Four Key Dynamics Driving Effective Outsourcing Decision Making for Lab Automation OEMs
News Aug 16, 2016
By Steve Fitterer, Laboratory Automation Segment Manager, Festo
Today’s automated laboratory equipment manufacturers face strategic decisions on whether to make or buy key subassemblies for high speed automated handling and microfluidic control. Outsourcing these major subsystems can have a profound impact on the ultimate cost of the device and on its operational success. The success of these major automated systems may also influence the perception lab personnel have of the equipment manufacturers’ overall dedication to quality.
Outsourcing creates a business context for an original equipment manufacturer (OEM) that may change over time. Change factors involve four dynamics:
• Economic rationale
• Accelerating innovation
• Supply chain vulnerabilities
• Enterprise strategy congruence
OEMs need to review their outsourcing decisions periodically to ensure that the manufacturing partners they have still make sense from an engineering, manufacturing, device performance, and customer support perspective.
For decades, cost savings have been the main economic driver in outsourcing decisions. The rapid growth of manufacturing in countries with low labor costs, plus improvements in logistics and transportation of subassemblies back to OEMs for final assembly, have made off shore outsourcing a compelling model to pursue.
In recent years, outsourcing has come back to North American suppliers due to the emergence of hidden costs with off shore suppliers twinned with the resurgence of advanced manufacturing technology in North America. For example, administrative expenses and complexities, especially around managing off shore suppliers and quality control from a distance, can demand more management time and attention than expected. Another example of hidden cost involves poor quality and automation performance, which results in reliability issues that must be addressed with costly post-sale service and support. Quality and component performance are hallmarks of North American manufacturing today.
As many OEMs are discovering, outsourcing complex automated handling and microfluidic control subassemblies that arrive fully tested and ready to install from a trusted North American supplier can significantly reduce engineering costs, improve performance, and ultimately lead to fewer support issues. And, by moving machines to market sooner, OEMs gain additional profit.
As part of an OEM’s periodic review of the type and quantity of subassemblies outsourced, once hidden costs should be documented, and then evaluated against working with a trusted automation supplier. If the OEM has a trusted partner, the OEM should hold discussions with that partner on a regular basis on how to move outsourced subassemblies and logistics to the next level of speed and performance.
Keeping up with both technological and process innovations is a challenge. Technology continues to advance at a blistering pace. Advancements, in turn, can enable new levels of device performance and also drive process improvements inside the OEM. For example, the ERP architecture at Festo and the company’s online cad drawings and product selection tools are significantly reducing OEM engineering time and project management overheads.
For OEMs, focus and prioritization are two interrelated keys to success that innovation can disrupt. For example, “feature-creep” is a common problem in product development, as designers seek to add yet another product feature or capability that a recent technology advancement might enable. New features must be evaluated against issues of increased manufacturing complexities, component sourcing, and other concerns about which a knowledgeable, well-qualified outsourcing partner will provide critical counsel. The ideal outsourcing partner will be able to help OEMs not only manage innovation, but also capitalize on it through the identification and adoption of optimum technology innovations.
Supply chain vulnerabilities
By outsourcing high speed automated handling subassemblies and microfluidic controls, laboratory device OEMs introduce new risks to their business models from supply chain variables that are beyond their control. Examples of these vulnerabilities include component shortages and transportation disruptions. Managing supply chain vulnerabilities shows how management attention and staff time can be diverted from the oversight of other core operations — a cost that might be initially overlooked in the outsourcing decision but should be considered during the periodic review.
OEMs need to ascertain the ability of potential outsourcing partners to mitigate these risks. For example, Festo has recently built a new centrally located $50 million assembly and product distribution center where the majority of the components carry guaranteed delivery windows. OEMs should look for similar wherewithal in the risk-mitigation plans offered by automation subassembly suppliers.
Enterprise strategy congruence
Given the critical importance of the outsourcing decision, OEMs will be well served by determining whether the outsource partner shares a congruent overall enterprise strategy. For example, does the proposed partner share the same long term commitment toward quality and investment in technology? Has it similar leading edge systems in place for customer support?
Another strategic consideration is to size up the outsourced partner’s core development and manufacturing competencies. After all, the OEM will derive the most competitive advantage and ultimately the most profit from an automation supplier with world class resources. Finding the right automation OEM makes all the difference in terms of reliable high speed automated device performance and long term profitability for that product line.
Criteria for qualifying a strategic outsourcing partner
While OEMs seeking a strategic outsourcing partner today should conduct sufficient due diligence to qualify their candidates, here are some criteria to consider.
Stability: How long has the supplier been in business? Is it profitable? Can the company handle major financial changes? Is its client portfolio broad enough to adjust to specific industry downturns? Will a relationship with this supplier make your company stronger?
Flexibility: Can the supplier support you as you adapt to growth and changing market conditions? In automation, for example, it makes sense to take a building block approach, working with a supplier that offers basic standardized components as well as design services that create higher-order systems from those parts. This allows fast transfer of engineering and production in-house or to other outside contract manufacturers as inevitable capacity and growth changes occur. The ideal supplier can supply parts, or design, build, document, and validate to your requirements, as needed.
Capacity: Can the supplier handle growth? Does it have the resources to invest to accommodate for economic upturns as well as the growth of your company? Capacity is easy to find in a flat economy but can become critical just when business is growing and you need to deliver.
Knowledge: Make sure the supplier can and will act as a consultant, understanding that adapting its scope of supply to meet the changing requirements of your business can result in a stronger business relationship by applying the best resources to assure rapid and profitable product development and production. Find a vendor that can be an asset. Require the company to be more than a catalog product supplier, and gain a deep understanding of its level of service.
Steve Fitterer is the Medical Laboratory Industry Segment Manager for Festo. He focuses on business development in the areas of Medical Device and Lab Automation. Steve holds a degree in Robotics / Flexible Automation and is a Certified Manufacturing Technologist.