Posted on 29 Oct, 2015 by Neil Sharp
Once the decision to outsource responsibility for your entire assembly operation to a contract electronics manufacturer (CEM) has been made, prior to making the physical transfer of the operation, you'll need a comprehensive plan in place. And, ideally, the close support of a CEM, who has been through this previously.
Much will depend on how much of your shop floor you intend to transfer. Outsourcing printed circuit board assembly (PCBA) is a well proven approach and may seem like a "low risk" strategy. However, even this can introduce complexities, which, if not planned for, can catch original equipment manufacturers (OEMs) out.
In some respects, the transfer of physical resources is made easier for those organisations that decide to outsource their entire manufacturing operation. A clear divide is drawn between the OEM and the CEM, with the assembly partner taking full responsibility for all elements. However, while clarity and ownership are achieved, complete outsourcing strategies require greater planning and execution.
Here are some points for consideration that you may find insightful.
1. Skills and expertise
Key elements of the knowledge and expertise required to build and test each of your products often reside in the heads of your people. This is one of the most important resources you have and, while arguably one of the most difficult to transfer, this knowledge needs to be implanted into the new supplier.
It’s a surprising fact that while your assembly documentation may contain build instructions and assembly diagrams etc, often the shop floor staff building the products will have evolved processes without necessarily reflecting these on paper. This "local" knowledge can be key to achieving the required build times and product quality and needs to be captured and incorporated into the EMS company’s manufacturing documentation.
Depending on a number of factors, your existing staff may need to be re-trained in other areas of your business. Learning new skills may feel daunting to some, particularly if they have worked on a particular process or product for many years. On the other hand, some staff may welcome the change and see it as a great opportunity to develop themselves further.
If existing staff cannot be redeployed within the business then unfortunately you may be faced with a redundancy or, in some instances, a TUPE situation. It’s therefore important that your HR team are involved from the outset. The business case for the decision should be made clear to all employees - and compassion provided to those involved in the process at every stage.
2. Plant and Equipment
When it comes to your existing plant and equipment you’ll need to decide piece-by-piece if it makes sense to dispose of it altogether, sell it on or look to transfer it across to your CEM.
If you are looking to subcontract complete processes out - for example, PCBA - and your CEM already has the assembly equipment they need, it makes sense for you to look to sell yours.
Before you start looking to third party suppliers that trade in second hand equipment, it’s worth going back to the original manufacturer of the equipment. Quite often they are interested in taking back their own branded machinery, as it gives them the opportunity to refurbish it and then sell it back into the marketplace with associated maintenance contracts and warranty agreements.
If you plan on retaining some parts of the build in-house - for example, final assembly - or are looking to phase in the supply of additional products within your range over time, then you may need to keep hold of some equipment, until the transfer is complete.
One area that often catches OEMs out is bespoke test equipment, which has been calibrated and runs a specific software variant. If you are looking for the CEM to test your product but plan to retain other products that share the same test in-house, if you only have one set of equipment, a second set will need commissioning.
One of the benefits of outsourcing is the reduction in raw material stock holding. However, if not planned correctly, it can leave OEMs with a warehouse full of redundant stock.
Talk through the options available to you with your CEM. Most will be happy to transfer key items across, providing they have been stored in accordance with manufacturers guidelines, are the correct revision (including bare PCBs, programmable items) and remain cost neutral - i.e. the unit cost they pay from you is the same as the price they would pay new through the supply chain. There may be some items - for example, fasteners or generic resistors/capacitors - that are simply not worth transferring over and for the relatively low value, are better off being disposed of early on.
Some OEMs get caught out by their existing supply chain "tail". Long-term forecasts and scheduled orders, along with "buffer stock" agreements, all need managing, to avoid future deliveries turning up long after production has been transferred across. While CEMs will be happy to review your supply agreements at the start of the project, they may not be as keen to do so once their own supply chain has been established.
If your expectations are that the CEM will take over your supply chain completely, we recommend drawing up a "deed of novation." This will document the terms of transferring your contractual obligations so that all three parties - you, your outsourcing partner and the material supplier - are aligned when it comes to new commitments and responsibilities.
To help ensure the physical elements of your assembly line are transferred appropriately it is suggested they are built into your project plan; with clear owners and timescales assigned. Once all areas are included you will find that some can happen straight away while others will be dependent on a number of previous actions taking place.
Be prepared for your project plan to evolve – it’s only natural that it will. However, the most important thing is you have one. Those responsible for completing specific actions also need to make sure they have the resources they need in place, with any potential gaps discussed and resolved. This should be done well in advance of any manufacturing moving over to the new EMS partner.
The good news is there is plenty of help and support out there. Some contract electronics manufacturers have been helping OEMs make the transition from an "in-house" to an outsourced manufacturing strategy for decades. So if you are a little unsure of how to get started, the sequencing of key events, or would like to discuss how certain elements of your plan will work, all you have to do is ask.
Image by Chiara Cremaschi