Contract Management
Risk management - sharing the burden
In an increasingly competitive global market, where OEMs face ever-shortening time to market pressures, it is no surprise that many now seek to transfer ever greater proportions of their risk management burdens to CEMs. David Davies details his experience of this rising trend and explores how it influences Axiom's own customer offering
David Davies T
oday the globalisation of the electronics industry places increasing burdens on OEMs, and by default, their CEMs. While the elimination of trade barriers has created an exponential consumer and corporate customer base, it has also resulted in an exponential increase in risks faced by OEMs.
Entering new markets, with their unique industry standards and regulations, can play untold havoc with product lines, and by extension, their supply chains, suppliers and vendor networks. The need for product innovation has never been more important, global competition has never been greater, and all the while product lifecycles continue to shrink. The pricing pressure faced by OEMs is immense and the balancing act between quality and manufacturing cost has become and industry-wide phenomenon. In a world where it is too easy for an OEM to become cost focused rather than quality focused, CEMs are relied on to guarantee the time to market on a quality product; and this means they inherit the risk.
As time to market becomes ever more 34 October 2014
critical, long-range planning and demand forecasts are losing their ability to guide OEMs. The need to develop a product and move on to the next generation is paramount. This has led many to choose outsourcing to CEMs as a means to keep the focus on product development. But, this reliance on third party manufactures is itself a risk as they become reliant on the strength of a CEM's supply chain, procurement and forecasting strengths. We now have a situation where the focus of many OEMs is now unquestionably based on predicting the products customers want and when they want them, and not, the products their manufacturers can develop and the timeframes they can meet. Speed of development and time to market is everything. Helping an OEM to meet this is now the responsibility of the CEM. Time to market aside, inevitably, the next key factor in an OEM's decision to outsource manufacturing is to minimise product spend, while simultaneously reducing and distributing risk throughout the supply chain. The pressure is high, but CEMs cannot adopt a 'woe is me' attitude, we (and particular we in the UK) must embrace this challenge as our opportunity to demonstrate our ability to manage risk through supply chains that rival those of global rivals.
Prior to the financial downturn global
outsourcing became the preferred option for many seeking to offload the pressures of product lifecycles, component obsolescence and the increasing need for retooling; overwhelmingly OEMs sought to lower their manufacturing costs. However, that was not without risks; the flip side when choosing an offshore CEM is often increased supply chain length, exposure to longer lead times and decreased control with regards to procurement and IP security. This was the case with Raspberry Pi, who cited concerns over quality, security
Components in Electronics
and logistics as key factors in their decision to move manufacturing back to the UK as a means to mitigate risk. At Axiom, we realise that the
introduction of a CEM partner can be a daunting process as the benefits of offloading risk also requires OEMs to relinquish some control over their network of suppliers. We also understand the necessity to demonstrate our commitment and ability to assume that burden and guarantee our supply chains if we are to win that business. There are plenty of challenges, for example, many customers will want to retain an ability to dictate which suppliers are used for their product. In this scenario inventory ownership can all too easily become ambiguous, as we are tasked with utilising customer specified components, in addition to selecting and sourcing through our own trusted suppliers. Yet, ultimately the burden of that risk remains with us. As a CEM, mitigating these risks relies on our adoption of lean manufacturing processes, the strength of our own design and test capabilities and an unwavering focus on 'end-to-end' visibility. The greatest risk for any CEM, indeed any manufacturer, is financial. As a contract manufacture we are obligated to assume the procurement and inventory costs until delivery of the final unit. In an industry where OEMs are realising the need to measure production by total cost of acquisition, as a UK based CEM, our ability to win business and deliver is founded on the strength of our procurement, supply chain and testing capabilities.
Inventory costs, managing component obsolescence, ensuring the availability and suitability of components are all risk factors that we as a CEM must manage for our customers before assembly can begin. If a component is defective, the burden is placed on us the CEM to identify and resolve the issue to meet the time to market deadline.
Supply chains must be kept as agile and lean as possible because competition from the Asian and Eastern European markets do not allow for extraneous costs. Our strength lies in lean processes, scrutinising where waste can be cut in the manufacture and delivery of the product. Guarding against supply interruptions requires shortened information lead times to ensure optimum inventory levels. Longer lead times require higher inventory buffer levels. By contrast,
accelerating information lead-times can significantly reduce inventory levels and increase inventory turns. However, competitive cost and time reductions can only be guaranteed if CEMs take a role in the product design itself. For Axiom, offering full-service design
and production is a necessity. As a CEM working with customers to produce high IP, low to medium volume products, the burden guaranteeing a product's time to market is ours. For this reason, in addition to guaranteeing the quality, longevity and security of our supply chain; we must also ensure that when assembled, a product adds up to more than the sum of its parts, it has to work, it has to be tested, and this depends on the quality of its design. While product IP must always remain with our customer, providing a design for manufacture process is essential if we are to mitigate risk. The responsibility of managing a customer's risk means assuring that their products will reach the market safely, reliably and fully-tested. Working closely with our customers to develop a thorough understanding of past quality issues aids our ability to identify and prevent potential design problems when developing new and innovative products. This involvement, ideally at the prototyping phase, allows us to mitigate risk by designing out potentially problematic features before we enter full scale production. Sharing the responsibility to detect potential problems early is ultimately the most effective way to reduce risk, keep costs down and improve the overall quality and reliability of our customer's products. Reliability requires investment, which is why Axiom continually updates and expands its own test capabilities.
As a UK CEM working in the high tech,
high IP, low-to-medium volume sector; our ability to take on and mitigate risk risks for our clients isn't a cross to bear, it is the core of our service offering. We specialise in ensuring the most secure, optimised and tested supply chains in the world; we guarantee the efficient time to market of a fully tested product. These are not generic sales terms, they are commitments we make to clients who need more that an outsource assembler.
Axiom Manufacturing Services |
www.axiom-ms.com
David Davies is Managing Director of Axiom Manufacturing Services
www.cieonline.co.uk
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