Monday, November 19, 2007

Managing compliance in an outsourced world


In light of well-publicized recent problems and product recalls, it’s evident that even the biggest and best OEMs can stumble in their offshoring attempts. Here are some pitfalls for which a processor should prepare. Outsourcing has been getting a lot of attention recently, almost all of it negative, with millions of dollars in product recalls and untold damage to some leading brand names. “Despite the significant benefits that come with outsourcing, there are also risks and challenges for OEMs to consider,” said Mark Holman, senior vice president of operations for Arena Solutions (Foster City, CA), a provider of on-demand product lifecycle management (PLM) programs for manufacturers. “Outsourcing, by definition, leads to a loss of control. Done properly however, outsourcing is a good strategy, but don’t confuse outsourcing with offshoring.” Arena recently published a white paper on potential pitfalls when outsourcing manufacturing.

The first pitfall to avoid involves selecting the wrong contract manufacturer (CM). But how do you identify the right CM? If a processor or OEM and a CM are separated by 10 time zones, it’s easy to lose control of standards and specifications. Plus, if the only criteria for outsourcing is to make products as cheaply as possible, it is easy to see how corners could be cut by CMs keen for new business, but interested in their own profit.

According to Holman, “Working with the wrong contract manufacturer is the root of many problems that we observe in outsourcing. An OEM selects a handful of contract manufacturers—or worse yet, a single CM—and starts discussing business without having a clear understanding of the appropriate selection criteria.” He says selecting the right CM has two key elements: first, select one that is in alignment with your needs, size, and stature. “We work primarily with mid-sized manufacturers. If some of these work with the very large CMs, they get lost in the machine,” Holman explains.

A little OEM won’t get the attention of a large CM, and a big OEM will overwhelm a small CM. Second, find a company that has the skills you need. Understand that their procurement policies should match your policies. “When you outsource you’d better put your ‘A’ team on the outsourcing project or you’ll lose your competence,” Holman cautions.