“The top 10 mistakes companies make when outsourcing their semiconductor manufacturing to Asia.”

I. Ineffective Strategy and Plans
a. outsourcing before you’re really ready, i.e. fully developed strategic plans, corporate lacking an outsourcing strategy, i.e. what gets outsourced, where it gets outsourced, time line to execute, key drivers, associated cost, benefits to be realized, ROI

b. lacking knowledge involved in manufacturing product with a subcontractor, i.e. registering IP rights, tax considerations

c. holding unrealistic expectations, i.e. cost savings, subcontractor performance, delivery times, quality

d. having insufficient disaster-recovery plans and backup, i.e. if production shipments stop



II. Corporate Support Insufficient Relative to Staffing, Budget and Time Lines
a. not allocating sufficient time and resources to transition, i.e. accurate documentation, BOM’s, AVL’s, planning cycles, engineering support

b. insufficient/inadequate corporate staffing and skills to support the outsourcing project plan



III. Subcontractor Selection/Relationship Misfit
a. lacking knowledge to select the optimum subcontractor to support the manufacturing requirements, i.e. capabilities, unit cost and capacity of the subcontractor

b. not having a clear understanding of the nuances of the countries you plan to conduct business in, i.e. stability of government, weather, earthquakes, poor infrastructure, brown outs, unions

c. not making the appropriate choice between outsource and captive line, i.e. not knowing if your products would be better served in the subcontractor’s mainstream or is there benefit from a total captive line.

d. choosing a vendor for the wrong reason, i.e. narrow focus on cost only

e. not achieving a level of partnership with a subcontractor, i.e. a strategic and tactical

working relationship

f. lack of openness and flexibility, i.e. no hidden agendas



IV. Due Diligence for Prospective Subcontractor Not Performed Well
a. poor due diligence due to inexperience, i.e. accepting what is said and not looking at the details of what’s being done

b. how ready is the subcontractor for your business, i.e. top tier, bottom tier, competency, organization, ability to effect change

c. does the subcontractor have the ability to grow to meet your business needs, i.e. capacity, staffing, floor space, committed to spending for capital

d. is the quality sufficient to support your expectations



V. Contract/Administration – Lack of Attention To
a. accurately defining the scope of work the client will do and what the subcontractor will do

b. poor mutual understanding of the contract


VI. Inexperienced Staffing to Manage the Outsourcing Project
a. ineffective deployment of key contributors i.e. wrong person for the job, lacks manufacturing skills, lacks negotiation skills, lacks people skills, packaging skills

b. try to manage subcontractors on a part time basis

c. trying to manage too many subcontractors


VII. Transition Product/Software/Hardware – Poor Preparedness
a. not clearly defining the necessary steps and processes to effectively and efficiently transition product to Asia for manufacturing

b. loss of key talent creating poor knowledge transfer to the subcontractor


VIII. Management of the Subcontractor - Inadequate
a. inadequate governance, control, monitoring by management; if not managed properly, a company can lose visibility of performance and control of their manufacturing operations

b. subcontractor provides unsatisfactory performance results, i.e. cost, quality, CT

c. the gap between change making and implementation, i.e. clearly define, monitor and executed properly, subcontractor internalized

d. blaming outsourcing or the client for all the problems

e. providing unclear specifications is a sin

f. introducing too many scope changes is a recipe for disaster

g. poor operational and logistics planning, i.e. raw materials supplies and die availability

h. not creating sufficient visibility/reports of operational indices



IX. Poor Communication Between Corporate and the Subcontractor
a. difference in time zones adds difficulty

b. not having real-time communication when required

c. incomplete or inconsistent written report formats

d. language differences can create barriers or incomplete understanding between customer and subcontractor



X. Cultural Differences Not Recognized
a. lack of knowledge in dealing with different cultures and language barriers required to effectively manage the subcontractor for optimum results, i.e. different communication styles, attitudes towards conflict, approaches to completing tasks, decision-making styles, attitudes towards disclosure

b. thinking that the potential for a culture clash is not an issue breaks down the ability to accomplish objectives

Can Outsourcing the Management of Your Asian Manufacturing Operations Really Work?

Is it feasible? Let’s first start by looking at the options available for managing a Semiconductor subcontractor. Companies outsourcing the assembly, test, and finish processes in Asia can choose (1) to employ an ex-patriot at the supplier’s site, (2) build and manage their own factory in Asia, (3) rely on the subcontractor to provide the management service or, (4) choose an outsource management company.

The function of management, in and of itself, is to provide the Company a means to effectively and efficiently build, test and delivery product to their end customer. The specific roles of this management position are to insure their product is given the appropriate attention at the subcontractor’s site in getting it loaded in a timely fashion, insure die and raw materials are available, and insuring manufacturing executes to given specifications. When these tasks encounter problems, management steps in to resolve the issues. Additional responsibilities might also include the negotiation for lower pricing, overseeing new processes, monitoring the performance of product and package qualifications, the introduction of new subcontractors to handle capacity and or package mix, to name a few.

From above, the first option is to employ an ex-patriot at the supplier’s site, and many Companies follow this strategy. This benefits the Company by having their own employee on-site in Asia and has worked well for a lot of Companies over the years. However, there are downsides to this approach. Perhaps the most apparent is the associated costs in keeping an ex-patriot in Asia. Along with the employee’s basic salary and benefits package there are additional costs in travel, work permits, car and driver, housing, international schooling for youngsters, moving expenses, etc.

The second scenario entails the Company building and managing their own facility in Asia. This approach has been the standard for larger Semiconductor manufacturers since the 1960’s and to date, newer Companies have followed suit. It should be noted; most recent surveys conducted in the Semiconductor industry show a decline in this direction. The driving force for this swing in thinking is based on unutilized capacity when there is a downturn in the economy. Thus, today, most companies favor using subcontract manufacturers.

Third, there is the option of working directly with the subcontractor without the Company’s on-site management support. This puts the onus of burden on the subcontractor. If this situation suits the Company, and performance levels are being achieved by the subcontractor, there is no reason to change.

This brings us to outsourcing the management of the Company’s subcontractor to a third party. An experienced and cost effective outsource management company is capable of managing the Company’s subcontractor as well as the Company’s ex-pat employee and will be able to do so at much less the cost, and in many cases more efficiently than the ex-pat. The most predominate reasons for making this statement are familiarity with the assembly and test processes, the experience of living in Asia and in understanding the various cultures and language barriers, and in the knowledge and relationships with the subcontractors operating in Asia.

If due diligence is applied in the selection process of an outsource management company the results can be outstanding. That is to say, take the same steps as you would in hiring a company employee. Will the outsource management company meet the Company’s needs, do they have experience in dealing in Asia, dealing with subcontractors, can they effectively represent the Company, are they reputable, are they a lower cost solution? If the outsource management company is carefully screened in advance, this can become an extremely valuable asset to a Company – it is certainly a feasible cost effective solution.

For additional information on outsourcing manufacturing in Asia, visit our website at www.semiconoutsourcemgmtco.com.