OEMs which work with contract manufacturers have to follow the old adage: trust but verify. We all carefully vet and work with prospective partners so we can know that we’re working with entities whom we can trust to perform to our expectations. In the case of the OEM and CM relationship a major piece of this trust is visibility and transparency on manufactured product quality.
However, it’s difficult for some OEMs to gain comprehensive insight into the manufacturing processes of their partners and dig into critical details such as SPC, Yield Failures, etc. Even the contract manufacturer might not have the capability to fully calculate the impact of quality on their own operations.
One method to handle this is through “Supplier Chargebacks”. This is a punitive process, which are monetary penalties charged by OEM Manufacturers back to Contract Manufacturers for non-conforming material or products. The charges can include not only the costs for the low-quality product, but also for:
- Eventual disassembly of the part
- Quality department handling
- Handling by the planner to get a new part
- Communications with the supplier – what shall be done with the part?
- Attention from engineers
Standard best practices from OEM’s now incorporate these metrics into a “scorecard” format which are given to the Contract Manufacturers as part of their Continuous Improvement initiatives in the supply chain.
A critical overriding metric in these scorecards are concepts such as “PPM (Parts Per Million) or “DPU (Defects Per Unit)”. This is a threshold number which the OEM sets on incoming defective units into their facilities. For example a score of 50PPM would mean that the CM would have to provide less than 50 units which have failed out of 1 million.
A more proactive versus punitive method of handling such PPM or scorecard processes, would be to have the CM understand the quality of their product before shipping even begins. Such methodologies as SPC or RealTime SPC would give the CM that edge to win on the metric. A collaborative process such as this could well save both the OEM AND CM money, time and resources.