CIMdata PLM Industry Summary Online Archive
18 December 2007
Company News
Study Shows a Majority of Contract Manufacturers Incur Cost Impacts for Poorly Managed Change Processes
Arena Solutions announced results from a companion study it conducted with 400 suppliers and contract manufacturers (CMs) to determine, from the suppliers' point of view, concerns related to outsourcing practices with their original equipment manufacturer (OEM) customers. The study indicates that CMs blame poor communication with manufacturers for 79 percent of new product introduction (NPI) delays and 30 percent of product compliance issues (e.g. RoHS and WEEE), causing over 90 percent of suppliers to incur cost impacts that ultimately drive up outsourcing-related costs for manufacturers. A majority of suppliers said they see their customers who use PLM software to manage their design through manufacturing process experience fewer errors, improve cycle time, and lower outsourcing costs.
Results of the study offer insight into the steps manufacturers should take to have a successful relationship with their manufacturing outsourcing suppliers. To share the full results and implications, Arena Solutions also announced it will hold a free educational webcast to present their findings and analysis tomorrow, Wednesday, December 19, 2007, from 10-11 a.m. Pacific Standard Time for anyone involved in the outsourcing process. To participate, call 1-866-937-1438 or register at http://www.arenasolutions.com/ .
Perception among suppliers is that more effective collaboration with their OEM customers is critically important to address problems including coordinating NPI, managing and communicating product changes, and communicating product information, (e.g. RoHS status), across organizational and geographic boundaries. A majority of suppliers responded that these problems create hard-dollar impacts, such as increases in inventory or unplanned rework and expenses, and often result in the need to increase charges to the OEM, raising the overall cost of outsourcing. Suppliers in this study noted that only 40 percent of the OEMs they work with are using PLM, leading to a high percentage of manual and time-consuming processes such as phone calls, faxes, and emails, and spreadsheets being used for communication, resulting in a high occurrence of errors. Suppliers clearly see PLM software as a positive solution, with nearly seven of out of ten saying PLM leads to improved NPI, and six of ten noting PLM improves change management processes and compliance.
In addition, the research showed suppliers preferred on-demand (SaaS) delivery over traditional client/server PLM software. Two out of three CMs believe Arena PLM is more broadly utilized among their customers. Suppliers appreciate that Arena's on-demand PLM software requires no special hardware or IT staff, is easier to deploy than client/server software and is accessible from anywhere in the world through an ordinary web browser and Internet connection. And, all suppliers can be included as users on an OEM's Arena PLM account free of charge.
Suppliers who responded to the survey are acutely aware of the problems related to a poorly managed design through manufacturing process:
• 54 percent of CMs compared to 35 percent of OEMs said design and manufacturability problems cause new product delays
• 56 percent of CMs report sourcing problems because OEMs provide approved manufacture list (AML) information too late in the process and include expensive, hard-to-get and obsolete parts, causing late re-sourcing activities
• 50 percent of CMs say they have poor change communication coming from the OEMs
• Nearly 40 percent of CMs say OEMs do not identify compliant parts, and when they do, their use of compliant part numbers is inconsistent. In fact, one-third of CMs believe OEMs don't know what type of documentation they need to supply and maintain for compliance
"We learned so much about the challenges of manufacturing outsourcing from surveying OEMs earlier this fall, we decided to follow up with a similar study to get the supplier perspective," said Michael Topolovac, chief executive officer, Arena Solutions. "What we gathered is that from the suppliers' point of view, companies that are using PLM simply perform better, especially in terms of change management, NPI, and compliance. When these issues are managed with PLM software, OEMs and suppliers can achieve lower costs and allow outsourcing to provide all the benefits a company might expect."
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