- or third-tier customer service. We, on the other hand, provide pricing competitive to them, flexible work structures and personal service. Each customer must feel as if he were the single most important job we have. Our entire staff strives toward this goal at all times."
Adding Today's Best Technology The Internet, new e-business practices and software programs all are accessible to everyone. These new labor-saving techniques appear to be the great equalizers wherein large, small or in-between companies can use the same software for seamless integration of factory, office and customer interface. Yet what to use, how to integrate it with one's own business practices and what to look for differs in each of these categories.
Regardless of size, all companies agree that data entry, tracking and updating are the main labor-intensive areas that must be streamlined. These include the compiling of reports for bills of materials (BOM), vendors, quotes, material sourcing, parts inventory, etc. Surprisingly, completely integrating all business and manufacturing practices across the Internet is not an urgent goal.
"We are live on our new engineering resource planning (ERP) system," says Milwaukee Electronics' McClain. "Other than this, as far as automation and e-commerce are concerned, I wouldn't say that we're highly automated in regard to computer communication today. But over the next two to three years, we certainly will be moving in that direction particularly with suppliers. We buy approximately 80 percent of the components we use through distributors, we exchange information with them across the Internet and we work with distributors to make sure that their stock on hand meets the quantities we require early in the design cycle well before any production.
Photo courtesy of Bema Electronics.
"It is easy for a [large CM] to install plug-in solutions and get payback because of the substantial volumes it deals with," continues McClain. "I think it's a little more difficult for a medium-sized CM if only because he's not dealing with the same volumes. Nevertheless I would say, at least for our facility, that a face-to-face relationship with a customer far outweighs the ability for him to enter our system automatically just to see where his order lies. You have to be very careful about automation within your communications system becoming a panacea. By itself, it is not going to make relationships better; it's still people dealing with problems and your ability to fix them. This is what good business is all about."
For EMI's Chin, the need for automating key areas is more important. "We are in the process of implementing Internet access for our customers," he reveals. "They can reach our system anytime and view the status of both their work in process and related quality data. This reduces the human resources needed in maintaining each customer and, in turn, we can provide a more competitive price.
"Our manufacturing resource planning (MRP) systems and materials planning are a combination of programs we developed," he continues, "after which we selectively integrated only what we needed from purchased software. Materials-related reports and planning are important to us because, for turnkey business, the major cost of an entire project is in the materials. We put a lot of emphasis into minimizing the materials risk."
But for the keeping up personal interfaces on important issues, however, Chin is in agreement with McClain. "Communicating through the Web is great, but again, our work is very individualized to each customer's needs. The Web is mainly for customer convenience; we still believe in supplying one-on-one support."
Bema's Helen Kwong believes using all that e-business has to offer is necessary for growth. "We have customer Internet access to projects on a 24/7 basis from accounting to manufacturing to tracking inventory. Manual entry doesn't get the information as fast and it's not as accurate. We use the same kind of applications as the larger CMs but on a smaller scale, which we believe makes us more efficient and in the long run, helps us grow. With the help of software we have positioned ourselves to grow. All things that need continual updating to be effective are streamlined so that if we put out quotes to vendors, we will know which are the most reliable, the most competitive.
"I have picked out a software package that is expandable for my MRP system," she continues. "With the help of an information technology (IT) person who writes our programs, we integrate the features that we want to try. We like to integrate software that is out in the field because it creates a commonality. However, good software programs can output and download into all commonly used formats. Systems can "talk" to each other relatively seamlessly if they can transfer data into commonly used formats. That is the most important feature any company should look at when purchasing any software programs or developing their own in-house."
Surviving Economic Downturns Because of the diversification of their customer bases, high-flexibility and a combination of the right software to streamline the most important areas of their businesses, none of these shops reports serious decline in work or revenue. But, how do they expand that customer base in difficult times? What happens when one or more of their loyal customers feels the pinch and has to cut back on outsourcing?
EMI's Chin says, "We've got a niche and repeat business on which we rely. As long as we can provide a competitive price and flexible service we feel that our position is well secured with existing customers. Speed and flexibility because of these we have been able to grow continuously. Most of our new customers come to us through word of mouth referral. We only have one business development person as our sales rep.
"With overseas manufacturing support, we also are more versatile," he continues. "We can provide our customers with prototypes and design all the required time-to-market activities. We manage everything out of Santa Ana and once the production volume is high, we can transfer that technology without difficulty, lowering labor costs via our manufacturing facility in China."
"As far as the economic downturn is concerned yes, some of our customers have been affected," admits Bema's Kwong. "But we try to keep a balanced customer base as much as possible. This shields us from too much financial fluctuation. We service the broadcasting industry, which has been affected a little by the recent economic distress. But then we also have military business, which went up enough to balance the dip in broadcasting. We also service quite a few new products, an area not affected at all. You never want to be a one-customer-base company. Rather, as with investing, you want to be diversified in many different market sectors."
"We've actually grown 25 to 30 percent this year," reveals Milwaukee Electronics' McClain. "Some of that business even came from one of the major CMs. It's pretty interesting: they have a design house nearby so we can do some quick-turn and pre-production runs for them. So far relationships have been great. We see a lot of opportunities, but it's not our intent to ever turn into a [large CM]."
ConclusionToday, the major CMs have grown so large that they are finding themselves almost like the giant OEMs they service, with many of the same problems, including the need to outsource. Meanwhile, it is apparent that the smaller CM is very much alive and healthy. As long as there are small- to mid-size manufacturers and production start-ups, there always will be a need for their services. Whether a start-up or a long-established firm, success hinges on filling the right niches, offering top engineering expertise, maintaining high project flexibility and providing individualized customer interface all liberally spiced with a good helping of Web-based programs, e-sourcing software and MRP/ERP systems customized to the needs of the company. The facts prove that when these come together, relatively recession-proof businesses are created.
CONTACTS REFERENCEDC.P. Chin, Express Manufacturing Inc. (HQ), 3115 W. Warner Ave., Santa Ana, CA 92704; (714) 979-2228; E-mail: CP@eminc.com; Web site: www.eminc.com.
Helen Kwong, Bema Electronics, 325 Warren Ave., Fremont, CA 94539; (510) 490-7770; E-mail: helen@bemaelectronics.com; Web site: www.bemaelectronics.com.
Rick McClain, Milwaukee Electronics (HQ), P.O. Box 090920, 5855 North Glen Park Rd., Milwaukee, WI 53209; (503) 785-0980; E-mail: rmcclain@mecnorthwest.com; Web site: www.milwaukeeelectronics.com.
Joyce Laird, an independent industry reporter, may be contacted at 13207 Wentworth St., Arleta, CA 91331; (818) 768-1832; E-mail: jlcms@earthlink.net.