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?