Speeding Build and Buy Across a Collaborative Network.

Collaborative manufacturing networks link all members of a supply chain via the Internet to reduce new product tune-to-market and time-to-volume.

High-tech manufacturing is more dynamic and competitive than ever. Two trends are at play, and the issues surrounding them are so important that companies that do not aggressively address them put their very existences at risk. The first trend is that the product profit cycle in the marketplace is shrinking. Competition is driving shorter product profit cycles. For example, five years ago, a high-tech product was expected to have 1.5 to two years of viability; the norm now is as little as six to 12 months. Getting new products to market fast and having those products available in volumes great enough to satisfy demand are the keys to market share and profitability.

The second trend is that outsourced manufacturing is on the rise. In 1998, only 15 percent of manufactured electronics products were outsourced. By 2002, industry analysts predict that as many as two-thirds of electronics products will be manufactured by electronics manufacturing services (EMS) providers, not by original equipment manufacturers (OEMs). Many OEMs are outsourcing manufacturing to focus on product development, marketing, customer relationship management and distribution. New OEMs often operate as virtual manufacturers, outsourcing their entire supply chains. High-tech manufacturers are rapidly evolving from being discrete, monolithic companies to collaborative manufacturing networks with interconnected suppliers.

Problems in today's high-tech manufacturing environments are tied to these strategic trends. The product profit cycle is shrinking. Time-to-market (TTM, how quickly a limited number of units can be produced) and time-to-volume (TTV, how quickly a product can go to full production) are key aspects of new product introduction (NPI). Sharing timely, accurate manufacturing information among supply chain partners is critical to ensuring that parts will be available when and where needed and that product changes are executed quickly.

Accordingly, operations managers will have to answer questions like: Can we duplicate an American-built product in Asia without disrupting schedules? Can parts be sourced in Asia to reduce shipping costs? Can parts suppliers meet scaling demands as volume ramps up? Can we obtain parts on allocation? Could we handle an international hyperscaling event if our product becomes wildly popular?

A New Manufacturing Business Model

OEMs face several critical issues. First, the time they have to react to market conditions is shortening. Second, relying on external suppliers creates product supply uncertainty. To establish and maintain competitive edges, companies must streamline their processes to maximize NPI speed and eliminate delays in ramping to volume production. Accelerating and improving these processes while accommodating new communication channels with geographically dispersed EMS partners presents greater difficulty.

Traditionally, OEMs relied on outside suppliers mainly for custom and commodity parts, but a collaborative manufacturing network introduces new players, the EMS providers. An OEM will have many EMS providers, and all partners must keep track of the latest versions of products, where they are being built, whether the right parts are available and whether those parts can be delivered to the right place, at the right time and in sufficient quantities.

The additional complexity adds risk because manufacturing is out of the OEM's control. But the rewards are significant:

* OEMs can focus on strengths such as product design, marketing and distribution.

* New technology can be incorporated without an OEM investing in additional equipment.

* An OEM may avoid building new facilities or hiring new people.

* An OEM startup can leverage a collaborative manufacturing network to immediately establish a worldwide market presence.

* An emerging technology manufacturer (ETM) can concentrate all its resources on research, development and marketing, thereby preserving capital.

To earn these rewards, OEMs must develop very tight, integrated communication and collaboration with supply chain partners. Problems in a dispersed collaborative manufacturing network are much more difficult because the suppliers are so widely distributed. The increasing complexity and need for rapid communication and collaboration also exist for non-outsourcing OEMs with multiple manufacturing sites.

The High-Tech Manufacturer's Dream

Hypothetical: An OEM of hand-held devices manufactures its products at three EMS providers in five factories worldwide. The OEM shares the build packages with all its partners simultaneously. EMS providers then share product content with their subcontractors and suppliers. All parts are ordered on schedule and shipped to the right factories in the necessary quantities. The product reaches every regional market before competitive products can claim market share. The OEM keeps market channels full.

This ideal process is easy to describe but difficult to attain. To facilitate the process, an innovative new discipline has evolved. Collaborative manufacturing commerce (CMC) manages product content and sourcing and the critical communication, collaboration and commerce transactions among OEMs, EMS providers, suppliers and customers. CMC solutions enable sharing of information via the Internet.

CMC addresses new product introduction (NPI), product change, materials sourcing and materials procurement within companies and with partners. CMC comes into play near the end of product development when parts specifying and sourcing decisions are made. But CMC assumes vital importance in the NPI and volume production phases, where the TTM and TTV deadlines are made or missed and market share and profitability are won or lost.

In the product development stage, demand forecasts are prepared to determine how many product units will be built. Production plans determine when the product will be built. Supply plans specify who will build the product. Distribution plans specify where the product will be shipped from and to. All these plans are vital to a product's success, but none of these planning systems deal with the key issue of what is being planned and built.

The Missing Piece

A collaborative system for managing the what was missing until the problem was identified and a solution developed. The what is product content, and it is critical to managing processes because things are constantly changing. Planners need to know what the product is now and a proactive view of forthcoming changes to minimize surprises along the supply chain. Change comes from the demand side, driven by such needs as improving price/performance functionality or creating features and variants. Change also comes from the supply side, driven by component shortages, quality issues and parts getting to end-of-life.

Some Industry Realities

Some issues that adversely affect a product's NPI and production phases are as follows:

Product content collaboration issues

* Technology companies are experiencing product change rates from 350 per month at a well-known OEM to more than 600 changes per week at a large EMS provider.

* An IPC study found that 80 percent of NPI attempts required product content "negotiations" between OEMs and their EMS providers. Specifically, information needed to successfully build and introduce a new product was inaccurate, incomplete or missing 80 percent of the time.

* The time for data negotiation adds up. An average of 20 days of NPI time is lost to product content data negotiations. As product life cycles shorten, the impact of delays on TTM and TTV is extremely significant.

Procurement issues

* A company unable to consolidate buying to secure volume prices absorbs a cost of goods sold (COGS) increase of more than five percent.

* Visibility to supply changes and product component issues enables aggregation of component procurement across the supply chain to obtain better pricing.

Product content collaboration and procurement issues

* Component shortages and parts going end-of-life can reduce production capacity by 10 to 15 percent.

* Inventory perishes at one percent or more per week. Product change timing issues can increase inventory 10 to 20 percent. Completing product changes rapidly and efficiently helps reduce inventory and attendant charges.

Implementing Collaborative Solutions

Collaborative manufacturing commerce focuses on how a company builds a product and buys the materials needed when the manufacturing process is widely distributed across a collaborative manufacturing network. CMC improves time-to-volume and customer responsiveness, and it reduces the cost of goods sold. CMC accomplishes these conditions by:

* reducing time-to-volume

* improving responsiveness to changing conditions on the supply or demand sides

* facilitating the request for quotation (RFQ) process to obtain better prices and by reducing the cost of procurement through purchasing process automation.

Collaborative manufacturing commerce solutions focus on time-to-volume, customer responsiveness and cost of goods sold. CMC solutions synchronize product content and automate commerce transactions across a collaborative manufacturing network. Utilizing product data exchange (PDX), an industry-standard variant of the extensible markup language (XML), these programs enable manufacturers to communicate and collaborate on bill of materials (BOMs) and other critical product content information across their supply chains. The communication and collaboration are managed via the Internet.

The content management and change collaboration programs totally automate the management of product information and engineering change orders (ECOs) across the e-supply chain. All this product content information is made available via the Internet through a corporate e-hub. Supply-chain partners can share this information without purchasing their own software programs. A secure Internet-based procurement program enables buyers to source and procure direct (production) materials. This program encompasses all supply chain members in a single Internet-based environment, automating RFQ preparation and dissemination, buying decision support, demand aggregation, purchase orders, commodity and contract management and supplier performance management.

CMC Solves Supply Chain Problems

Companies with many suppliers, partners and manufacturing and design facilities around the world can gain significant benefits from CMC solutions that link all the partners. Some companies, for example, have deployed these solutions to streamline the RFQ process. By connecting all suppliers and partners into one browser-based extranet, they have reduced the time needed to get quotations, cut direct materials costs, and extended these time and cost savings to all manufacturing sites.

In many cases, OEMs have implemented CMC solutions to help bring strategic new products to market ahead of their competitors and thereby gain competitive advantages. The vendors realized substantial benefits including quicker rampup to volume production, reduced time needed for product changes from days or weeks to hours, reductions in the communication errors between OEMs and partners, and delivery of necessary components in the right amounts at the right times to ensure that enough products were available to meet demand.

In addition, CMC solutions have provided other benefits, including:

* linking facilities and key supply-chain partners directly to headquarters via the Internet

* leveraging the local expertise of supply-chain partners to deal with foreign regulatory compliance issues

* achieving the shortest product-to-market cycles in respective industries

* enabling parts procurement while engineers are still designing products and revising part orders as new ECOs are created, rather than the traditional engineer-first, manufacture-later model

* establishing instantaneous communication throughout integrated vendor networks via the Internet

* helping companies keep pace with product innovation process and scale with company growth.

Securing the Future

CMC solutions add value to the entire electronic supply chain, including the GEMs, EMS providers, component manufacturers, board fabricators and channel assemblers. Distribution, design services, maintenance, repair and overhaul centers, and transactions with end-users will also benefit.

Collaborative manufacturing commerce improves all business processes and commerce transactions directly related to product content. CMC is all about doing it faster. High-tech industries are built on change-based competition. The controlling metrics depend on the following axioms:

* Time-to-market: The first to market gets the mind share.

* Time-to-volume: The first to volume gets the market share.

* Time-to-respond: The first to meet demand gets the margin. Collaborative manufacturing commerce solutions help companies get there first.

Mark Angelo is the vice president of industry marketing with Agile Software Corp., San Jose, CA;