Branding the service package is less important than defining it.

Electronics manufacturing services is both a commodity purchase and a strategic supplier relationship. Those two facets may seem at odds, but the reality is, within a given class of EMS provider, the equipment and processes are almost identical. However, customer requirements and the way teams are structured to meet those requirements may vary widely. In the realm of hard-to-source product, there is often more of a demand for strategic supplier than commodity supplier.

Ultimately, an EMS provider’s market or technology expertise and its track record of providing specific solutions are that company’s key point of competitive differentiation. In the absence of a clearly differentiated value proposition of this nature, outsourcing becomes a commodity purchase, and the decision is driven entirely by price because there is no perceived difference between competing suppliers.

From an OEM perspective, a commodity purchase driven by price may seem to be the most efficient option. The problem is most outsourcing relationships have cost structures and requirements far beyond the scope of the work outlined in the request for proposal. Selecting a company on unit price alone often results in unanticipated tradeoffs, such as extra charges, price variance after the first engineering change, or service or quality issues.

I was once asked, how could an OEM outsourcing team determine when an EMS provider could really deliver the level of service promised in marketing materials? The answer is, the best indicator will always be a track record with projects of similar size and scope.

While every EMS customer has unique requirements, often clusters of customers have common service needs. Defining service packages that address these clusters results in clearly identified core processes and deliverables for common customer needs. This makes it easier for outsourcing teams to analyze whether the service is likely to address their issues. It also makes it easier for the EMS provider to refine service packages over time and “up-sell” capabilities in customers not using an applicable service package.

Service packages may be an internally defined process with a specialized team or even a separate business unit. Examples of service packages found in the industry include:

• New product introduction support.
• Quickturn prototyping.
• Project launch or transition between facilities.
• Obsolescence management.
• RoHS conversion.
• High mix, variable demand production (which may be teamed with Lean processes, supply chain management and finished goods kanban).
• Design for cost reduction (either through component engineering or DfM/DfT).
• Teamed continuous improvement efforts (targeting quality improvements or eliminated non-value added processes at both customer and EMS facilities).
• Repair/refurbishment (which may include fulfillment support as well).

In some cases, Tier One EMS providers may have specific business units focused on lower volume or higher mix manufacturing. Prototyping and engineering services often make up a segregated or even standalone business unit, even at much smaller companies. In some cases, industry specialization or even service packages may include strategic alliance partners.

Ultimately, what makes a good service package isn’t the act of branding it. Instead, it is the act of defining it well enough that an OEM’s outsourcing team can understand whether the EMS provider can walk the talk. Case studies demonstrating how the specific process was used to help a customer achieve desired results are also valuable, particularly to customers with similar issues.

Value stream mapping efforts may uncover the best service package candidates in a company. However, it is also important to look at likely customer needs because, in some cases, the services needed to build a strong service package are present in a company, but not viewed as a continuous value chain.

One other driver for service packages that is becoming more visible is many long-term employees at EMS companies and OEMs are either retiring or leaving the industry. As they leave, so does much institutional knowledge. Less-experienced OEM sourcing teams benefit from the examples provided by a good service package. Newer EMS employees benefit from the structure provided by well-defined service packages. Longer term, segregating a business into well-defined service packages can help management determine which services generate highest value to the organization, either in terms of margin contribution or revenue growth.

There is no question every company is focusing on its bottom line. The better customer requirement clusters are understood, the more robust and value-rich the service package will be. This is a good investment for EMS providers and their customers, and long-term may become a key to survival, rather than simply a competitive edge.

Susan Mucha is  president of Powell-Mucha Consulting Inc.; (smucha@powell-muchaconsulting.com. Her new book, Find It. Book It. Grow It. A Robust Process for Account Acquisition in Electronics Manufacturing Services, is available through barnesandnoble.com, amazon.com, IPC and SMTA.