Electronic Business online has published an interesting article about the outsourcing of design in technology product manufacturing. “Uncharted territory” cites the example of an original equipment manufacturing (OEM) firm that was asked by a client to create a new device based on a new imaging technology — which it wanted to launch at a conference six weeks in the future. Recognizing that it lacked the in-house time to do the work right, the OEM, L-3 Communications, turned to the company that was building its circuit boards to get help in the design and manufacture of the new device.
In other words, it outsourced a function that typically might be considered core to its mission — and faced all the concerns about intellectual property protection, loss of control on the design, and possible loss of the client to the manufacturer.
The article points out the concerns and struggles OEMs are going through as they make the shift to relying on their own service providers for more than simply manufacturing services. If design is considered a core competency, do you really want to shuttle that out of house?
An interesting reason to go this route is cited in a story about Lucent Technologies. The company had had a product in the market for three or four years, but the chip set it required was being discontinued. Rather than “letting the product go,” it asked its manufacturing partners to “design a package that provides the same features and functionality that replaces the old part.” That gave the product line a new lease for at least a couple of more years.
Another reason: to help the small or midsized OEM break into markets that would otherwise be out of reach because they’re niches.
As always, this is a tale of moving up the value chain. OEMs are learning to build their brand/innovation/pricing muscles. And their service providers are looking to create a more adhesive partnership with the client. Ultimately, the clear traditions by which we understand the supply chain and how it operates are becoming smudgy around the edges.
