2005 Articles

Project launch is distinctly different from program management, and demands its own set of procedures.

The first months of any outsourced project carry unanticipated costs for both the OEM and the EMS provider. Some costs such as tooling and nonrecurring engineering (NRE) can be estimated during quoting, but other costs – such as time spent by OEM and EMS project teams related to unanticipated transition issues, travel, opportunity costs associated with delivery interruptions, unanticipated logistics costs associated with project transfer from the prior build site and general learning curve issues – can be much harder to estimate.

As a result, few EMS companies see profit in the first quarter of a new program and most OEMs see internal support costs rise during that time. While learning curve issues exist in even the best-run project transitions, these costs can be minimized when the OEM and EMS provider discuss likely areas of unanticipated costs and plan a detailed strategy to address them.

While some EMS providers treat project launch as an additional program management duty, others see it as a focused process which may involve specialized project personnel. Either way, project launch typically involves a series of activities that are distinct from the program management activities associated with sustaining production. Having distinct procedures for project launch helps ensure that a basic foundation is built for every program.

The role of sales is also an area of variation. Some EMS providers disengage salespeople once the project is won. Others maintain some level of salesperson involvement either in initial project transition or over the life of the program. Both methodologies have merit. A salesperson new to the EMS environment may have limited ability to contribute meaningfully to a project launch process. In addition, project launch activities can distract salespeople from other account development activities. However, early disengagement also has disadvantages. Disengaging sales early may create transition disconnects, where a customer either believes or tries to imply that promises made by sales are not being fulfilled by program management. Lack of sales involvement in project launch can also encourage “shallowness” in sales strategy, since poorly set expectations will ultimately be program management’s or operations’ problem. Failure to provide for an adequate transition from sales to the project team is a formula for disaster. Even when project team members are involved in final negotiations, if an element of the agreement is forgotten or mispriced, sales typically is blamed for giving the business away.

Handoffs checklist. The best way to avoid transition mistakes is to establish a formalized handoff process between sales and program management. At a minimum the following issues should be addressed:

• Credit analysis performed and documented.
• Validation of all manufacturing processing/pricing assumptions incorporated in final pricing.
• Identification of potential materials issues such as customer-supplied pricing and variations in volume from quote to forecast at business award.
• Documentation revision levels checked.
• NRE assumptions/pricing validated.
• Manufacturing agreement in negotiation and timeline established for final review and signatures.
• Program team introductions made to customer decision team.
• Copies of all quotes and key written communications with customer provided to program manager.
• Forecast in units and revenue based on the salesperson’s understanding of the program provided to program manager.
• Account Plan indicating key value propositions, potential issues/risks and long-term opportunities provided to program manager.

The manufacturing agreement can also represent an area of hidden cost control. Good manufacturing agreements address many of the issues associated with unanticipated costs. When contracts are negotiated in advance of production start, the EMS provider and OEM teams can develop a strong framework that governs areas which can contain significant learning curve cost. Areas to focus on include: engineering change order (ECO) approval and implementation, forecasting methodology, material liability, governing quality standards, liability for customer-consigned equipment and materials, payment terms, termination options, dispute resolution options and delivery requirements.

Points of focus for project launch plan. Key areas to focus on in a project launch plan include:

• Setup between accounting/finance departments. This can include validation of credit limits, agreeing on payment methods and terms, and ensuring the team is familiar with the customer’s packing slip and invoicing requirements.
• Team responsibility assignments. This includes defining team member roles at both the OEM and EMS provider. It should include definition of approval authority and appropriate communications channels.
• Finalized NRE charges. Many companies provide an estimate during quoting that is not defined clearly until the project team validates project scope and documentation. If NRE is amortized, both teams should understand where that cost is captured and how long it will be billed.
• Development of initial forecast. Forecasts need to factor in ramp schedule variations, absorption of existing inventory and needed project launch lead-times.
• Documentation verification. Often bidding is done from older documentation. Validate that the EMS provider has current documentation revisions and all necessary documentation.
• Manufacturing/test engineering. Consider issues associated with manufacturing process development, any needed assembly tooling/fixturing, NRE activities, test development, test fixturing and required test equipment/programming.
• Consigned equipment. This should include an understanding of logistics costs, which party has cost liability for preventative maintenance and insurance costs, and what technical support is required for equipment installation and operation.
• Program-specific training. Variation in contract terms, use of specialized equipment or processes, or requirements for special handling of product returns may drive a need for specialized internal training for program personnel.
• Risk identification. Potential risks include long-term creditworthiness of the customer, industry market conditions, security of high dollar inventory or potential scrap liability for high-dollar products.
• Confirmation of materials lead-time and pricing. Focus on validation of lead-time or pricing assumptions which were developed as a result of customer promises during the quoting. Areas of scrutiny include customer-provided material and customer-provided contract pricing assumptions.
• First-article approval. The OEM and EMS provider should agree on a defined process for first-article approval.
• Production ramp schedule. It is important to make adjustments in schedule as variations become apparent in the documentation, manufacturing process, demand and material availability assumptions validation process. Since these issues are often being coordinated independently by several people, there is potential for scheduling error.

If multinational manufacturing is involved, there should be a project launch component focused on addressing the customs classification process relative to duties/tariffs and any needed licensing/permits. Consigned equipment also requires closer scrutiny in offshore manufacturing scenarios from a logistics standpoint and insurance coverage. If the consigned equipment is financed, there may need to be lender approval prior to export to the offshore facility.

The EMS perspective. “Materials is a critical path in any project launch,” says Todd Baggett, EPIC Technologies’ executive director of business development, adding that key product launch activities also include validation of both documentation and forecasts. He points out that while ISO/TS 16949 quality standard provided a robust framework for product validation with automotive industry OEMs, companies in other industries did not always have robust processes for product validation of first articles.

Clear communication and detailed planning is also important in smooth launches, according to Baggett, who highlights the value of tools such as predefined meeting schedules, a detailed project launch Gantt chart and action item lists. “If it’s not documented somewhere, it probably won’t be happening on schedule.”

“It is important to have both the OEM and EMS provider teams involved in developing a launch plan,” says Elliot Shev, senior vice president of sales and marketing at SMS Technologies. Shev says a data integration strategy is very important. SMS Technologies also uses an NPI checklist.

SMS Technologies and EPIC Technologies use dedicated teams as part of the program management process and consider project launch activities to be part of each program manager’s duties.

Because a robust project launch saves money at both the EMS provider and OEM, it is often a key point of differentiation evaluated by OEM selection teams. As a result, an EMS provider investment in developing and documenting a strong project launch process provides dividends in terms of marketing benefit as well as measurable savings from elimination of non-value added activities. From the OEM perspective, the savings are realized not only in the actual dollars saved from eliminating non-value-added activities, but also from minimization of inventory required during project transition and eliminating the opportunity cost associated with unanticipated interruptions of product flow to end-markets.

Susan Mucha is president of Powell-Mucha Consulting Inc. (powell-muchaconsulting.com), an EMS consulting firm focused on training, branding and strategic planning; smucha@powell-muchaconsulting.com.