How gluttonous OEMs are ruining an industry.

The fifth deadly sin in our series is that of Gluttony, which typically refers to eating too much food. Because most electronics manufacturers are not in the habit of eating printed circuit boards, how does that translate to outsourcing?

In contrast to the sins of Greed or Avarice, Gluttony focuses on the destructive consequences that occur when we consume blindly without appreciation. It’s the difference between a gourmet who savors and a gourmand who gobbles: The latter seeks quantity, not quality, piggishly exhausting resources and looking around for more. An OEM that believes in unlimited EMS manufacturing capacity, and jumps from one geography to another chasing penny savings in labor costs, is blind to the value of manufacturing. That OEM disregards the decades of tribal knowledge the EMS supplier has acquired, and the complexity of the skills required to build electronics.

Consider a child looking through a cardboard tube at a magnificent Gothic stained glass cathedral window. He might see one small blue piece of glass, or a green one, but it is impossible for him to see the whole triumphant scene. If he doesn’t like green, or that particular shade of blue, he will get bored and think stained glass is stupid, but is he qualified through experience or background to judge? The electronics outsourcing strategy now has a three-decade history. Some OEM operations managers have limited experience manufacturing electronics. Are they looking at the scene through a cardboard tube? Some have the attitude that “only losers are in manufacturing.” They treat EMS suppliers like we treat car rentals: The prevailing mentality is to run over the curb and slam on the brakes. Who cares? When an EMS supplier’s services are seen as an interchangeable commodity, reproducible easily in any geography, it’s not surprising that the quality of electronic products deteriorates.

Some of our firm’s leading indicators result from tracking electronics outsourcing programs that fail. The failure rate of products coming out of China is quite high, and many programs, especially among low-volume/high-mix products, have moved to other geographies, closer to the end-consumer. One reason for these failures is up to 30% of the components used in products manufactured in China are counterfeit, by some estimates. The problems are well documented. Is anyone worried that certain medical electronics are now manufactured in China? Many of these failures were woefully predictable: When the wrong type of program goes to the wrong geography, failure is virtually guaranteed. The outcome is as obvious as a car that won’t start because of a missing engine. And moving from one EMS supplier to another racks up astounding waste. Millions of dollars are spent chasing miniscule labor-cost savings. This waste is an example of the consequence of Gluttony, of mindless consumption of manufacturing services while constantly beating down suppliers on cost.

Since the economic crisis began, there are some who ask the question, Is American manufacturing coming back? As millions of service sector jobs evaporate, some long for the days when we made things. In the case of the electronics industry, the answer to the question of when manufacturing will return to US soil probably is “never.” To say the playing field today in the global marketplace is not level is a colossal understatement. It is not only unlevel, it is replete with mountains, canyons and valleys. The manufacturing geographies are coming to the market from a different socioeconomic worldview, and governments and citizens have different attitudes and objectives regarding manufacturing. Free market or not is irrelevant; conventional wisdom says we don’t want to manufacture anymore. It’s too 20th Century. This was made especially clear by a recent Kurt Andersen essay in Time:

“ ‘History doesn’t repeat itself, but it rhymes,’ Mark Twain is supposed to have said.  If the 21st century rhymed, China would be the new us – feverish with individual and national drive, manufacturer to the world, growing like crazy, bigger and much more populous than the reigning superpower. ... [But] Muscular industrialism gets you only so far.”

In other words, manufacturing is somehow lower on the evolutionary scale than other activities. The shift in manufacturing to Asia and other low labor-cost geographies may soon be viewed as one of the biggest transfers of wealth in history, not to mention the  tribal wisdom, engineering expertise and ability to leverage high-tech manufacturing for domestic purposes. We no longer have the political will or collective consciousness to maintain that capability, and unless something changes radically in our education system and culture, it is not likely to be revived.

But the upside of the current state of the EMS industry is that any OEM organization that operates with temperance and an appreciation of the complexity of the manufacturing process stands out like a shining beacon to the EMS community. Suppliers will rush to do business with these companies, and a little self-restraint will translate into loyal EMS suppliers that do everything in their power to help the OEM succeed. That’s the upside. It should be a viable incentive because a combination like that would be a powerful competitive differentiator.

Jennifer Read is cofounder of Charlie Barnhart and Associates (charliebarnhart.com); jennifer@charliebarnhart.com.