How To Get the Most Out of Your Contract Manufacturing Relationship

Working with a contractor to manufacture an electronics product is a process, one which becomes simpler over time as you learn each other’s ways and develop a shared language. Recognizing the major phases of the relationship and knowing how to get the most out of each phase will pave the way for a productive relationship.

  1. Prototyping
  2. Pre-Production
  3. Production
  4. After-Market

left-CardsPhase 1: Prototyping

Prototyping allows each party to “get a feel” for working together. To get the most out of this phase requires a lot of communication, as you’ll be learning each other’s language, needs, processes, and values.

This initial phase truly lays the groundwork – not just for the relationship between OEM and contract manufacturer, but also for the success of the product. So, you’ll need to jointly discuss and establish these boundaries:

  1. NDA (non-disclosure agreement) – which gives permission to the contract manufacturer (CM) to receive product design files under particular conditions of privacy and protection.
  2. Expectations – each party needs to communicate its expectations and understand those of the other. Lead times and consignment model are two key expectations that original equipment manufacturers (OEMs) need to convey to their CMs, while documentation needs and inventory management are important for the CM to communicate. Some adjustments to expectations or to the understanding of the expectations will probably be needed on both sides.
  3. Standards – this is similar to setting expectations but is specific to the quality of product that will be produced. The OEM must be clear about the standards to which the prototypes will be built. Standards like the IPC’s put a CM and its customers on the same page. When a PCB is passed as “acceptable”, standards ensure that is not a relative concept, but that the product meets standards that are acceptable to the industry at large. We’ve provided details in this paper on IPC Workmanship Standards.
  4. Consignment & inventory model – including whether you will use a turnkey service or will consign materials to the CM, understanding the details of how the CM requires materials to be kitted, agreeing on how inventory will be managed and stored, and understanding the costs and risks associated with the options.
  5. Documentation – product documentation is your best possible opportunity to lay a successful groundwork for a strong relationship with a contract electronics manufacturer. Documentation – including Gerber files, CAD data, system drawings, assembly drawings, and bills of material (BOMs) with part numbers and assigned customer numbers for each part should be date stamped so that everyone is working from the same page – literally. We think documentation is so important that we’ve created this Documentation Best Practices

As a CM, our primary delivery goal for this phase is to deliver a high-quality build. As with any early-stage relationships, both parties can learn a great deal from each other. Having a common goal and staying focused on that is helpful during the period of adjustment.

When the scope of a prototyping project permits, we like to provide design for manufacturing (DFM) feedback along with prototypes. This empowers the customer with knowledge about how a product can achieve best success on the market by ensuring that it can be manufactured efficiently and cost effectively.

Cards_Right_750pxPhase 2: Pre-Production

If, after one or a few prototype runs, both parties wish to continue working together, then a pre-production run is often the next step. In our low- to mid-volume, high-mix business, pre-production runs are typically in the 50 to 100-piece range, typically destined for a lead customer.

In this phase, both parties must apply the learnings from Phase 1 to improve the efficiency of their communication and the quality of the product. Even still, the pre-production phase will continue to yield important DFM feedback. For example, moving a component elsewhere on the board may yield higher manufacturing efficiencies or make testing more effective.

All of the processes established during Phase 1 are just as important here as well, and some – such as documentation revision control – will become even more important. While Phase 2 represents a bigger commitment on both sides, quantity forecasts may change, design changes may still, and more testing is likely also still necessary.

Despite the shifting targets, both parties are now working toward a hardened product design with the goal of a marketable product that meets customer demand.

CardsOnLine_3857_BEST_750pxPhase 3: Production

In the Production phase, the commitment becomes serious as supply chain arrangements are made, inventory is secured and managed. At this point, a Manufacturing Services Agreement (MSA) will be struck, formalizing all expectations of both parties.

Within reason, the MSA is very much driven by the OEM, who must make firm decisions about such things as:

  • Supply chain arrangements – will the CM provide turnkey service, will you consign materials, or will there be a hybrid approach?
  • Inventory management – how will inventory and residual inventory be managed, by whom, and at what cost?
  • Quality and standards
  • Turnaround times, and so on

Supply chain, inventory, and turnaround times in particular are elements of Production phase that likely were not solidified in the earlier phases. For that reason, a new phase of communication, negotiation, and understanding may be necessary, even if it is with the same CM that built your prototypes

At OCM Manufacturing, we provide open-book costing, meaning that our customers can see materials costs, margins, hourly rates, and so on. This kind of transparency is valuable in establishing and maintaining trust and understanding as significant commitments are made on both sides of the relationship.

Inspection2_750pxPhase 4: After-Market

The after-market phase of the manufacturing relationship is often not thought about until the product has “flown the nest”. Once products mature and become stable in the market, an OEM will typically turn its focus to new product development, as well as marketing, sales, and support. Thus, less communication will be required between the parties regarding the mature product line. In fact, the entire process may begin again with prototype development for new products.

But, the manufacturing relationship will not cease. The MSA may include – or may be updated to include – after-market service by the CM. Reliable and responsive after-market service can improve customer satisfaction and the profitability of mature products, while relieving OEMs of product maintenance concerns.

After-market services may include:

  • Management of the return material authorization system
  • Failure analysis on returned products
  • Repair or recycling of returned products
  • Warranty management
  • Reports as required to roll up into the OEM’s financials on a quarterly or annual basis
  • Ongoing cost-reduction and product improvement initiatives

A great relationship that fulfills both parties is based upon sound communication, engagement, commitment, and a clear understanding of the process and steps involved to get from ideaware to marketshare.