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Grants Pass, OR October 15, 2012 – ESAM Inc. announced the appointment of Lakeside Sales of Buffalo, MN as the company’s new independent sales representative for its Electronic Manufacturing Services in the states of Minnesota, Iowa, North Dakota, South Dakota and Western Wisconsin.

Julie Howard is the owner of Lakeside Sales. She has over 25 years’ experience in selling printed circuit boards and electronic manufacturing services in the Upper Midwest. In the PCB manufacturing area she has also worked with bare board and assembled board testing.

By Jim Anderson

Value – “the full and reliable satisfaction of customer requirements at the lowest total cost of acquisition, ownership and use” – as defined by Lou De Rose of De Rose & Associates, Inc.

A very common industry practice is to get three bids (the magic number) from approved sources and place the business with the lowest bidder. Another common practice, when considering new suppliers, is to ask for a “benchmark quote”, or the potential supplier may even suggest it. There are pitfalls with either of these examples. Both only take into account unit price which is only one factor in the total value you receive from a supplier.

Here are the 7 Pitfalls of Benchmark Pricing

1.  Focus just on unit price as the source of selection. (Unit price is only one cost of acquisition, ownership and use of the product or service you seek.)

2. Not investigating on-time-delivery. (Does the supplier you’re considering maintain records on OTD?)

3. Not investigating quality records and systems. (Does the supplier you’re considering maintain quality metrics? Will they share them with you? Do they have a certified quality system? How many people are in their QA organization? Do you have a system to determine what an episode of non-conformance costs?)

4. Not investigating their financial track record. (How stable are they? Have you pulled a D&B on them? How long have they been in business? How long has their management been in place?)

5. Not investigating their MRP system. (Do they have a robust MRP system in place? How long has it been in place? Is it used on a daily basis?)

6. Not investigating how they protect your documentation and revision level integrity. (Do they have a robust document control system? Will their system allow them to make un-documented changes? Will their system allow them to substitute parts or materials without approval? Do they have a systematic approach to Non-Disclosure Agreements? If ITAR regulations are involved, are they ITAR registered with the US State Department?)

7. Not investigating the handling of Non-Cancelable Non-Returnable and Minimum material buys at the very beginning of the relationship. (NCNR’s and Minimums are a fact of life when you outsource most assemblies or sub-assemblies. Does this supplier address them right from the start? Do they have a reasonable system for handling them?)

My suggestion is to set up a “scorecard” for these 7 “pitfalls” and create numerical assignments to each one. Start with the unit price. Then devise certain adders for the failure to perform in the other areas. You probably have this data or knowledge about your current suppliers.  Based on the response you have from the potential supplier under consideration, assign values to the same areas. Now you have a comparison that takes into account “the total cost of acquisition, ownership and use” – value. We’ve done one for you. See the offer below.

Cost savings is a major concern in any business. To assist you in evaluating cost and value, we have created SAVE©.

PROTECT YOUR IP WHEN YOU OUTSOURCE

By Jim Anderson

A major concern for many companies when they consider outsourcing the manufacturing of assemblies or devices they have developed or may be already manufacturing internally is the protection of the Intellectual Property (IP) they have invested in the development of their product. Here are some tips for you to consider for reducing your risk and protecting your investment.

1. The first step is standard due diligence on the outsource provider you’re considering. Things like how long have they been in business, how experienced are they in your product’s type of manufacturing, do they have a certified quality system, what is their delivery track record and how stable are they financially should be evaluated.

2. Are they receptive to Non-Disclosure agreements? In fact, are they really pro-active about these agreements?

3. Do they have an internal process for ensuring protection of information that is designated proprietary?

4. Are they involved in other market areas where equal caution is involved, such as government work covered by ITAR, and, if so, are they ITAR registered?

5. Are there any “company connections”, parent companies, subsidiaries, etc. where there could be a danger of your product being produced under a new name and then competing with you?

6. If you are going outside the USA to outsource your product, do you have an agreement that permits recourse in the United States legal system? Or, will you have to rely solely on the legal system where your product is produced?

7. Counterfeit parts and materials are a major concern today. Does the outsource provider take serious steps to prevent the use of counterfeits that could affect the performance of your product?

This is the initial newsletter in a series that will address issues and concerns with outsourcing.

Periodically we will be sending newsletters such as this that address assorted subjects connected with outsourcing to have product built or for engineering services. To receive these newsletters, click on the link below and insert the email address at which you would like to receive these newsletters.

To schedule a conversation or a meeting to discuss how ESAM protects your IP and ESAM’s other capabilities, contact one of our employees who handles your area listed below:

For AZ and  So. A, call Dianna Jones at 541-659-9162

For Parts of  No. CA, OR, WA and BC, call Chris Todd at 541-861-80

For  Parts of   No. CA, NV and UT, call Lane Lowe at 541-660-6145

For ID, call Erin Whitener at 208-550-1312

by Jim Anderson

There is only one sort of discipline, perfect discipline.  General George Smith Patton

Preventing undocumented design changes requires perfect discipline. If you outsource any part of your manufacturing process, this discipline must exist not only with you, but with your outsource provider as well. As an outsource provider, we have witnessed a lot of situations where undocumented changes have created serious problems for us and our customers. Depending on your end market, the effects can create serious damage to you and customers. In our tips in this newsletter, you’ll find some of the key areas for consideration.

6 Tips to Prevent Undocumented Design Changes

1. Your internal document control system is the first line of defense. A robust system coupled with extensive and repetitive training is essential.

2. Select an outsource supplier that has an equally robust system and an extensive, repetitive training program.

3. Do an analysis of where possible undocumented changes can occur and then add safety stops in your procedures to prevent them. In the rush to get a problem fixed, the documentation that covers the corrective action can get forgotten. If you use a local supplier where it’s easy to go and visit on a moment’s notice, make sure you have a process where any changes get documented on the spot. Likewise, if changes are being made by telephone, make sure you have a process to document that. While email can offer a “written trail” it’s important you have a process that requires a documented trail of any changes.

4. In some markets (Medical and A&D for example), even simple part changes can have serious impact. Today, there is a critical concern over counterfeit parts and materials. Make sure the outsource supplier you have selected has a procedure for protecting your product design from unwarranted changes caused by counterfeit parts or materials. (See our newsletter of October 2010 for some of the serious effects of undocumented changes.)

5. At ESAM we have adopted the “Copy Exact” process. I would suggest you consider adopting this process and training all of your people in it. Our customers in the capital equipment market demand this for any assemblies going into the semiconductor market.

6. Attention to revision level of both upper and lower levels of assemblies is another critical point in your process to prevent undocumented changes. If any revision levels do not match, questions need to be asked. Such questions should be addressed at the earliest possible stage, even when you are having quotations done. Your suppliers should be bringing any such discrepancies to your attention for immediate resolution.

A robust document control system, good repetitive training and good discipline are the keys to prevent undocumented changes for all parties involved in the manufacture and assembly of your products. Not only will this reduce your current costs for rework or replacement, it can help in preventing latent field failures.

In one of our earlier newsletters, we focused on the factors that enter into the value of products or services you receive from your suppliers. We recommended a scorecard that attaches a quantifying number to the assorted attributes that make up “value.” Document control is one of those attributes that can escalate your products cost in a more or less hidden fashion. That is included in the scorecard. See the link on our home page to get a copy of this scorecard – the SAVE^© Calculator.

By Jim Anderson

The test of the artist does not lie in the will with which he goes to work, but in the excellence of the work he produces. Thomas Aquinas

It’s important in your selection of suppliers that you understand their “testing philosophy” and how they use it to create value for you. Having been involved with manufacturing of assorted products over the years, I’ve witnessed many aspects of “in-process” testing and “final” testing. Since testing of any kind has a cost associated with it, there has to be a value in adding any test to a process. My present involvement is as a build-to-print manufacturer of wire/cable assemblies and harnesses and other electronic, electro-mechanical or electro-pneumatic sub-assemblies.

Here’s where we see the value of testing:

1. In-Process testing helps your supplier keep process steps within control limits.
2. In-process testing helps reduce costs by identifying problems at an early stage before more cost is added.
3. In-process testing improves the probability the product will work at the final test stage.
4. The tracking of any testing advances the quest for continuous improvement.
5. Testing verifies the design and manufacturing process is in compliance with the intended goals of the product.
6. Good testing practices prevent reworks at your site, or worse, recalls to your customers.
7. Testing by your suppliers is important to safeguarding your brand name.

Here’s what we recommend you do to insure you are getting the full value of “testing” from your suppliers:

1. At a minimum, get a full explanation of their test procedures. A site audit is the best method for insuring that what has been explained is actually in use.
2. Get a good understanding of the metrics they maintain as a result of testing and how they use them in running their business.
3. See how they apply the “rule of 10” in their business. Are they making the greatest testing investment at the earliest stage in the process?

The “Rule of 10” is the cost to find and repair a defect.

The part itself = X

At sub-assembly = 10X

At final assembly = 100X

At the dealer/distrbuton level = 1,000X

At the customer level = 10,000X

If dealers or distributors are not used that added cost is skipped.

By Jim Anderson

The Dilemma of Quoting Lead Time in Contract Manufacturing

As a “build-to-print” Contact Manufacturer, defining lead time when you are submitting a quotation presents a dilemma. The changes that have occurred over the last several years with respect to stocking policies at distributors and such has altered the way we present quotations to customers and prospects with respect to lead time. Distributors and reputable brokers no longer carry the inventory levels they did in past years. If components are in stock, you can generally have them in a day or so, depending on the delivery method you chose. Then all that’s left is the time for your vendor to manufacture your assemblies. However, between the time your vendor gets a lead time and actually places an order, the stock on hand may be gone. Now the lead time to get that component becomes what it takes to get that component from the manufacturer. Instead of overnight, it may now be many weeks.

Our company manufactures electronic assemblies that range from very simple wire assemblies to complex wire harnesses to complex electronic assemblies. They may range from only a few parts on the Bill of Materials (BoM) to hundreds of components. The components themselves may have varying lead times due to a broad range of circumstances. We use suppliers from all across the United States. Our estimators and buyers start work at 5 AM to work with east coast suppliers.

So, why do two of your vendors quote drastically different lead times? I think there are two basic reasons.

1. Vendor A will take the shortest lead times quoted by the assorted suppliers, add their manufacturing time to it and quote you that as lead time. What are the dangers to this strategy?

a. When you place the order with this vendor and he now goes back to buy the parts and finds the distributors stock is gone. If he cannot find another source, your lead time now gets pushed out to whatever it takes to get those parts from the original manufacturer, which for example, may now be 12 weeks instead of 4 weeks.

b. If you have promised your customer delivery based on the quote from this vendor, you now have to go back to that customer with the bad news.

2. At ESAM, we take the opposite position. We do our initial lead time quotation based on the component in your BoM with the longest lead time when it is not in stock and has to come from the original manufacturer. What are the advantages of this strategy?

a. We generally have the capability of pulling in that delivery if that is what you need.

b. We encourage the person we are quoting to come back to us immediately if they need a better delivery.

c. We will then go back to all the lead times on your BoM and make sure all the components fit inside the lead time we need for it to be on our dock, allowing us to meet your required delivery.

d. In this process, we’ll tell you if any items are at a low stock level and we’ll define the speed at which we need to make decisions to insure we get the parts to meet your delivery. This can mean you have to quickly place your purchase order, and within minutes we have to order the short supply items to firmly secure them.

e. Sometimes it is necessary to use more expensive shipping methods and even work our manufacturing on an overtime basis to meet a critical delivery. We have the flexibility to do that and we can define that for you at the time you are placing your order.

Supply chains today are different than a few years ago. The economy has forced many companies, large and small, to reduce inventory levels. We believe our customers deserve the most comprehensive and safest approach to defining lead times. Our systems and our processes do that.

By the way, On-Time-Delivery (O-T-D) is a metric we track internally. In addition, a number of our customers include this in a scorecard they keep on their suppliers. We have very good scores and are more than happy to discuss them with you.

3 Things you need to do to get an Accurate Delivery

With the recent changes in the supply chain, here are three things you can do to insure that you don’t disappoint your customer.

1. When you see dramatic differences in lead times between various vendors, treat it as a “red flag.”

2. Go back to each vendor and get a very clear definition of the quoted lead time.

3. Once you select your vendor, place your order and ask for a quick confirmation of the delivery. Realize your vendor must place their component orders quickly to insure your lead time.