The supply chain is getting deeper and more sophisticated for electronics OEM’s, but I’m not sure that the transparency is improving in either direction.  Most OEM’s are still unwilling to truly share roadmaps and plans with outsourced partners, due to concerns that vendors might use the information “against them”.  Most companies still don’t trust outsourced vendors the way they trust internal employees, which is ironic since these vendor-customer relationships tend to last over five years while the average employee retention is less than four.

Outsourced vendors are often afraid to be transparent – whether it is about their part quality, about their profit margins, about their capacity, or about their own roadmap.  Contract manufacturers, for instance, have often been treated as an easily replaced commodity, which has led them to focus on low prices – often with hidden or unintended sacrifices in quality.  From a CM perspective, what the OEM’s want is impossible – the lowest prices and full transparency with perfect quality.  Although OEM’s say that they want everything, most vendors believe that price is paramount.  Due to the pricing pressures, there are often bad business decisions made which impact quality, lead times, or communication.

As Edward Marshall said, “Speed happens when people…truly trust each other.”  And the electronics industry is all about time to market and deeper supply chains.  Those companies who figure out how to trust their suppliers (and vice versa) will have a competitive advantage.  Tom Peters, well-known business consultant, put it best when he said that “Trust is the issue of the decade.”

But trust, like quality, can be hard to quantify.  As such, it can be difficult to make financial decisions around trust and quality.  For example, one CM has bid a price of $100 per unit, but they have had quality issues, and we’re not sure how much we trust them.  The other firm, that we trust to deliver high quality on-time, has a price of $150 per unit.  Who should we pick?  How do we quantify the “trust premium” and the “quality premium”?  Stephen Covey, in his book “The Speed of Trust”, tries to answer this question in detail.  But he starts with a bottom-line, quantifiable formula involving trust:

When trust goes down, execution is slower and cost goes up.
When trust goes up, execution is faster and cost goes down.

I believe software technology can only solve some of the issues.  Technology can’t solve the problem of getting OEM’s and CM’s to agree to a transparency mindset.  Once they have that mindset, though, software technology can enable them to communicate faster, with more transparency, letting them find quality issues sooner and solve them faster.

Sincerely,

Patrick Kelly, CEO IntraStage