Visiting ODMs on-site: Quanta, ASUSTEK, Compal, Wistron, MiTAC, Qisda…

By Joseph Wei

Typically, ODMs are not good at new product introduction (NPI) work. Supplier evaluations should be in place before meetings take place. Deciding on which functional groups meet is important. Travel to both China and Taiwan while bearing gifts can be expected.

In the first of my series of articles on contracting outsourcing of electronics manufacturing and product design, I discussed whether OEMs should choose an EMS provider or an ODM. This second article focuses on executive decision making after executives have decided to partner with an original design manufacturer (ODM) over an electronics manufacturing services (EMS) provider.

This business approach I put forth can be applied to any ODM out there and is not necessarily limited to leading ODM companies like Quanta Computer, ASUSTEK Computer, Compal Electronics, Wistron Corporation, Inventec…

When it comes to touring potential ODM partners, for small-sized companies outsourcing to ODMs, they may have to risk skipping on-site visits because of financial or resource constraints as many ODMs are based in Taiwan or China. However, for mid- to large-sized corporations partnering with ODMs, on-site visits are a critical element in the evaluation process and should not be overlooked.

In a contract manufacturing model working with electronics manufacturing services (EMS) providers, an OEM only has to evaluate and tour manufacturing sites, however, working with an ODM in which OEMs will yield some portion of product design and / or testing to the ODM, it is imperative to fully understand an ODM’s design and testing capabilities in addition to its manufacturing and logistics capabilities.

While actual on-site ODM visits may only take one to two days, on-site visits usually require a significant amount of resources in the planning and post visit (review) phases both for the OEM and ODM. Additionally, although on-site visits are carefully coordinated, they are by no means superficial or staged for ODMs to impress OEMs.

The main objective for ODM on-site visits is for both the OEM and the ODM to have a clear understanding of each other’s expectations. Since each OEM also has its own internal processes, it is unrealistic to expect the ODM to change (or create) its processes to match each one of its OEM customers.

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However, long-established ODMs (see Top 10 ODM list, below, ranked as of October 2009) each have very good processes they’ve developed over the years that allow them to work well with multiple OEM partners.

2008 Top 10 electronics design manufacturing (ODM) companies

  1. Quanta Computer Inc.
  2. ASUSTeK Computer Inc.*
  3. Compal Electronics Inc.
  4. Wistron Corp.
  5. Inventec Corp.
  6. High Tech Computer Corp
  7. Lite-On Technology Corp.
  8. MiTAC International Corp.
  9. Qisda Corporation
  10. Inventec Appliance Corp

Source: IDC

*ASUSTEK recently spun off its ODM groups as Pegatron (systems) and Unihan (handhelds). Unihan became a subsidiary of Pegatron in May, 2008 with the transfer of Unihan stock to Pegatron.  The three are still combined because ASUSTeK currently retains 100% ownership of Pegatron and Unihan and still operate in certain respects as a single company.

Due to the amount of effort involved executing on-site visits, there may be some resistance from people working for the OEM for a full, extended on-site visit or perhaps some people may assume their previous experience(s) with a similar ODM would apply. This is a dangerous misconception as an ODMs’ focus and market dynamics are constantly changing and deciding to skip a tour is a risk executives just should not take since the consequences of a failed ODM relationship can bring major damages to an OEM and even end one’s career.

Before the on-site visit
Prior to the on-site visit, the OEM should have a full product design and development supplier vendor evaluation survey completed. This survey should also help to establish the visit’s agenda. To simplify the process, the survey can allow the ODM to add or input any self assessment, in addition to the OEM’s own assessment of the ODM, following the on-site visit. Using an ODM’s self assessment, an OEM can better focus on the areas he needs to understand more thoroughly during the on-site visit. At a minimum, the supplier vendor evaluation survey should cover:

Design and manufacturing locations
OEMs should consider the proximity of the ODM’s design team(s) with the OEM’s own engineering team(s) for efficiency of communications and collaboration, the ODM manufacturing site’s ability to act as a virtual hub for the OEM, and the ODM’s ability to support services and return material authorization (RMA) for the OEM.

Design resources
OEMs should look for experience level, types of patents, IP ownership (see, also: “Playbook for patent competitive intelligence“) where joint development activity does not exist, and proprietary and standard software tools which includes software versions for file transfer (e.g., Gerber file for PCB).

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Product development
OEMs should check to see the ODM has a mature product development process with key checkpoints and that such processes include the ODM incorporating quality ‘into’ the development process.

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Quality assurance
OEMs should look for details concerning the types of test equipment, and the capabilities of the ODM group to develop test programs and fixtures to meet OEM requirements. Some ODMs also have self certification processes such as UL and EMC. OEMs should investigate the cost / benefits of having certifications done by ODMs internally compared to outside agencies.

Supply chain / procurement
While larger OEMs will have likely negotiated pricing on key components, and set up consignment with the ODM, OEM should also check for the ODM’s capabilities to procure these and other parts at better costs. OEM should pay close attention to forecasting and material commitment terms provided by ODM as there may be flexibility from the ODM to help manage demand variances verses forecast.

New product introduction (NPI)
This may be a challenge for some ODMs as many have moved to high-volume product lines. Since NPI typically involves smaller volume for initial builds, OEMs need to carefully understand the process any ODM might have for NPI in case of unexpected issues that inevitably always arise. This is because ODMs are motivated to finish NPI quickly in order to get the product line back to volume production levels.

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Manufacturing and production
In high-volume production, there is not much differentiation in terms of labor skills as long as the ODM provides adequate training for employees. Therefore, most concerns will dwindle down to the type of manufacturing and quality assurance equipment the ODM has in its facilities. OEMs should also evaluate the ODM’s corrective action or manufacturing alert processes once quality issues are discovered.

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in additional to shipment costs, OEMs should consider the proximity of major transportation options both from shipment out perspectives and also delivery in from suppliers. As more and more ODM factories are moving into inland China, OEMs need to consider the impact of different factors that may cause delay or disruption in logistics supply lines.

Service and support
OEMs should consider the cost / benefits of having ODMs provide full RMA and service support especially out of the same manufacturing site, as the ODM would already have stocking of spare parts and the trained labor to provide repair support.

Occupational health and safety
OEMs need to be aware employment rules and enforcement might be different in different countries the ODM operates in. For instance employment and union practices in China are different from those in western countries.

Similar to occupational health and safety, standards ODMs adhere differ from country to country. OEMs should look for an ODM’s own initiatives in meeting certain environmental standards in addition to requirements driven by their OEM customers since OEMs often times might not know of these standards or, operate out of the same countries as the ODM.

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What to expect
As mentioned earlier, on-site visits with ODMs are resource intensive. Many meetings will involve face-to-face discussions with either OEM functional group or lead managers and key members of ODM teams.

It is important to establish the on-site visit agenda beforehand so the ODM can have time to arrange access to the people from the appropriate groups to attend (design engineering; quality, program management, materials, manufacturing, and the service and support functions).

On-site visits also involve touring production lines which need to be carefully coordinated due potential OEM sensitivity with products under design and production for other OEM customers. OEMs should expect to see, discuss and review everything that is on the agreed agenda for the on-site visit, Additionally:

  • Expect to travel to both Taiwan and China, at a minimum, as major ODMs all now have established design teams in China as well as in Taiwan.
  • For the manufacturing site visit, required travel to other countries where ODMs have their regional manufacturing sites may also be necessary. Keep in mind, while the top ODMs each have ISO certifications, the processes and adherence to standards may differ from site to site. Therefore, its highly advisable to conduct on-site visits in ‘each’ location where products will be manufactured.
  • For engineering meetings, OEMs can anticipate ODMs will present their own lines of products they designed, along with general roadmaps for these and concept products.
  • Actual touring of engineering labs and production lines: depending on the locations and the ODM’s infrastructure, this tour should include, at a minimum, the mechanical department, the electrical department, the quality assurance department, the quality control department, production lines, shipping and logistics departments, and the repair and service departments.

What to look for
When meeting with ODM product managers who prepare concept products, product roadmaps and product specifications, OEMs should look carefully at the processes and methodologies ODM product managers use to keep up with the latest technologies and current market trends.

When touring ODM facilities, OEMs should look for any simple, careless deviation to any of the quality processes (e.g., condition of lab coats, ESD straps in place, clear marking of materials, barcodes vs. paper systems for tracking components…). Additionally:

  • OEM should also work to develop a clear understanding of how an ODM handles NPI since many ODMs do not have dedicated NPI production lines.
  • For OEM specific customization, OEMs should look for processes and procedures from the ODM on maintaining confidentiality of OEM IP.
  • Mistakes are un-avoidable. OEMs need to understand the process and timeframes when the ODM implements corrective actions.
  • For ODM products, most engineering change orders (ECO) are controlled by the ODM, while the OEM’s specific design is controlled by the OEM. An OEM needs to understand clearly how the ECO process works in this environment.
  • OEMs should evaluate the need for establishing global sourcing managers or local teams situated in the same region or locations as the ODM in order to help expedite collaboration between organizations.
  • OEM should also consider the ODM’s process for handling working hours during various holidays as some holidays in Asia have extended periods.

What not to do
Do not assume every design and manufacturing site for each ODM, even multiple facilities within the same ODM organization, are the same or similar. Additionally:

  • Do not skim over the evaluation survey and planning of the on-site visit, or add to / change the agenda once you arrive on-site.
  • Do not assume that the experience an OEM has from a previous company with the same ODM can carry over to the new company.
  • Do not assume a new manufacturing facility recently brought on-line will immediately yield better quality and lower cost products just because it contain brand new equipment since training and processes may still take time to catch up.
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Closing thoughts
It is customary for OEM-ODM team members to exchange gifts at the beginning of the relationship or during major milestones. Occasional, small gifts are acceptable. However, many ODMs have established guidelines as to the type and the monetary value of these gifts to help avoid potential conflicts of interest.

Contract signing ceremonies with photos taken and dinner with the highest level executives from both the OEM and ODM are quite common.

The highest level executives in ODM companies are usually quite stable, and they prefer long term relationships with their OEMs. Maintaining good executive relationships is important as ODMs often view the relationships as a long partnership rather than just a vendor / supplier relationship.

Share any thoughts below and check back soon.

In part three of this series, I discuss key items that should be included in OEM-ODM contract service agreements.

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