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.

Minimize Your Supply Chain Risks: Another Idea

Now that we have explored risks utilizing an Asian Supply Chain can your company support a conservative supply chain strategy which would provide most protection to risks in your supply chain? Let’s explore if a regional or near shore supply chain strategy can be utilized as a model in your supply chain.

Regional Domestic Supply Chain would be defined as having your key components, sub assemblies or assemblies manufactured or supplied in the same region as your factory or distribution points to support your customer base. For example, if your business was located in the United States, the majority of your critical supply base would also be located in the United States. As an example, you could have a blended approach with key manufacturing operations that contain “intellectual property” within your company’s factory network while other key components and assemblies which support the factory provided by a network of regional supply chain suppliers.

The key driver in a regional supply chain would be the ability to provide a much shorter recovery period to a disrupted supply chain typically in days vs. weeks based on deliveries anywhere in the region with minimal transportation uplift costs. However, a determining factor in all likelihood is can your company financially support a regional supply chain model to offset the minimized risks?

Near Shore Supply Chain would be defined as having your key components, sub assemblies or assemblies manufactured or supplied in same continent as your factory or distribution points to support your customer base. For example, if your business was located in the United States, the majority of your supply base, factory or suppliers could be located in Mexico. Mexico is certainly a “low” cost supply chain solution maybe not quite as financially attractive as an Asian supply chain however a near shore supply chain would be able offer better recovery times for a disrupted supply chain. Again recovery for a disrupted supply chain flow could be days vs. weeks. A near shore supply chain strategy used in combination of a regional supply chain strategy could offer an attractive cost benefit while minimizing your supply chain risks. In any case, a Near Shore or Regional Supply Chain or a combination of the two should be a key consideration in designing a supply chain for your company.