Posted on 06 Aug, 2015 by Neil Sharp
The request for quotation (RFQ) process plays a pivotal role in kick-starting an outsourcing relationship with your contract electronics manufacturer (CEM). It can be an effective tool in reducing a shortlist of providers down to the one that "fits" your needs the best.
But being clear with your outsourcing aspirations from the outset is vital – as a failure to communicate these during the process could risk you partnering with the wrong CEM. Preparation is everything and there is a lot to do and think about prior to sending out an RFQ.
Over time, outsourcing has progressed from a short or medium term operational need to a strategic approach. Increasingly, OEMs are challenging themselves on what business activities are really core to their future success. Manufacturing is often identified as an area that isn’t core - however, savvy OEMs aren’t stopping there. Frequently, closer consideration is given to functions both before and after the physical assembly process - such as design support, postponement manufacturing, outbound logistics, repair and rework services.
Prior to sending out any RFQ document, here are five questions to answer first, in order to get the very best from this critical exercise.
1. Who should be in the outsourcing team?
The size of outsourcing projects varies greatly. Some OEMs start by moving production of one or two products at a time; others quite literally shut down their manufacturing operation and move across everything associated with it - people, plant, stock etc. A lot depends on how quickly the OEM wants to see a return and how comfortable they are to relinquish different levels of control.
Regardless, it’s often a decision and process that involves more than one person and putting together the right project team will play an important part when it comes to preparing the RFQ. It’s recommended that you assign a project leader from the outset to set and track progress and provide a level of continuity throughout the project. From here you will need to determine which parts of your organisation could be impacted by the outsourcing decision and who is most suited to drive through change. Again, this will vary greatly on how far you plan to go, but it’s likely that you will need to initially involve senior staff from engineering, quality, operations, and finance.
2. What are we looking to achieve from outsourcing?
What are the strategic reasons for outsourcing? Have they been clearly defined and does everyone in the project team fully understand them? These may seem obvious questions but, if for any reason, there is ambiguity or doubt, the process of finding the right CEM provider could take much longer.
What does "success" look like and how long do you expect to be able to see a return from once you place the first orders with your subcontract partner? Draw up a list of commercial objectives for the project that you expect the CEM provider to achieve, paying attention to pricing, delivery and any other service requirements that maybe important to you – for example, turnaround time for field repairs.
Be realistic with your expectations. While outsourcing can bring significant benefits to your business and have a significant bottom line impact, it’s unlikely any CEM provider you work with will be able to half your visible unit cost. That said, it is important to have a clear plan on when you expect to see targets achieved. It’s recommended you work with your chosen provider to agree these during contract negotiation.
3. How will outsourcing affect us?
With the team in place and the objectives clear, start to brainstorm how the decision to outsource could impact each department. Identifying key areas across your company where the supplier will add value gives you a chance to outline these requirements at the RFQ stage to help find the right supplier.
What are the expectations of each department from any future assembly partner and, more importanty, their concerns? Does each team have the resource in place to achieve key milestones further along the project plan? For example, are all of the build packs for each product complete or will they require updating prior to being sent over to the CEM for tender? What are the timescales for doing this and who will be responsible for making this happen? Perhaps there are HR implications - for example, TUPE - that need discussing, should the size of your outsourcing opportunity be significant. How will these issues be resolved internally and does there look to be a natural critical path in terms of the next stages?
Again, much will vary with the complexity of your products and the timescales you are considering. That said, it’s better to highlight all the pros and cons during the very early stages so they can be crossed off one by one, rather than being added to further down the line.
4. What services and solutions are we looking for from a CEM?
There is a growing trend for contract manufacturers to take on more responsibility throughout the product lifecycle at both ends of the supply chain. Prior to sending out your RFQ, determine which assembly services you plan to use and which additional services you are likely to want to make use of. For instance, would you welcome input on design and innovation from a subcontract partner and is this critical to your decision making process? Will they be responsible for sourcing all of the components, or do you expect them to manage free issue items on your behalf? Would it make sense to use additional services, such as after sales support and direct shipping, or do you see this as relinquishing too much control? If it’s difficult to forecast your likely customer demand, you may require dynamic configure to order services, such that your EMS partner builds products up to an embryo level and assembles the final configuration once you have firm order call-offs.
Technical capability and assembly services offered can wildly differ between some CEM providers. While some may specialise in, say, printed circuit board assembly or panel wiring, others look to offer an end-to-end service offering. If you are only looking to outsource part of a product or process then your choice of UK contract manufacturers is great. If, however, you are looking for a partner than can offer you a more complete service, it’s important to be clear what you need so you can draw up a relevant shortlist of suppliers with demonstrable experience of delivering the specific services you require.
5. How do I establish a shortlist of contract electronics manufacturers
If you’ve answered all of the previous questions it should be relatively straightforward to produce an initial list of between eight and 10 suppliers. Online research will play an important part and will allow you to narrow down this list further by being more specific – for example, by size, location, service offering, manufacturing locations, accreditations etc.
In order to make the next stage more manageable, you should look to get down to the three or four potential partners that feel, on the surface at least, that they are a good match. From here a useful step before submitting your RFQ document is to distribute a simple request for information (RFI) document to these candidates. This pre-qualifying questionnaire allows you to "compare apples with apples" and the process shouldn’t be onerous for either party to complete. You may find that this quick step instantly reduces your shortlist again to one or two suppliers.
At this stage you will want to go and visit, and possibly audit, the contract manufacturers you are down to. Research and RFIs will help give an indication on whether the subcontract partner could deliver your outsource strategy, but now you should go and see them for yourself. By agreeing the project team and responsibilities early on you can, if appropriate, divide this task up. So, for example, your engineering and quality members can assess a supplier's technical capabilities and processes, while the purchasing and operations staff discuss supply chain and manufacturing requirements.
Following site visits, your outsourcing project team should meet soon after to compare thoughts while everything is still fresh in your mind. While a large proportion of your decision will be based on the facts gleaned from your research, gut feel and instinct from the team are equally important.
Writing the perfect RFQ for your outsourcing project may seem like a daunting task. However, to help make things more straightforward, the process should start long before you put pen to paper.
Collaborating with your peers, establishing your objectives and setting out the boundaries will prepare you well for the task ahead. That way you can be sure you have thought through every consequence, rallied the internal support you need and put in place the foundation for finding the perfect CEM provider.
Image by Duncan Hull