Another cautionary tale from the sourcing front

Here’s something I encounter more often than I should. An OEM with an industrial product asked me to recommend some contract manufacturers. The product needed to be built for rugged environments, the OEM needed to quickly get into production, and it didn’t have a lot of money to spend vetting CMs. The executive asked me to recommend a short list. I gave him two names.

The next time we talked, he said he had a problem. The CMs I recommended were already doing the kind of work he wanted done and that made him nervous. Were the OEMs of these other products direct competitors, I asked.

No, he said, but the products were directly comparable. He said he didn’t want the “risk” of taking the job to a CM already doing this type of work for someone else.

I told him this was exactly why I sent him to these CMs. They know these types of products and therefore will have an easier time moving up the learning curve. Given his requirements, the last thing he should do is go to a CM with no experience. That would be a real “risk.”

Then I explained there are three reasons to use a CM with experience in like-kind products:

1. If the CM builds similar products you might get a better deal on materials because it will have established supply-chain relationships.
2. The CM is less likely to pad quotes to buy new equipment or hire needed expertise because it already has it.
3. The probability of failure of the supply solution – and therefore risk — is reduced, not increased, by experience and like-product know-how.

When I explained the reasons he seemed to get it and, as of this writing, was reconsidering my recommendations. Common sense? Maybe, maybe not. The outsourcing landscape is complex and caution is justified. This is one of many topics we discuss in the Outsourcing Navigator Series. So check it out — you’ll feel better!

And if you have any experiences with CMs manufacturing products similar to those from other OEMs let us hear from you.

Posted by Bill Roberts, March 20th, 2008

Filed to Logistics, Outsourcing, Supply chain management
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One Response to “Another cautionary tale from the sourcing front”

  1. From: Shay Ahmed
      on March 26th, 2008

    It seems like the OEM was mostly concerned of their IP protection. What they also need to know is that a CM will do everything they can to protect the IP of their customers. After all, their success and or survivability depends
    heavily on their integrity. At the end of the day it still is a service business.

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