Case Study

Client to Contract Manufacturer Relationship on Unsteady Ground

Clients challenges revolved around cost down, better factory performance on critical metrics i.e. CT, quality, clearer reporting on status of projects, fixes and 3wi’s (what is to be fixed and what will be the projected impact in improvement), second sources/ sprint capacity, no one in the factory addressing issues and fixes real-time, factory responses are slow, decisions in the factory being made without consideration to delivery and revenue impacts.

Challenges

• Learning both the Client and the Contract Manufacturer players
• Understand the Client’s needs for strategic and tactical reasons
• Needs related to specific full turn-key, second sourcing, forecast volumes and timelines
• Best methods to Insert “stop the bleeding” fixes in preparation for a long-term cure
• Determine the Client’s current pricing, price target objectives and projected forecasts from the Client
• Understanding what work has already been done to address issues and with whom
• Finding the right match in a Contract Manufacturer for the Client’s needs and how to get the Contract Manufacturer interested in the Client’s business
• How to get the Contract Manufacturer and Client on the same page to begin understanding the issues relevant to better performance, clearer reporting, fixing issues real-time, etc.

Methodology for Improvements

• Met with Client players to clearly understand the requirements and establish detailed objectives.
• Established rules for the Client’s team to interact with the Contract Manufacturer i.e. engineering, quality, management and established lines of communication with decision makers at the Contract Manufacturer to communicate the Client’s concerns/requirements concisely
• Discussed with both the Client and Contract Manufacturer requirements for an understanding of what is needed from each to improve the effectiveness of the working relationship
• Identified prospective new sources and developed plans for transitioning products to a new Contract Manufacturer, recommending a list of potential new Contract Manufacturers capable of supporting the Client, research to identify all existing potential Contract Manufacturers to match the Client’s requirements, i.e., pkg requirements/mix, volumes
• Investigated cost down opportunities by negotiating with the existing subs, leveraging volumes and technology, as well as introducing other means of reducing cost ie. moving to Cu wire or smaller diameter wire, matrix lead frames, etc.
• Set-up the lines of communications between the Client and the Contract Manufacturer real-time on their communication channels to determine/remove barriers. Daily communications with the factory floor staff; forecast, planning, required documentation, real-time problem resolution, etc.
• Communicate directly with the Contract Manufacturers via phone or face to face to establish credibility

Results

• In 90% of the cases dealt with, Communication was the #1 issue. Establishing real-time communications between the Client and the Contract Manufacturer we were able to avoid ill feelings resulting in knee-jerk decisions potentially costing thousands of dollars.
• Drastically improved communication between the Contract Manufacturer and Clients saving customer deliveries
• We were able to bring both the Client and the Contract Manufacturer to mutual understanding of both their businesses and the benefits in terms of revenues
• We provided second sources delivering alternatives and additional capacities
• We improved response time on manufacturing problems with much greater clarity of problem identification and real-time corrective actions
• We reduced cost between 10% to 50% reductions
• We provided comprehensive project plans for those customers needing to transition their product to Asia, including design, manufacturing, logistics, timelines and cost

Summary-95% of the problem was the way, or the lack thereof, the Client communicated requirements/expectations to the Contract Manufacturer and the lack of Management focus for their outsourcing efforts.

Complacency in Manufacturing

There is no room for complacency in manufacturing. If you’re happy with what you’re doing relative to your subcon manufacturing, you’re happy! However, I would pose the question of what you’ve done in the form of an FMEA for your manufacturing model? If the answer is “been there, done that”, this post will do little but serve as a gentle reminder to keep up the good work.

On the other hand if you haven’t given it much thought because it seems to be working just fine, that’s what I pay the subcon for, or adopted the “aint’t broke, don’t fix it” mentality, etc., you might be guilty of complacency. Complacency kills: It kills growth, it kills innovation and it can kill companies just when everything seems at its best. If this is you, you might consider reading further.

Ask yourself the question “Why do the most successful companies have a presence in their subcons? Coming from that background I can give you a leg up with some of the important answers:

·         Ensure their company has a voice in the factory
·         Work directly with the factory floor mgmt face to face to improve Delivery, CT, Quality, Cost, etc.
·         Quickly address engineering/production issues on the floor, face to face
·         Give and receive real time feedback/immediate responses
·         Develop highly responsive relationships to support manufacturing goals; sprint capacity, cost down, heightened attention to manufacturing issues/ indices
·         Improve manufacturing to a level it becomes a competitive tool in growing market share
·         And they know “When management focuses on the problems, the problems go away”

I’m here to tell you bad things can and do happen when we’re not focused on manufacturing, maybe not today but if we’re not managing it well we will surely be bitten down the road at some time.

The big guys have come to understand how to get the most out of their manufacturing. That's partly how they became big.

Missing Deliveries

It’s never a good day at the office when you hear planned shipments are not coming out of your subcontractor. It could be:

·         die did not get launched into assembly when scheduled

·         your parts were pushed aside to run another customer’s product

·         or worse yet, a catastrophic issue that resulted in scrapping an entire run

The reasons don’t matter; your parts are not where you expected and needed them to be. One or two such events can wipe out a big part of your annual profit. 

The harsh reality - most companies wait for a catastrophic event to hit their subcontractors’ operations instead of proactively managing the situation. Can you afford the negative impact that subcon problems can cause you and your customers? Most companies cannot and you do have recourse to protect you interest.  

Large companies manage their outsourced manufacturing by having key people stationed strategically in Asia to manage their interests. Ideally, they should develop real-time working relationships with the subcontractors, and attend to daily hiccups and problems within the same day at the Subcon. Good approach, but a huge cash drain with all the extras thrown into the equation, costing $100’s of thousands of dollars per person each year.  

Another approach for companies looking for outsourced management that can be less costly when compared to sending in their own people offshore is utilizing in-country local talent. Some companies have had a modicum of success with this approach but usually it is not very successful. Primarily due to the difficulty locating individuals possessing the potential to grasp the company’s core values and culture, not to mention the capacity to understand Fab, Assembly and Test thoroughly. I am not saying it is impossible, but I know companies that have worked this approach for years without finding the right individual. 

Small companies cannot afford the large expense of foreign assignments or the time required finding local talent. In the mean time, they end up using in-house key resources that are pulled from critical projects to attend to the emergency problems and every day business. These people have to fly over to Asia to meet with the Subcons to solve problems, expedite your parts or negotiate with them face-to-face. This can take several weeks out of the year and can be very expensive. While this approach may solve one or two problems at a time, it is more of a fire-fighting approach. You are always working from behind, instead of proactively managing and improving your business. 

Semiconductor Management Services (SMS) companies like ours have an inside track on managing semicon manufacturing interests in Asia affordable to most any company doing business in Asia.

Why monitoring your subcontractor‘s performance makes smart business sense

When done correctly, it is an irrefutable fact that manufacturing your product in Asia is more profitable than having it manufactured anywhere else in the world. However, because of language, and cultural barriers and the great distance between the client and Asia, the number one problem companies experience with Asian subcontractors is inadequate governance which accounts for the vast majority of problems encountered between the customer and supplier. We have to manage our subcontractors as we would our own factories.

Outsource Management Pain Level Mitigation

How do you mitigate the pain level managing your subcontract manufacturing? I know what I do and I’d like to hear what you do.

Where’s my lot?  What happened to the yield?  What do you mean you built my parts without using the specs?  Why isn’t the supplier responding to my emails?  Why are we paying such high cost and what are our options?

Short story is, we have options-------While these problems can appear to be rather benign on the surface to the most casual observer, there can be catastrophic consequences if left unchecked. One of the most overlooked assets to any company’s outsourcing success is in their ability to react to and resolve issues quickly with their suppliers. Supplier relationships with suppliers play a big part in getting Quality product to market On Time with Competitive Prices.

In addition, companies who internalize the importance of developing and maintaining solid relationships with their suppliers have a much better success rate getting support when needed.

So what’s the best way of improving and maintaining solid supplier relationships? If you’ve ever tried to have a long distance relationship you can understand how distance can have ill effects maintaining solid relationships. It can be done, but by far it’s a minority success rate. Companies who can afford to stage folks near their suppliers typically have a greater success rate in their relationships than those who don’t or cannot afford the luxury.  If you are in the latter category of companies, OMS (Outsource Management Services) companies can help. A word of caution outsourcing your subcontractor management; make sure you select folks who have done it before, preferably on the ground near your suppliers and continue to do it today mitigating the pain level.

SOMC is an OMS (Outsource Management Services) company providing operations management for outsourced manufacturing in Asia. Our firm specializes in performance capability improvements, source selection, manufacturing project management, total subcontractor management, and maximizing manufacturing efficiencies improving customer costs. We are intentionally located in the heart of S.E. Asia principally to maximize benefit to our client by being where the action is. In addition, locating ourselves in the same time zone also gives us the unique ability to quickly recognize and begin resolving issues more quickly by not having the common barriers that exist being 8,000 miles away from your manufacturing.

Inexpensive Outsource Management

Management of your outsource manufacturing does not have to be an expensive proposition and companies can gain the competitve edge and avoid being out-manufactured without breaking the bank.

Large companies manage their outsourced manufacturing by having key people stationed strategically in Asia to manage their interests. Ideally, they should develop real-time working relationships with the subcontractors, and attend to daily hiccups and problems within the same day at the Subcontractors. Good approach, but a huge cash drain with all the extras thrown into the equation, costing $100’s of thousands of dollars per person each year.

Small companies cannot afford the large expense of foreign assignments or the time required finding local talent. In the mean time, they end up using in-house key resources that are pulled from critical projects to attend to the emergency problems and every day business. These people have to fly over to Asia to meet with the Subcons to solve problems, expedite your parts or negotiate with them face-to-face. This can take several weeks out of the year and can be very expensive. While this approach may solve one or two problems at a time, it is more of a fire-fighting approach. You are always working from behind, instead of proactively managing and improving your business.

SOMC is an inexpensive proposition for companies. Our business model was developed to keep manufacturing costs lean. This is why you came to Asia in the first place. How do we do this? Our overhead was designed to be an extremely low cost profile from inception and is primarily due to our efforts, not to carry the cost baggage normally associated with foreign assignments. This model gives our clients best cost possible based on local economies, but with seasoned senior executive level expertise and an acute understanding of the urgency of reacting to your requirements and business culture. Our business model truly sets SOMC apart and makes us unique, as you cannot find this high-level expertise, capable of adapting quickly, at a cost that does not put a drain on the bottom line.

Manufacturing is a Competitive Advantage – Why Should you Care?

Margins are ok, the factory and subcontractor are making deliveries to customers, and quality is acceptable, what is the big deal? There is no big deal until margins begin dwindling, deliveries start to miss, and quality starts lagging and affects re-orders and reputation.


If your company has a large percentage of new product delivery with high margins or your company has higher percentage of legacy products with nominal margins, you need to pay attention to your manufacturing operations and cost to be able to extend the life of your high margins and/or become more competitive in the legacy products.

You cannot survive the competition without a manufacturing advantage. Do you want to compete or dominate your market?

Making manufacturing a competitive advantage cannot be accomplished by visiting your virtual factory once a month, a quarter, or twice a year. This is not managing manufacturing; this is a visit to Asia. It can only be accomplished by managing your manufacturing operations on a daily basis. This is how successful companies get successful and stay successful. They develop outstanding working relationships with subcontractors, they get the best cost, delivery, and quality available, and they work closely with the subcontractors on yields, cycle time, and process improvements, etc., to continuously reduce cost. This is what SOMC does for its’ clients. We have done it before and we continue to do it today

Someone will always jump on a good product and discover ways of making it better and cheaper. Why leave your new technology to those not quick enough to develop it first, but are more competitive and certainly smart enough to know how to improve on it from a manufacturing cost, quality, and delivery standpoint? This is why smart companies understand how important manufacturing is to the company as a competitive advantage and SOMC can help you avoid being “out-manufactured”.

Henry Ford said, “Competition is the keen cutting edge of business, always shaving away at costs”. This is true; keep your margins high by continuous improvement in your manufacturing operations. Your customers will want good quality at cheaper prices. As your ASP’s erode, you will need to be ready with the absolute best manufacturing practices available to you. This is manufacturing as a Competitive Weapon.

“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large”, Henry Ford again. This literally translates to best cost, best delivery, and best quality. The best thing your company can do to get on top and stay on top is provide your customers with world-class service before they know they are not getting it from you.

SOMC can help you develop your competitive advantage and deliver performance to your customers.

Click on the SOMC logo to the right for more information;