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OEMs enhance relationships with suppliers: OEMs shouldn't make a scapegoat out of their suppliers--the real problems could lie within.

Now that outsourcing manufacturing is more popular than ever in the electronics industry, original equipment manufacturers' (OEMs') dependence on suppliers has reached an all time high. The health of an OEM's customer satisfaction, time to market, reputation and financial ratios often depend on the performance of suppliers, including those providing semiconductors, passive components, bare printed circuit boards (PCBs) and contract manufacturing.

Evaluating Supply Chain Issues

Fortunately, many executives at OEM companies realize that today's successful supply chain depends as much on the behavior of the customer, the OEM in this case, as upon the supplier. Realizing the critical value of a well-functioning supply chain, many executives are reevaluating their responsibility in selecting, managing and communicating with suppliers.

Some of the most common supply chain issues faced by OEMs include:

* using the wrong suppliers

* lack of tactical communication (regarding order and status)

* lack of strategic communication (the exchange of technology roadmaps)

* insufficient information technology tools for collaboration among OEMs, suppliers and outsourcing partners

* insufficient level of outsourcing to meet corporate goals

* inventory carry-over expense

* too much overhead used in managing suppliers

* too many suppliers

* lack of communication between the OEM and supplier--inadvertently caused by the outsourcing partner.

Improving the Supply Chain

The management at Cisco Systems (San Jose, CA) sees the value of evaluating and improving supplier relationships. Steve Darendinger, vice president of global commodity supplier management, says, "Cisco values its relationships with suppliers to the extent that we have an objective third party measure our suppliers' levels of satisfaction with [us] as a customer, in key aspects of the relationship. This way, we are able to continually improve our supplier relationships as ecosystem partners--enabling us to provide the best solutions for our customers and stakeholders." Sun Microsystems (Palo Alto, CA) and Extreme Networks (Santa Clara, CA) are two other examples of OEMs who are taking an honest look at supplier relationships and making proactive improvements.

In addition to having a third party evaluate key suppliers' views on the OEM's ability to manage and partner with the suppliers, OEMs should benchmark supplier selection and management processes with other peer companies to arrive at best practices. Many OEMs are starting to centralize supply chain and contract manufacturer management--ensuring that all divisions benefit from synergies owing to the standardization of supplier selection, improved communication processes and partnerships with common suppliers with synergistic buying power.


Fading from the industry, many consultants hope, is the company culture in which all problems are blamed on the supplier, with little introspection on the part of the OEM customer. Unfortunately, some executives still foster this practice--their companies will soon be competitively surpassed by peers who take supplier relationship enhancement to heart.

Pamela Gordon is president of Technology Forecasters, Inc., Alameda, CA;
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Title Annotation:original equipment manufacturers; EMS Insight
Author:Gordon, Pamela
Publication:Circuits Assembly
Date:Jun 1, 2002
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