Minimizing Cost and Time in Offshore Sourcing
When developing an offshore strategy, key elements can make the difference between success and failure.
Audrey Soon, International Enterprise Singapore
Offshore outsourcing can provide a strong competitive edge or be a source of hidden costs. What drives the difference between the two is normally a combination of the experience of the OEM’s team and the quality of the offshore supply base. Singapore’s electronics manufacturing services (EMS) and precision engineering supply base have been effectively working at a distance for nearly three decades. Discussions with these suppliers have highlighted elements that should be carefully addressed in supplier selection and subsequent project launch.
Critical elements that can determine success or failure in achieving project goals include:
• Alignment of expectations
• Supplier engineering and a project management support infrastructure
• Cross-cultural communication and fit between teams
• Importance of forecast visibility
• Joint focus on process optimization and continuous improvement
Alignment of Expectations
Asian sourcing can offer significant unit price savings, but as with other low cost regions, there can be significant differences in the quality of processes in various suppliers. Companies primarily focused on price-competitive consumer products may lack support infrastructure, engage in unauthorized component substitution or be reluctant to invest in obtaining preferred medical industry quality certifications such as ISO 13485. This does not indicate that the supplier lacks commitment. Instead, it may be due to a lack of understanding of the differences in requirements driven by the more rigorous quality standards of the medical device industry. The end result can be a higher total project cost than if a supplier with better infrastructure and a slightly higher unit price had been selected at the start.
Thus, it is important for OEM selection teams to clearly define the project support and critical quality requirements and to look for suppliers with established track records in building medical devices. Suppliers that have systems aligned with the needs of medical device manufacturing will have recommendations for materials supplier selection based on the stated combination of customer requirements and a focus on avoiding unplanned accountability cost. In these scenarios, cost reduction is achieved through a combination of sourcing expertise and optimized processes, rather than through supplier or material recommendations driven primarily by cost.
Even the most seemingly simple components can create potential accountability cost risk. For example, at John While Springs (S) Pte Ltd., consultative selling often is the first step in reducing time to market while ensuring quality requirements are met.
“One of our key points of focus in new projects is developing an understanding what a customer actually needs in terms of application and critical dimensions versus what was specified by their designer. This is because good product designers may not be experts in spring design. We may suggest an alternative if the specified component is not adequate for the job, because a non-performing spring can translate to a non-performing product,” said Simon Payne, senior vice president of sales and marketing for the company.
“Customers who start the process by telling us the amount of force required and the way the spring will operate, but ask us to design the spring and recommend material, reduce design time by better aligning their design core competencies with ours,” he added.
Companies specializing in medical device support see value in better aligning with industry requirements. According to Payne, John While Springs has found it advantageous to set up specialized medical industry support infrastructure including a supplier consortium and an internal business unit exclusively focused on new product development for the medical and aerospace industries. Part of the driver for this specialization has been requests from customers to manage product assembly as well as provide specialized springs.
Rayco Technologies Pte Ltd. also puts a strong focus on understanding customer needs. A supplier of precision elastomer solutions, the company typically provides product design, material development and testing, tool design and fabrication as well as process validation. Product subassembly or full assembly operations also may be required.
“The key points we analyze are the customer's capacity requirements, intellectual property [IP] concerns, appropriate process controls, responsiveness needs and any industry-specific requirements or standards,” said Susan Ng, Rayco’s general manager.
Vertical integration is a part of Rayco’s strategy for minimizing product development time while meeting more rigorous customer requirements. The company has in-house tool design and toolmaking capabilities and an accredited internal laboratory to conduct needed tests, material development, failure modes and effects analysis as well as simulation of product.
Supplier Engineering and Project Management Support
The ability and willingness to support complex project transition is another area that can contribute significantly to reduction in both time to market and total project cost. Robust project launch processes typically include:
• Initial design review and recommendations for manufacturability/testability
• Identification of critical supply base issues in terms of capabilities, geographic location preferences
• Robust processes for documentation verification and efficient transfer of project data
• Willingness to support project transition with engineering and project management teams traveling to observe the project at the old build site
• Ability to support specialized customer needs for issues such as transition for Restriction of Hazardous Substances (RoHS) regulation or other country-specific regulatory requirements
Singapore EMS provider Nestronics uses a team approach in transitioning and launching new projects.
“Projects have both a new product introduction [NPI] manager and a program manager throughout the life of the project. The NPI manager oversees the technical portions of the program including project transition, engineering change orders and cost reduction, while the program manager oversees the commercial part of the program. The project team supports both the NPI manager and the program manager,” said Soon Ann Tee, Nestronics’ vice president, business development.
Tee added that focus was placed on rapid transfer of documentation into the material requirements planning system and production equipment. Surface mount technology programming and stencil design are done in-house, while stencil fabrication is outsourced. Initial design review recommendations typically include printed circuit board panelization and design for manufacturability/transferability. This early feedback to customers helps reduce processing cost and throughput time while improving quality and reliability.
There also is a strong focus on providing US-based support. Nestronics operates an office in Boston and typically fields an engineer at the customer’s site for two to four weeks during project transition. The engineer observes unique production and test processes and is trained by the customer. This customer-“certified” engineer then leads project-specific training at the offshore facility. For large-scale projects, a larger team may be sent to the customer’s facility to support the project’s transition.
Specialized support requirements also are addressed. The technical staff can advise customers on the European Union’s RoHS requirements, and third-party testing firms are available to support compliance.
Cross-Cultural Communication and Fit Between Teams
Speed and clarity of communication can have a huge impact on the time from a project’s launch to its completion. Besides the comfort factor of working with an efficient team, fit between teams can be critical for optimum problem resolution and elimination of redundant processes. When moving offshore, communications quality and robustness of internal communications processes are critical to an efficiently performing project. Most important, teams need shared frames of reference on project goals, quality standards and responsiveness. Regional infrastructure such as government-business partnerships focused on improving quality, workforce training or supply base synergy also plays a role in consistent quality of supply base and total cost structure, by building common frames of reference and providing incentives for investment in enhanced support infrastructure. Additionally, strong regional infrastructure can speed up the supplier evaluation process by making it easy to identify and network with clusters of qualified suppliers.
Precision processing is essential to ensuring high-quality springs. Photo courtesy of John While Springs.
Singapore suppliers often hub within the region, operating from a headquarters in Singapore with satellite facilities in low-cost labor markets such as China, Malaysia, Indonesia, Vietnam, Thailand and India. The benefit to OEMs tapping such suppliers is that projects can be sourced based on best regional cost, with a Singapore-based English-speaking program team managing the project. This arrangement taps suppliers’ regional expertise while operating from a country that has a compatible legal system with an emphasis on IP protection.
International Enterprise (IE) Singapore, an agency under Singapore’s Ministry of Trade and Industry, simplifies the process of OEM and supplier introductions. The agency organizes Singapore-based events and international delegation visits to encourage networking between suppliers in Singapore and global OEMs seeking to outsource work to them. OEMs can be matched to relevant Singapore suppliers through IE Singapore’s representatives, who are based in more than 30 locations worldwide, including New York, Los Angeles, Frankfurt and London.
International Enterprise Singapore also provides support for development of industry or product-specific supply base partnerships, which help ensure availability of a pool of critical component and materials suppliers. Such consortia can be formed under IE Singapore’s I-Partner program, which encourages companies to band together while abroad to complement their product offerings, enabling members to provide a one-stop manufacturing solution for services such as precision plastic injection molding, metal stamping, precision zinc die-cast components, tool making, component design and precision rubber fabrication.
Government support of infrastructure investment is not confined within Singapore. IE Singapore also offers Singapore-based suppliers an incentive program named the Overseas Marketing Office. This program provides a grant to reimburse companies for up to 12 months for a portion of the cost of establishing local presence in the markets they serve. John While Springs opened an office in December 2007 in Connecticut with two full-time employees and one part-time employee. The office staff can address customer issues in a US-based time zone and offer real-time and immediate local support.
Importance of Forecast Visibility
Forecast visibility is critical in any supplier relationship, but the “transit time” driven by the product pipeline from offshore manufacturing makes this element of the relationship even more important. The move from domestic to offshore manufacturing may change key component suppliers (or at least the region from which they supply the product). A good understanding of product demand will support a smooth transition. Key areas of focus in ensuring efficient materials procurement and production include:
• The OEM’s ability to provide both a good forecast and any additional information on historical demand trends so that suppliers may efficiently set up raw material ordering and stocking processes
• The OEM’s willingness to authorize long-lead-time items
• The supplier’s ability to cost-effectively manage a supply base to ensure critical material availability without significant amounts of excess inventory
• The supplier’s ability to provide its customers with good visibility into production status and finished goods
• Where appropriate, IT system linkage to facilitate rapid sharing of information
• Continuous focus on areas of improvement in supplier performance and logistics
According to Payne, John While Springs watches lead times carefully and maintains a warehouse of raw material. While this carries some risk because of metals pricing volatility, it ensures ready availability. Distributorship agreements are used, where appropriate, to reduce cost in raw material procurement. The company also focuses on selecting carriers with appropriate trade agreement knowledge for the end market to facilitate speedy delivery of finished goods.
Process Optimization and Continuous Improvement
As with virtually all industries, medical device manufacturers constantly are challenged to reduce costs. However, medical product qualification requirements often limit the traditional avenues of cost reduction such as product redesign or large-scale component substitution. Similarly, requirements such as medical device history recordkeeping, industry-specific quality standards and the fact that lives may depend on the end product limit the ability of OEMs to migrate to the lowest-cost “no frills” production facilities. Instead, medical device cost reduction often is driven by working smarter through process optimization or quality improvement efforts rather than by redesign or cutting corners in production.
Six Sigma and Lean manufacturing are well-understood and ingrained disciplines among companies in Singapore’s supply base. Cost-reduction efforts focus on all potential cost drivers including product development time, materials and/or manufacturing costs as well as the cost associated with the finished-goods inventory pipeline. Cost-reduction efforts typically start at project inception either in the quoting phase or during product development and continue throughout the life of the project. Typical areas of cost reduction focus include:
• Choosing soft tools when either product development cycle time goals or likely quantities dictate
• Optimizing tooling design to reduce fabrication or assembly costs
• Using assembly automation or custom fixturing to ensure repeatable, consistent quality
• Adopting Six Sigma methodologies to identify areas of potential process improvement in manufacturing or supply chain logistics strategy
• Using Lean manufacturing techniques to improve throughput in the supply chain and the manufacturing floor
• Redesign recommendations, as appropriate, within product qualification constraints
• Strong supplier/OEM teaming efforts in product development for future product generations
In some cases, continuous improvement focus is driven by customer request, but often the discipline already is part of the supplier’s internal quality culture.
For example, Nestronics uses a Lean Enterprise model that includes streamlined methods and processes, visual factory production status indicators and a focus on minimizing work in process.
According to Kenny Lee, marketing manager for Racer Technology Pte Ltd., his company uses Six Sigma techniques to identify potential improvements in tool design, process cycle time reduction and future-generation product functionality improvements. On mature programs, it may be conducting these efforts with its core suppliers to improve cycle times or gain further cost reduction.
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Reducing cost and time in offshore sourcing is a joint effort between OEMs and their suppliers. While an OEM does drive some of the process, the best total cost usually is achieved when OEMs and suppliers work together. For best results, OEMs should focus on identifying companies with established track records of supporting medical device manufacturing consistent with the proposed project’s size and scope. After the selection is made, the customer and its lead supplier should establish clear project goals and metrics. Especially for complex projects, tapping a mature supply base expertise typically will be far more cost effective than attempting to train an inexperienced supplier, despite the initial quoted price.