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Publisher's Executive Council Interview
December 31, 1969 |Estimated reading time: 8 minutes
SMT Magazine's Publisher's Executive Council consists of 38 electronics industry executives hand-picked by publisher Jim Collins. They share their expertise and insights with our editorial staff and act as a sounding board for new editorial concepts and projects. These individuals also contribute much to the industry in general, working as leaders within their companies. This month's Publisher's Executive Council Interview features one of the industry's leading innovators: Sparton Electronics's Alan Houghtaling.
SMT: To begin, please explain your company's position within the surface mount industry.HOUGHTALING: Sparton Electronics is a full-service provider to the electronics manufacturing services (EMS) industry. We will always maintain the highest quality facilities and equipment to support whatever our customers will require regarding surface mount technologies. Through continuous investments in associates' training, along with information and technology upgrades, Sparton demonstrates its commitment to be at the forefront of available technology in the 21st century and beyond.
SMT: What is Sparton Electronics's fundamental business strategy?HOUGHTALING: Sparton's business strategy is quite simple. We are currently on task at becoming the recognized manufacturer of choice serving the high-mix, medium- to low-volume EMS marketplace. Sparton will achieve this by using our proprietary FlexMOD System to create a seamless interface between our customers' organization and the assigned Sparton team. This system will maximize continuous flexibility and minimize costs.
The high-mix market is very complex; you do not manufacture one or two products in high volumes on a day-to-day basis. Instead, your customers will have multiple products with multiple scheduling requirements, requiring many different manufacturing configurations.
SMT: How has globalization of surface mount markets affected your technology and business decisions?HOUGHTALING: Certainly in today's business environment, larger scale companies expect to engage with those companies that do have a global footprint. The electronics industry is very price competitive and it makes sense for most Tier 1 EMS providers to enhance their services by providing these global capabilities in low-cost regions. Our particular market segments have not encountered as much drive into or out of the Asian and European markets. We look at those opportunities very closely so we are not heavily impacted with the big fluctuations in those vulnerable markets. We do not encounter as much volatility and, hopefully, we can avoid the massive reductions in the workforce affecting some of the other service providers right now. We will evaluate all opportunities to develop in other regions as well, but there must be a need first. Currently, our synergies have been more toward evaluating issues like lead-free solder and the impact that will have on us and the global market going forward. We believe there are more opportunities in, say, creating environmentally friendly products, than pursuing low-wage regions to conduct our business.
SMT: What is the most critical issue for contract manufacturing today? How are demands from EMS companies different from OEMs?HOUGHTALING: I sincerely believe that the industry's most critical issue is the customer relationship management process. Sparton focuses a lot of energy to support and improve this process. It is not just about taking customers out for a great dinner; customers do not require that today. It really boils down to making your day-to-day contacts' responsibilities run smoother with less effort. This allows them to concentrate on other critical aspects of their business like research and development (R&D) and marketing. The better job you do understanding and managing your customer relationships, the more successful both companies will be.
The demands placed on the EMS provider are all about managing and providing a complete solution for the OEM's production. You must ensure that your processes for manufacturing are excellent and that you are in control of your supply chain. In addition to maintaining the highest technology in manufacturing equipment, these things are to be expected so the OEM can concentrate on developing and marketing new products.
SMT: What is the supplier's role in the OEM/EMS partnership?HOUGHTALING: The suppliers' role counts on keeping the total cost of acquisitions as low as possible. In the EMS business, profit margins are tight and to maintain a competitive edge we devote an excessive amount of time to manage the supply chain. Our suppliers must be outstanding and maintain the highest level of competence when it comes to providing us with material. All our key suppliers bring unique solutions to the table, thus giving us more options to provide to our customers.
For suppliers to be active and excellent contributors to the process, the EMS company must have an open, honest and friendly role with the supply base. I believe that the strong-armed tactics of the past between buyer/seller must be put away in favor of a sharing/partnership role. This allows both the EMS provider and their suppliers to achieve a true win-win situation.
SMT: Who is responsible for R&D efforts in this equation?HOUGHTALING: In most cases, an EMS supplier has to rely on its customers to fulfill this part of the equation. EMS providers either have chosen not to participate or just cannot sustain the resources to support their customers' R&D needs.
Many customers are finding it very difficult to maintain the resources needed because of the low unemployment in the United States. They may choose not to add additional resources, but rather to maintain a strong engineering core base and supplement it with outsourced resources. What better way to engage and build the relationship with your supplier than to have him on the very front end of your product development cycle? Sparton always has had excellent resources in this area. We see it as a differentiator if our customers choose to use this service. Sparton maintains a very strong engineering staff that is highly competent in all technical disciplines.
SMT: Do you see consolidation of outsourcing companies remaining a trend?
Will this consolidation result in the demand for flexible capacity and quick process changeovers for manufacturers?HOUGHTALING: Consolidation in the EMS industry will continue in the next couple years mainly due to market maturation and a tight economy. It will continue to be a very tough job for the smaller companies to sustain the typical growth rates of our industry. The investments in capital equipment will continue because of the changing demand for the newest technologies. Additionally, as the supply chain continues consolidating, smaller providers will find it very difficult to compete with bigger companies for material demands, both in price and delivery.
EMS providers will continue being forced to maximize flexibility and minimize costs. At Sparton, it is all driven by excellent people. We allow decisions to be made by the people best qualified to make them "the team" that builds the customer's products. Production operators are trained in equipment maintenance quality assurance, demand flow, production techniques and multiple production operations. This cross training allows operators to move between work zones, ensuring balanced production capacity. It also speeds the decision making process at the factory level.
SMT: How have your customers' needs/ demands changed over the past five years?HOUGHTALING: Many of our customers started outsourcing only their printed circuit assemblies and the majority of EMS providers were considered board stuffers. Over the past five years, our customers have concentrated on identifying their core competencies and have selected to outsource the rest. This has increased the demand for other solutions such as product design engineering, electronic layout services, specialized testing services, final product assembly, distribution and depot repair of their product to their customer. In many cases, customers have increased their R&D and marketing resources to stay ahead of the competition.
SMT: Does Sparton participate in industry standards development through consortiums or associations?HOUGHTALING: Sparton has been an active member of the Surface Mount Technology Association (SMTA) and IPC Association Connecting Electronics Industries for many years, as well as several other associations within the electronics arena.
Information sharing within the industry can only continue to legitimize the EMS industry as a separate market. By being open to participation and sharing in the EMS sector, the industry as a whole will become stronger. Our customers will have to become truly "world class" in their prospective markets. A strong focus on new product introduction will be where they make investments. This puts the burden on the EMS provider to offer a world-class solution to manufacture their product while decreasing their time to market.
SMT: How would you characterize business today?HOUGHTALING: Business today is very demanding and increasingly more competitive. As companies have been forced to downsize, they also have concentrated on becoming truly "lean and mean." Customer demand for innovation and speed will continue to challenge suppliers to be more creative in providing the best solutions.
Let's not forget the impact that the Internet has had on the way we do business today. Companies must have a very robust strategy going forward by using the Web-based products and services that they offer their customers.
SMT: What is the central message Sparton would like to convey to the surface mount industry?HOUGHTALING: Sparton is working in its 101st consecutive year of business. We continue to be successful by being dedicated to the highest level of ethics in conducting our business.
During its history, Sparton has undergone many business evolutions. Today, we find ourselves in the embryonic stage of carving our leadership position in the fast growing EMS marketplace. Our focus is on the high-mix portion of the electronics outsourcing industry principally in regulated marketplaces illustrated by OEMs in avionics, medical, telecommunications, governmental and other markets. Sparton is large enough to develop a full range of design engineering and manufacturing services, yet small enough to deliver personalized service to its customers. This strategic combination enables the small to midsize customer to find a home at Sparton. Sparton will continue upgrading its manufacturing capabilities to include the latest technologies. These improvements will include surface mount, pick-and-place systems with a fine-pitch vision module enhancing BGA and microBGA placement, and a modular changeover table that reduces setup time and facilitates the low- to medium-volume/high-mix manufacturing process.