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Electronics Production | September 19, 2011

Risk Factor #2: Fewer resources at OEMs worldwide

In the first article of this series I wrote about the demand for continual, on-going price reductions during a time when costs are going up, not down. I explained that this demand on the part of the OEM consumer of EMS services is an irrational expectation that damages everyone even remotely involved with the transaction. Specifically, I said…
“Throughout the supply chain, each link has been stretched to the breaking point. Suppliers of everything from raw-materials to components to major sub-assemblies are pushing-back on both the EMS and ODM community with the result that entire end-market sectors are being abandoned or sold off by OEMs as they can no longer squeeze out a profit by squeezing their suppliers. The “outsourcing dividend” has long been spent. And those next even lower-cost geographies, far out over the horizon, are more pipe-dream than viable alternatives, as they lack the infrastructure, resources, capabilities and political stability to replace the current solutions.”

What I didn’t say was that I think the senior executive teams at OEMs worldwide already know all of this.

OEM top-level executives have been mining alternative sources of cost-reductions for some time. Squeezing every element of their enterprise in a futile attempt to preserve margin and thereby placate the obscenity called Wall Street. A bizarre new reality where securities analysts have become the arbiters of performance expectations, in spite of the fact that they produce nothing and at best have minimal insight into the real-world complexities of the electronics industry.

Pink slips are now the ticket to a better bottom line.

No element of business is sacrosanct; every job at every company is subject to being outsourced, except of course the senior management team. Design, IS/IT, Payroll, Human Resources, Manufacturing, Logistics, Finance, Customer Service, etcetera, etcetera, etcetera. All can be done by someone else at a lower cost, probably not with the same level of acumen or enthusiasm as an actual company employee but at a lower cost none the less.

Old news you say? Keep reading.

As incredible as it may seem – apparently – now it’s the folks who manage outsourcing programs that have been targeted for elimination. I say apparently because we here at CBA have noticed an expanding list of folks who have either vanished completely, or are part of a MUCH smaller organization. In some cases, an organization so truncated it would be inadequate to provide oversight and control of a program across the street much less on the other side of the planet. Yet, we still see midmarket OEMs implementing cross-hemispheric supply solutions with little more than a skeletal team of managers located many time zones away from where their products are manufactured.

An extremely risky, questionable approach that is incongruent with today’s reality.

I guess it boils down to the fact that when the executive management team decides that the number one (read: “sole”) focus of the outsourcing team is going to be price reduction (no matter which way the cost curve is trending) the only staff you really need is someone to say really loud and with great animosity, “I need it cheaper or I’ll go somewhere else!”

When you’ve laid-off or outsourced everything but the outsourcing team, what’s left?

Almost six years ago, I wrote…

“If you have never been involved with outsourcing, take it from me – outsourcing is hard work.

It doesn’t matter if you work for the buyer or seller, or are a supplier of parts or services – outsourcing is hard work. And in my humble opinion the people who make their living doing the work of outsourcing are some of the most dedicated yet least appreciated people in the electronics industry.”

Were these folks really underappreciated then (and now)? Since many of them have been laid off since I wrote that piece, it would appear so.

Perhaps it’s because the people who practice the craft of outsourcing have never shared with their bosses just how complicated and problematic the process they manage can be – probably because they were too busy trying to expedite product deliveries while simultaneously mitigating excess materials from the third product forecast change of the month. Forecasts they know will be obsolete before the issues they create can even be reconciled. Or maybe they didn’t say anything because they just knew no one would listen.

Ever hear a CEO telling securities analysts how they were going to build the next great commercial enterprise based on a fantastic new widget that would change everything, but would never actually be touched by anyone in the company? I hear that all the time on earnings calls, and see it in press releases designed to boost stock prices.

Guess what… these CEO dreams are only possible because there are hundreds if not hundreds of thousands of very hard working people out there building the products that the CEO thinks no one will ever touch. People both inside and outside the enterprise with the chutzpa to do the heavy lifting and fight the endless battles, people whose experience is measured by scars not patina, people who make it happen – everyday – not because someone tells them how much they’re appreciated but in spite of the fact that they’re ignored.

If you are one of the few remaining, we know you will keep marching on despite the lack of respect and support. If you are no longer in the craft but are reading this let us know, we’d love to hear from you and continue to be your voice!

All of you rock, and we know it.

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