Managing Your ODM Partners

Since there is such a high number of a high tech/electronic and consumer product companies using an “outsource” model for manufacturing their products, what is the best method to manage those partners and minimize risks in your supply chain? While there is no right or wrong strategy on how a company manages their partners the decision depends on the philosophy of the company and the confidence of how your partner can perform. Certainly, as your company works with an ODM partner there is confidence level of predictable performance will be achieved, the more likely that your management will be more independent style relationship.

Typically, a company/ODM business relationship will start with a contract full of terms and conditions, metric requirements with penalties included in the contract for failure to achieve quality and product or delivery targets. Once there a solid working relationship, a contract over the years will transition into more of a guideline, available only to ensure that the contract terms and conditions and metrics are adhered to.

In my experience there are three styles in managing these partner relationships.

Tight Management:
Typically, at the beginning of a business relationship with a partner, a “tight” relationship constitutes daily communication of some type in addition to onsite presence of one or more of staff members. For example, in the aerospace industry direct oversight of an ODM partner in the production or design functions was quite common many years ago. The definition of daily communication would consist of a daily meeting with the partner to review attainment commitments in the factory in addition to other material, quality or engineering issues that could impede achievement to the build plan. These daily meetings would then integrate into more formal reviews with weekly scorecards with a dynamic list of action plans using the LEAN Manufacturing/Six Sigma strategy. The review meetings would then roll up to monthly and eventually to quarterly or semi- annual reviews with executive management. Other disciplines, like engineering will also mimic this style in managing the partner as well. The benefit of the “tight” management style is the ability to quickly identify and correct the delivery or quality issues in your supply chain. The challenge with a tight style is that it is resource intensive and expensive to maintain.

Oversight Management:
Your company has developed enough confidence in your ODM partner to oversee the performance of your partner. The tactical approach in this model is much less intensive usually without any daily communication, meetings or onsite oversight. There would typically be weekly scorecard reviews along with monthly meeting reviews however dynamic action plans with improvements may not a requirement but supplied only if needed. The formal reviews with the ODM partner would be limited to once a quarter. This strategy would also be used with other disciplines within your company. The advantage to your company is there are fewer resources needed to support the “oversight” model so less costly however correcting quality or supply issues could be longer depending on the ODM response.

Open Management:
Your company has developed high confidence in your ODM to deliver products while there is also little change to product’s design. In this model, relationships with your ODM are very casual, formal metric scorecards and meetings are held more infrequently, maybe once or twice a year. Formal reviews may be held only once a year with a contract renewal. Since the relationship is so well established, there are only a few resources in your company that are required to support the ODM relationship. The “open” model is the least responsive to issues in the supply chain however also the least costly to support.

Of the three strategies described, today the most widely deployed strategy is the “oversight” management style.