Posted on 05 Feb, 2015 by Neil Sharp
Does your company design, develop and sell amazing products? Do they incorporate the latest technology and are they shipped around the world into leading edge markets? If so, do you have a problem determining how much of your time to spend focussing on each of the activities associated with the supply and sale of your goods into these markets?
One of the biggest challenges Original Equipment Manufacturers (OEMs) face today is whether or not to outsource part, or all, of these processes to a Contract Electronics Manufacturer (CEM) or to retain in-house.
In order to support the decision making process, OEMs must first determine which activities within their business are ‘core’ and which are not. The purpose of this blog post is to challenge you on the activities associated with the design, manufacture and sale of electronic or electro-mechanical assemblies so you can determine how these fit into your overall strategy.
What really is a core business activity?
Many articles already exist debating the subject, however I feel Collins Dictionary neatly sums up the definition as ‘the business activity that is main source of a company's profits and success, usually the activity that the company was originally set up to carry out’.
So how does this apply to your own organisation? Well, before you can answer this you need to establish which top level activities are directly associated with the design, development and sale of electronic or electro-mechanical products. Broadly speaking I believe you can split these down into 6 areas, Research and Development (R&D), Procurement, Manufacturing, Test, Outbound Logistics, Sales and Marketing.
Let’s now take a look at each of these in a little more detail:
Are you looking to develop new products, or enhance the ones you already have out in the market? Do you have sufficient resource in your existing team and do they possess the skills you need to remain ahead of your competition? Would the outsourcing of this activity benefit your business or pose a threat to your existing, and future, Intellectual Property? Are you clear on why your customers choose your products over others available in the market – what’s important to them and how would a change in your R&D strategy impact them?
The successful management of your supply chain is critical in ensuring that your products are built and delivered on time, within budget and to the standards your customers have come to expect. It’s often said that 80% of the cost (and lead-time) of any electronic assembly is directly associated with the materials used within. Is it possible therefore to outsource the procurement of your materials to a third party and remain competitive? What additional savings could be realised through the devolving of this activity and where are your hidden costs? The question is not if this is an important activity to control - clearly it is - more so if you are adding value to your customers by carrying out the activity yourself.
If you are manufacturing your own electronic assemblies in-house I’m guessing this activity consumes the majority of your focus. The costs associated with manufacturing, ranging from the equipment you need available through to the staff required to produce your goods, will be significant - and likely the subject of on-going debate at monthly board meetings. However without high quality finished products to meet your customer demands, your business will cease to exist – so outsourcing this activity to a CEM provider is not a decision to be taken lightly.
Clearly different businesses respond in different ways when considering their approach to outsourcing. As an example, the likes of Apple and IBM have used CEM providers for many years – but it wasn’t until 2009 that Sony decided to adopt an outsourced solution for the manufacture of their television sets in order to achieve their business objectives. How critical is the manufacturing of your products in-house in order to achieve your business objectives whilst still satisfying the on-going demands of your customers?
Electronics giant Siemens once stated, “quality is when our customers come back and our products don’t”. Your customers expect the products they buy from you to work first time, straight out of the box. Any experience they have that goes against this utopia could be damaging to your reputation. Clearly there are varying levels of product testing and each electronic assembly will require a different approach. A simple ‘power up’ test to ensure the product switches on and off could arguably be outsourced straight away. If however, your products demand more complex test routines, utilising bespoke equipment, careful thought is required when considering outsourcing. For example; are you able to replicate the test equipment you have? and where within the manufacturing process is test required? Most importantly, how critical is it to your end customer that you retain complete control over this activity?
5.) Outbound Logistics
Whether you are shipping products locally, nationally or even worldwide, you rely on your infrastructure to get your products out to your market on-time, in full. With consumer habits continuing to change, it’s vital that organisations continue to offer a responsive service that is agile enough to keep up with constantly changing demands. Unfortunately it’s no longer acceptable to wait long periods of time for goods or services – we typically expect products to arrive almost instantaneously after confirming our order. So how agile is your manufacturing process? Can it handle the need for build-to-order or configure-to-order capabilities?
As part of the broadening of electronics manufacturing services (EMS) companies' remits, many of them now have processes and procedures in place to enable products to be built to an embryo level and then dynamically adapted to meet customers’ requirements. These services can also be key elements in OEMs make-or-buy decision processes. With regard to getting the tested, packaged products to your customers, unless you have your own transport to manage deliveries, you will probably already be outsourcing this function to a third party courier.
6.) Sales and Marketing
How much of your time and effort is being spent on sale and marketing activities? Hopefully the answer is the majority – if it’s not you need to question why. Without constant awareness of the market your products are sold into and the benefits they create you could well struggle to attract new customers – and the consequences of this are ‘far from ideal!’
Hopefully this blog post has posed more questions to you than it has answered. This was the intention as only you will know what is currently consuming the majority of your time and which costs require careful control within your organisation. You will also understand your market better than anyone else and why your customers continue to select you over those others around you.
Back in 1973, Peter Drucker stressed the importance of ‘customer orientation’ to the success of a company. He was quoted as saying that the purpose of a company is “to create a customer. Therefore the business has two — and only two — basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs.”
As an OEM it’s down to you to determine which activities within your business are continuing to cost you time and money and which will help you create more customers.
Image by: Melitron