Interview with defense EMS provider Sypris Electronics president Bob Sanders

VentureOutsource.com talked with Bob Sanders, president of aerospace and defense electronics contract manufacturer, Sypris Electronics. Transcripts from that discussion follow.

VO: The avionics and defense industries are among the fastest growing sectors in the electronics outsourcing marketplace. Can you please tell our readers what two primary challenges these industries present to an electronics contract manufacturing partner and what does Sypris Electronics do differently to address these challenges?

Sanders: Two major challenges are market cycles and product volumes and complexities.

First, let's break-down these two market segments (avionics and defense). Avionics (e.g., commercial, regional and private jets and general aviation) has two distinct elements: non-flight critical and flight-critical or International Traffic and Arms Regulations (ITAR) controlled items. Each component of this segment requires differing business models. Flight-critical and ITAR controlled items are typically more complex and require additional capabilities from the supply base.

Meanwhile, for simpler cards, a large base of qualified suppliers exists to support these efforts. Continuous pressures from OEMs (e.g., Boeing, Airbus, Embrear, Bombardier, Cessna, and Piper) tend to make these items a commodity.

Bob Sanders President Sypris Electronics

We're less inclined to go after commodity-level business because Sypris is positioned more in-line with value-add services including front-end collaborative engineering/design capabilities and, in the production areas, we are also shifting toward offering box-build and aftermarket logistics support. I'll add Sypris Electronics is AS-9100 and ISO: 9001 certified; thus, qualified to support these types of programs.

The commercial aerospace market is exhibiting the predicted growth following the 9/11 tragedies. The volumes are fairly stable, but significantly lower than those experienced by ‘commercial' EMS providers. We've been servicing the aerospace and defense (A&D) community, exclusively, for over 40 years and understand the challenges to support lower volume and highly-complex production programs.

Looking at defense, we typically face longer development cycle times; multiple design iterations and quote requests, and the risk of programs being cut from the Federal budget. Dynamic volumes and mix complexity are inherent in this market.

Meanwhile, industry consolidation has resulted in a handful of large, prime contractors controlling a majority of key programs. The same is true for EMS providers, as traditional ‘commercial' suppliers, now entering the A&D market attempting to apply their models to the segment.

As for differentiation, given our history, Sypris has a solid understanding of what it takes to comply with the necessary certifications and requirements on complex A&D programs. We continue to evolve as our customer base moves from a component-based supplier to a system-of-systems integrator. In addition to offering the value-added services indicated above we are also adept at rapid prototyping and NASA-8739 ‘space- level' manufacturing to support both our aerospace and defense customers.

VO: As America's defenses incorporate C41SR (Command, Control, Communications, Computer + Intelligence + Surveillance + Reconnaissance information) into more sophisticated war-fighting mechanisms, EMS providers serving primary defense contractors (primes) must be carefully evaluated. What top five criteria must a prime consider when evaluating an electronics contract manufacturing partner for defense work?

Sanders: The top five criteria when evaluating a potential outsource provider for A&D work includes: Capability - are the necessary resources (e.g., people, equipment) available? Experience - (e.g., certifications; qualified personnel, understanding of requirements, and historical performance. Value proposition - does the provider meet/exceed my objectives for value-added service; cost, quality and delivery? Risk - has the provider addressed my issues/concerns adequately? (e.g., obsolescence; capacity, capability, financial) Fit - can the two companies work together?

VO: What changes/trends do you see taking shape in avionics outsourcing within the next three to five years?

Mr. Sanders: The market will continue to drive toward an outsourcing model as evidenced by the ‘commercial' and ‘medical' markets. Primes will become more dependent on the additional services of the supply base and begin to transition earlier collaboration and development as well as aftermarket support to these suppliers. Providers that have a solid business model in place, and the experience to support these customers, will survive.

VO: If you could have a discussion with any one person (fictional, living, or dead) whom would you choose and why?

Sanders: Winston Churchill for discussions on leadership insight; public speaking, and handling difficult situations. He was one of the greatest political leaders of the twentieth century. However, years after his death, we can still carry his lessons from politics and government into business.

VO: Thank you, Bob.

Sanders: My pleasure. Thank you.

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