Always ask how excess inventory is handled. Focus should be on “time-to-market” instead of “cost-to-market”. EMS company financial indicators are important. Quality not ranked as high as most think.
OEM new product introductions (NPI) can be considered more of an art than a science. With any piece of art the value it provides to viewers can vary widely, plus determining the value therein is a subjective process dependant on the people viewing it.
Like art, the NPI launch of new OEM products can also be considered a very subjective process, since there can be several different measurement methods of success when bringing new products to market.
The level of success of the OEM NPI product launch process can also vary widely by the process reviewer. However, once we apply objective methods that can be used by any OEM one can see this approach in coming to terms with ‘value’ can be repeated time after time to insure consistent, successful new OEM product launches. (See: Ineffective NPI time-to-market issues)
With the following objective approach, the most important element, and therefore decision process, to be made by the OEM relative to any NPI product launch becoming successful is the proper selection of the right NPI EMS provider.
If you look at the NPI launch process objectively, the following seven factors are essential when selecting the right NPI EMS provider. These seven success factors center around a “time-to-market” approach and getting the new product to market quickly compared to a “cost-to-market” approach which focuses on cost reductions or, getting cost out of the product.
Understanding the difference is important since getting the OEM product to the marketplace before competitors can reap OEMs huge financial rewards for the entire lifecycle of the product.
So, with that said, OEMs will find that the following prioritized time-to-market success factors are absolutely necessary in order for OEMs to executes successful NPI launches with EMS partners.
Financial health of EMS provider
Given the economic market climate over the last two years this is the most important element in choosing the right EMS providers for launching OEM NPI products. If the EMS provider is not financially sound the potential exists for him to significantly compromise any time-to-market advantage the OEM may be leveraging. (See more on EMS financial indicators)
For example, let’s say the EMS provider is purchasing material on behalf of the OEM (turnkey). The EMS provider must have the money to purchase the material. If he doesn’t, this will cause product to be delayed since he cannot build the OEM product without material.
If the EMS provider goes out of business this is obviously devastating to the OEM since all of the material supply chain and knowledge on how to build the product is lost and this is then very difficult to transfer to another EMS provider. Furthermore, all of this translates to a costly, precious loss of time-to-market for the OEM product launch.
OEMs should ask for quarterly financials before committing their business to an EMS provider or risk the loss of time in getting their product to market.
EMS provider proximity to OEM
Some OEMs try to do their product launches and NPI in production facilities that are far away in high-volume, low-cost regions such as Mexico and China. Given that these sites can be several time zones away and their processes are set-up around production build requirements, making engineering changes on the fly can be challenging. Additionally, the logistics of flying engineers to far away locations wastes both time and money.
OEM engineers typically prefer to do their NPI locally so that only short drives are required to be on-site inside the EMS provider to quickly resolve problems with their new products.
OEMs also get very concerned about their intellectual property (IP) when it is floating around low-cost countries several time zones away.
Since the OEM’s IP is the crown jewel of the company, OEMs want to maintain a tight hold on IP and they want it be local where they can keep their eye on it.
EMS provider flexibility, speed, focus
Flexibility, speed and focus are the three ingredients for success that are needed in North America to have successful product launches for NPI.
Typically, OEM products are not optimally designed fresh from the hands of OEM engineers. EMS providers unable to make engineering changes on the fly, or altering the design in the middle of building the product, will fall short thus causing the OEM product launch program to precious time as it tries to get to market.
EMS providers must be able to accommodate OEM product change requirements on a real-time basis. Being flexible coupled with speed to market and daily focus on the NPI OEM customer is essential to any NPI product launch.
EMS providers with a production mentality of having to cross t’s and dot i’s before they can make any progress with the OEM’s NPI product program take away momentum from getting the product to market with speed.
Quick EMS response and turnaround times
There’s a difference between EMS providers that say they can respond and turn executions quickly (and accurately) and EMS providers that can actually do so. Make sure you’re not just hearing words from the EMS provider.
Ask EMS companies to provide references from existing OEM customers they already serve. Check within the region, with other customers, and find out about the EMS provider’s reputation. OEM’s should stay clear if word is circulating it takes days to get return calls or there is no sense of urgency inside the provider.
High quality, consistently on-time deliveries
I suppose one would think quality would be higher on this prioritized list than being number five of seven. Although quality is extremely important, it is more important to deliver a product on time to the engineer who is designing it.
It is usually implied there will be engineering changes along the way to production and any imperfections can be resolved before the product goes into production — while the product is still being designed.
Once the product is ready to be introduced into the marketplace and the product goes into production, quality moves up higher on the prioritized list.
When selecting an EMS provider don’t rely on the bar charts and graphs posted in EMS conference rooms or on manufacturing floors. Talk to existing customers and check the marketplace for insight into the provider’s reputation for quality. This will tell you more than any bar chart.
Dedicated workforce, entrepreneurial culture
A dedicated workforce and entrepreneurial culture both say a lot about any company and its ability to sustain itself and thrive. If the EMS workforce is primarily comprised of temporary employees and there is high turnover this may only lead to headaches and instability within the EMS provider. Granted, a certain percentage of temporary EMS employees can also be a sign of flexibility – enabling providers to reduce costs when work slows down.
Meanwhile, an entrepreneurial culture typically comes straight from top executive management. While the OEM corporate environment usually lends itself to executives thinking in terms of weeks or perhaps day, the EMS corporate environment must push its people to think in terms of hours.
OEM material exposure and liability
Even though money spent on material and overall exposure is somewhat limited for NPI builds compared to sustained manufacturing production, how the EMS provider deals with excess material and overall material exposure is still important.
Some EMS providers often take their eye of this point of interest and purchase full reels of surface mount material when they only need a few parts from the reel. Sources exist in industry where EMS providers focusing on NPI work can obtain ‘cut’ reels if needed for their OEM NPI programs.
EMS providers should not over extend purchasing liberties when buying on behalf of the OEM.
Excess inventory is a liability to both the EMS provider and OEM. This exposure must be watched closely by both since the EMS provider will undoubtedly come back to the OEM looking for payment for exposed material left over.
If OEMs feel the EMS provider is not practicing proper procurement practices, OEMs should push back and refuse to pay for excess inventory. Doing so can affect the EMS – OEM relationship near- and long-term depending on how this is done.
When evaluating EMS providers, OEMs should always ask providers how excess inventory is handled. Once again, this is another area where OEMs should try to speak with existing customers and research the marketplace to better understand a particular EMS provider’s reputation.