OEM-level offsite outsourcing: a new paradigm

Robert de Neve,
E Systems Technology, Mountain View, CA USA

For over 20 years, semiconductor original equipment manufacturers (OEMs) have outsourced the production of their equipment to offshore contract manufacturers (CMs) in an attempt to leverage the lower operating costs of the region and improve their proximity to their end user customers. As cost, communication, and logistics problems have increased, OEMs have been rethinking this strategy, however, and searching for alternative sourcing solutions. Add to this the increasing complexity of OEM products and concerns about intellectual property (IP) theft, and you have increasing demand for an entirely new approach to outsourcing; one that focuses on increased technical competency and IP protection.

What’s needed is a new approach to sourcing and a new type of OEM supplier, one that departs from the current model of CM-based offshore outsourcing to a new paradigm of OEM-level offsite outsourcing that integrates ALL of the above functions into a single, low cost, high quality "Made-in-the-USA" solution for OEMs in the semiconductor equipment industry. This new paradigm must include the following elements: OEM-level capability, IP protection, and product life-cycle protocols.

As new OEM products become more complex, the need for OEM suppliers to provide highly technical solutions increases considerably. Traditional CMs fall short when product management, critical component sourcing, and systems integration services are required. This is because CMs are service-based companies with little or no product development and management experience; the very capability today’s OEMs require from these suppliers.

OEMs wedded to the offshore approach to outsourcing battle a wide variety of competitive and IP-related problems. Having to send engineers out to the traditional CM to offset the supplier’s lack of product-based skills is a prime example. This has negative effects on the OEM in terms of lost opportunity cost when engineers spend more time on supplier development than product development back at the factory. The risk of spawning new competition, if the supplier is located in a region where patent and IP laws are weak or non-existent, increases considerably as the CM can now take their new found skills and launch a competitive company.

A new CM paradigm is clearly required. PLC-based manufacturing strives to solve the current problems faced by OEMs looking to keep IP safe, costs down and quality up as they build ever more complex systems. PLC manufacturing is next in a long line of production system paradigm shifts, from craft-based production in England, to mass production as pioneered by Henry Ford in the U.S., to the much vaunted lean manufacturing techniques developed by the Toyota Production System. The strength and value of PLC manufacturing allows the supplier to apply sourcing, engineering, and manufacturing solutions based on the status of the OEM’s product within the PLC. In other words, whether the OEM’s product is in the early life (pre-release), mid-life (released), or late life (post-release) phase of the life cycle, the PLC-based manufacturing system has an appropriate solution. Leveraging suppliers with OEM experience and PLC compatibility helps the OEM mitigate risk and maximize product performance.

The power of PLC manufacturing lies in its ability to adapt to the needs of the OEM and interface with the in-house product development and operating systems, while providing IP security and guaranteeing the OEM that cost, quality, delivery and support requirements are met. PLC manufacturing and OEM-capable suppliers are a new approach to contract manufacturing as defined by OEMs for OEMs.

Robert de Neve is president & CEO of E Systems Technology, 1305 Terra Bella Ave., Mountain View, CA 94043 USA; 650.961.0671 email  [email protected].

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