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Hands-Free Outsourcing Makes Its Debut

From Bluetooth to Wii to pilotless drones, “hands-free” operation is the wave of the future. Can management of the disaggregated supply chain also become hands-free for original equipment manufacturers?

“Concept-to-product” outsourcing helps OEMs avoid the process of managing and hand-holding multiple suppliers, thereby allowing them to focus on market priorities, like product conceptualization, developing the market for their products, incorporating customer feedback, and achieving better profit margins. The outsourcing partner carries out architectural study, design development, manufacturing, testing, post-sales support, and product life management.

However, would this hands-free approach come at a cost? That is quite possible. Any such delegation, if not done smartly, could lead to a roller coaster ride. An apt example is the widely acclaimed original design manufacturer (ODM) model. Although the ODM model minimizes the OEM's supply management efforts, it isn't always scalable, it lowers margins, and it results in the OEM losing rights to design IP.

Most ODMs don't take up low- to mid-volume customization projects, making it extremely difficult for OEMs to carry out small-scale customization. In most scenarios like this, I have started noticing the trend of OEMs switching to a concept-to-product outsourcing model, as it provides them the flexibility to develop multiple customized products from the same base product, since the IP belongs to the OEM.

Unlike the traditional supply chain models of ODM, concept-to-product outsourcing provides a platform for early-stage communication between the manufacturing team and design team as well as between the design team and the OEM's marketing team. Concept-to-product outsourcing incorporates a large number of best-practices from design outsourcing, which has a built-in mechanism called “Change Request Procedure” where the designs go through multiple rounds of iteration based on the customer's specifications. This not only enables the design team to provide sufficient product flexibility but also resolves manufacturing bottlenecks from the beginning, thereby lowering prototype failure and increasing production yield.

Today, with outsourcing suppliers transforming their offerings from a single chip to a holistic platform — well integrated with software stacks and intelligent algorithms — there is bound to be high demand for concept-to-product offerings. Will this new hands-free outsourcing truly transform outsourcing partners from a cost center to core business enablers for the OEMs?

I see OEMs wanting multiple customized solutions to be released to the market for product differentiation without incurring substantial cost, and hands-free outsourcing is the way to do it. What do you think?

6 comments on “Hands-Free Outsourcing Makes Its Debut

  1. Barbara Jorgensen
    June 1, 2011

    Excellent analysis and a good question raised. From what I've seen, I think outsourcing should be a very hands-on model. For better or worse, the brand owner (the OEM) bears the responsibility for the product's performance, it's service, support, repair and reputation–you name it. It may be worth noting that eventually in the ODM model the brand owners simply relinquished their designs and let the EMS sell the products. True, many of them were getting out of the business, but it's also possible the brand lost a lot of its cache when so much was turned over to a second and/or third party. I think the brand owner has to be very careful about being hands-off.

  2. FLYINGSCOT
    June 2, 2011

    We have outsourced some of our design work for many years now but never let the “family jewel” projects go outside for fear of losing our IP. We have seen too many engineers from contract design houses work on our projects then leave the contract design house to start their own companies. This is the number one issue for us. If we can overcome this the next thing I would worry about is how to differentiate one's products if “everything” is outsourced. We see this in many products these days where many supposedly “different” products are simply rebadged copies. ODM has its place but definitely not for everyone.

  3. Jim_DiBurro
    June 2, 2011

    I agree completely that there is tremendous value in engaging from “Concept through Production” particularly for early stage OEMs who have not yet built an internal staff. That said, there are not many examples of EMS providers having the full range of competencies required to adequately achieve the OEMs expectations.

    The model we've found that works best is one where independent best of breed design and manufacturing providers collaborate on behalf of the OEM, within a coordinated program management framework. Over time this approach leads to the creation of a Product Realization Ecosystem, which in essence is a virtual OEM working collaboratively on behalf of the brand owners requirements.

    The key to making this work is the program management, communication tools, and the complementarity of the partners in the ecosystem.

    -Jim DiBurro

    Round Rock Consulting  – The Leader in Product Realization Ecosystems

  4. terryl2
    June 3, 2011

    Hi,

    If you are looking to out source, my company has over 30 years in Product Development and I've spent about 15 years living in Asia, We also have office in the UK. I would be interested in talking with OEM's to help with their out Sourcing. You may contact me terryl@htidistributiongroup.com or 714-662-2298. Looking forward to hearing from any intersted parties, As I do believe In Hands Free Outsourcing this allows many companies as you've stated to work on developing more products for their market. Regards, Terr Levesque

  5. Prasad Bhatt
    June 13, 2011

    A ‘concept to product’ outsourcing model isn’t the same as the ODM model. Unlike the ODM model, the ‘concept to product’ outsourcing model allows the IP to remain with the customer. Further, today OEMs sign NDA and IPR protection with the service company as well as key architects and leads. This helps in non-proliferation and protection of IP. OEMs can pursue legal options against both the individual and company, if any violation.  With respect to engineers working on a project moving to different opportunities, service providers are increasingly taking great care about knowledge transfer and knowledge protection, hence people turnover is no longer a sweat when it comes to “IP protection”.

    There is no threat to product differentiation in a ‘concept to product’ outsourcing model, provided you choose the right service provider. The biggest source of product differentiation for OEM today is customer connect and market understanding which translates into product specs. This is the core part which still remains internal to the OEM in mature 'concept to product' outsourcing model.  A mature service provider offering this model would allow the IP to remain with the OEM, helping you sidestep the risk of eroding your product’s differentiation.

  6. _hm
    August 14, 2011

    How satisfied are customers for added hidden cost and lost time to market? How do customer mitigate these risks?

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