By guest author Tony Scott
The Phases of Outsourcing: Design For Manufacturing and Original Design Manufacturing
The third phase is what we call design for manufacturing. In this phase, the people who are responsible for delivering this outsourced process say, “OK, now I know exactly how this all works together, and I can do it more efficiently than anyone else.” That’s how Flextronics grew. They said, “We know how to build PCs, we know how to manufacture them, we know and understand all the supply chain issues, whether you are talking about microprocessor chips or cooling fans. So don’t come to us and tell us which fan to use – we’ll figure that out for you and manage the entire manufacturing process from beginning to end.”
One simple example is if you wanted to build a table, and your said the table needs to be 5 feet by 3 feet. If you came to India your supplier might say, “OK, 5 feet by 3 feet – I can cut a board for you and give you 5 feet by 3 feet.” But what if the original boards that come to the supplier are 8 feet by 4 feet? If you require exactly 5 feet by 3 feet there is going to be a lot of waste. But if you said, “Mr. Supplier, you are responsible for doing it,” then the supplier might provide you with options to make it some other way that can reduce the amount of wood wasted. Maybe he could build it 4 feet by 2 feet and put a border around it, make it look different but take advantage of the fact that there isn’t a lot of wasted wood. Then the responsibility for making those kinds of decisions then becomes a part of outsourced solution. Thefourth level of the ecosystem is when an outsourcing partner company knows how to build a product end-to-end. In the Flextronics example, they have created partnerships with people who make the fans, the chips, and all of the other components that go into a PC to allow them to get access to those things much faster at much lower prices than their customers can themselves. Then this is where you get the ODM situation – original design manufacture. This is what is happening in the cell phone industry, for example, so you get the ODM phones. You can go to the auto industry, and people like Bosch do the innovation on brake systems, and they are putting those systems into multiple car platforms. The manufacturer of an automobile today is building and assembling a set of complex sub-assemblies rather than designing every single component. The responsibility of a many high-value, complex components is with somebody else, not the overall brand manufacturer such as BMW or GM. The sub-assembly companies are innovating on those sub-assemblies and making the innovations available for everyone in the industry.
Tony: So where do you think the software industry is in terms of these phases of outsourcing?
I see software mostly at levels one and two right now – cost arbitrage and process efficiencies. The industry is starting to get to level three, and at Persistent we’ve been deliberately trying very hard to be the leading player in this third level – the equivalent of design for manufacturing in software.