The Difference Between EMS and Outsourcing

01 October 2007

Susan Mucha

Susan Mucha says that outsourcing only works if the outsourcing process is robust – and the onus for this falls on the OEM, not the EMS.

Massive recalls of Chinese produced products in the U.S. have some questioning the value of outsourcing. Those of us familiar with the Electronics Manufacturing Services (EMS) understand that outsourcing per se isn’t the problem. Instead, it is really the robustness of the outsourcing process. The EMS industry and its OEM customers have built a robust process that has the needed checks and balances. While there may be indigenous electronics contract manufacturers in some low labour cost countries without strong process and quality controls, the industry as a whole offers a range of high quality choices.

The key concept to remember is that you get what you pay for. Cost reduction programs focused on reducing cost by mandatory annual percentages regardless of product maturity will eventually produce substandard product. Similarly, shopping on unit price alone will often result in selection of a sub-par supplier, particularly if the winning price is substantially below market. I’m reminded of one conference presentation I gave on outsourcing in China, where an audience member recounted a horrible experience with an indigenous Chinese contract manufacturer. He didn’t audit prior to selecting the company and it wasn’t ISO 9001 registered. It just had a great price. His final comment was that the industry should police itself, so that companies such as his wouldn’t fall prey to bad contractors. The reality is that total cost has a unit price and hidden costs. The smaller the unit price, the less funding available for the overhead needed to ensure robust processes and a full range of support.

So, what key points of differentiation make the EMS business model far different from the outsourcing models found in other industries?

Emphasis on third-party certification and formal continuous improvement methodologies.
ISO 9001:2000 registration is usually the minimum quality framework expected by customers. Industries such as medical, aerospace and automotive have additional industry-specific certification requirements. Many customers also look for evidence of formal focus on continuous improvement (as do ISO 9001 and ISO/TS16949). It is not unusual for even mid-tier EMS providers to have Lean manufacturing, Six Sigma, Lean Sigma, 5S or Toyota Production System (TPS) initiatives in place to improve quality and/or productivity. Formal systems and third-party audits help keep scrutiny on internal manufacturing practices at a level not found in the industries currently experiencing heavy recalls.

Program Management
The EMS industry’s program management model actually evolved from a model used in defense contracting, which focused shared production resources on a project basis. This focus helps ensure clear lines of communication, appropriate delegation of authority and central point of focus for each project. There is even an EMS industry-developed training and certification program for EMS Program Managers provided by IPC.

Industry-Standard Supply Base Management Practices
While there may be some variation by EMS provider and OEM industry focus, there are many common practices associated with supply base management. Most OEMs provide Approved Vendor Lists (AVL) which limit the supply base to vendors meeting certain quality standards. In lower cost labor regions, consumer products OEMs typically allow EMS providers some leeway in broadening the AVL on less critical parts, but there is far more accountability than in many other manufacturing subcontracting relationships. In more regulated electronics products, AVL changes must be qualified and approved. Quality frameworks such as ISO 9001 drive additional checks and balances, both in the way an EMS provider ensures quality through supply base management practices, and in the way assumptions related to product specifications are managed between the EMS provider and its customer.

Robust Manufacturing Process Control
The industry as a whole also gets high marks in process control. Tools such as Statistical Process Control (SPC) are used at key points in the factory. There is usually a robust process for design review, documentation control and Engineering Change Order (ECO) implementation. Many companies have robust traceability systems to support the requirements of the industries they serve. Quality and production status data is often available in real-time to customers through web-based portals.

Read the full stories behind the recalls of tyres, toys and pet food and you will see the root cause often ties to lack of the systems discussed above. Materials substitution, lack of verification of product conformity to specification and use of suppliers with minimal quality standards are the drivers of these recalls. If you work for an EMS provider with these systems, congratulate yourself for being part of high manufacturing standards. If you are an OEM who carefully evaluates total cost and selects suppliers who manage to offer both robust systems and a competitive cost structure, do likewise. But, if you work for a company who only focuses on the lowest unit price and avoids auditing your supply base to maintain plausible deniability of their methods for achieving your cost targets, start saving for the future now. It isn’t a matter of if your company will have an expensive recall, but simply a matter of when it will occur.

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