Electronics design and manufacturing, whether it’s for the consumer or business markets, is a complex, high-stakes game. Margins can be tight. With many costs increasing in this tough economic climate, it’s harder than ever to compete. Companies can turn to outsourcing as one solution, but is it a risky strategy?
Apparently simple items such as cables and interconnects often can require more time and effort than a company can afford to invest in them (Fig. 1). For example, the broad variety of regulations around the world can make ensuring your product can go on sale globally a daunting task, all while taking disproportionate and valuable design effort off the core project.
Compliance is just one challenge. There’s also design, testing, gaining approvals, and obtaining the raw materials as economically as possible. And chances are you’ll need many separate smaller parts to build even the connectors for your product (Fig. 2).
Connectors require many commodities such as screw machine parts, stamped and formed parts, injection molded parts, and die cast parts. With the injection molded parts, you can have dozens of types of plastic to choose from to solve a problem. Using the right kind of dielectrics inside is also extremely important, particularly when you’re talking about factors like voltage creepage and environmental sustainability.
So even when we’re only talking about interconnects and cable assemblies, a company like yours would need to maintain quite a team, all of whom would need to maintain their skills and knowledge of multinational standards and legislation. It’s a very expensive proposition.
Meanwhile, many integrated interconnect design and manufacturing houses have designers with constantly updated international knowledge at their fingertips, together with an established low-cost upstream supply chain. They can take the whole problem away: design, regulatory compliance, low-cost sourcing, testing, approvals, and other steps—and there’s only one part number at the end to manage and not 20, 30, or more. Complex data centers, for example, can take advantage of these houses (Fig. 3).
Fear Of Outsourcing
So if outsourcing can save time, effort, and money, why doesn’t every firm leap at the chance? Primarily, there seems to be a suspicion that if a company outsources a product, the contracted company will own the design. This could indeed lock the first company into a single-sourced mode that leaves it fearing it might not be getting the best competitive pricing.
Companies could allay those fears by buying the design from the contracted company, but that could prove prohibitively expensive. At the very least it would compromise the savings from outsourcing in the first place. Fortunately, there are alternatives.
Protecting Your Assets
You’re looking for a supplier that can provide design and manufacturing support plus, if possible, a pre-existing history of supplying at a good cost with good quality and on-time delivery. If you’re putting together a novel solution that will need more custom work, it’s best to engage two or three of your primary suppliers and ask them all to come up with a solution.
Since you have several potential providers, you can go into a pricing runoff and pick two of those firms to supply the product. It tends to be around a 70/30 percentage split, based on price. But before you engage in this competition, it’s essential to agree that all of the submittals become open property for you to use. This avoids the lock-in problem.
So, never rely on one supplier. Always rely on the suppliers that have served you well for price, quality, and delivery and can support you around the world if you intend to sell your product multinationally or globally.
But outsourcing still requires you to control your interests. You may be able to alleviate the need for a large team of technical people, but you will still need at least one commodity manager. This manager would have to be very bright and would certainly have to understand the interconnect space, if you’re outsourcing your interconnects, for example.
Such managers should be experts in the type of equipment used. They should be able to walk into a manufacturer and know whether it’s a good shop or a bad shop, along with the right questions to ask. Also, commodity managers need to be able to visit potential suppliers and know by examining the operation whether the products will be manufactured with high enough quality.
Ultimately, you would rely on this commodity manager to ensure that outsourcing doesn’t adversely affect the quality of your products. Just look at the trouble some mobile phone manufacturers have had with firms that have supplied batteries that have overheated and sometimes exploded to see the damage a poor outsourcing choice can bring.
Tried And Tested
The amount of expertise you can tap into via an outsourcing relationship is one of the key benefits. For example, separable connectors such as plugs and jacks need to be tested to see how they react over their lifetime (Fig. 4).
This involves measuring dozens of electrical and mechanical parameters before and after, say, 500 mating cycles. Also, mixed-flow gas testing is used to accelerate aging. A test lasting just 72 hours may aim to replicate the effects of 20 years in the field. Such compliance tests are very expensive and sometimes out of the reach of small firms.
Volex is embarking on a new fiber product that must meet an extensive body of standards. In fact, we’re looking at $50,000 just for the environmental qualification testing. This is affordable, because we’ll then take the product to market ourselves and sell it globally to many clients. A small firm or an OEM, though, would find it much more difficult to recoup such an investment.
As a global supplier with many clients, we have built up a bank of previously performed tests, which is another advantage for established companies. For custom work, we can use a process called “qualify by similarity” where it’s possible to remove tests on materials that have been previously tested, reducing testing costs. It’s possible to separate the unique aspects of the new connector and only test them. We have the benefit of doing that because we have tested a broad spectrum of connectors over many years for our customers all around the globe.
An Advantageous Process
Many companies worry that outsourcing will mean they lose control or fail to get the best prices, but our experience shows how it can be successful. Our customers often ask if we do our own stamping and forming or if we do our own die casting or plating, and the answer is no. Why would we want to do all of that? Why would we want to use that kind of continuous, revolving capital to support all of those processes?
There are hundreds of companies in stamping and forming, hundreds in plating, hundreds in machining, and hundreds in injection molding and die casting. I can select those that are going to give me the best prices and delivery. That leaves me free to put my money into the engineering and designing sides of the firm. It allows me to concentrate on my core business.
Just as outsourcing highly complex but ancillary items like cable assemblies and interconnects allows you to concentrate on your core competencies, doing so for their associated components accomplishes the same goals.
As long as you don’t get locked into one supplier and keep sufficient expertise in-house to manage the process, you can reduce your material costs as well as your technical employee costs, get expert help with your designs, and obtain access to a library of already performed tests that will help you gain global approvals and regulatory compliance.
These concepts are nothing new. Since the 1980s, OEMs have been divesting themselves of internal activities that do not fall into their core competencies. This concept, described as “going horizontal,” provides tremendous savings and allows the companies to focus their efforts where they will reap the most benefit.
Every company that hasn’t already moved in this direction should rigorously ask itself why it is still performing these non-core design and manufacturing tasks in-house!