Arena Solutions/Symphony Consulting Survey Offers Insight into Mitigating Outsourcing Risk

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Foster City, Calif., Jan 22 - Arena Solutions, a provider of on-demand software that helps small and mid-size manufacturers manage their complex and constantly changing product record, and Symphony Consulting, a Silicon Valley-based manufacturing outsourcing, procurement, and supply chain consulting firm, today announced results from a recent survey of 672 small and mid-size businesses (SMBs) on their manufacturing outsourcing practices. The survey unveiled fundamental communication gaps as one of the most common challenges for SMBs working with outsourced manufacturing partners. Survey results suggest companies can mitigate outsourcing risks by formalizing relationships with their contract manufacturers (CMs), engaging in more careful planning and employing Bill of Materials (BOM) management systems as part of their overall product lifecycle management (PLM) program. Taking these steps can better ensure that vital manufacturing information and design data are communicated to all stakeholders clearly, quickly and consistently.

For the respondents not using a BOM management system, poor communication with outsourced partners has led to extra—and unexpected—cost overruns that can endanger the very savings they’re trying to achieve by outsourcing. More than two-thirds of those companies have incurred unnecessary hard-dollar costs because of compliance issues, nearly half due to scrap and rework, and more than one-third from missed ship dates—all caused by communication deficiencies. Eighty percent of respondents still rely on manual processes like phone, fax or email to share critical product definition information.

The study also reveals that many SMBs fail to establish formalized relationships with their outsourced partners. More than 80 percent of the respondents outsource their manufacturing operations to multiple contract manufacturers, yet nearly half have no contract in place with their CMs or do not know if they have a contract. More than one-third of respondents go as far as describing their outsourcing experience as “rocky,” “difficult” or “disastrous.”

“Outsourcing is a complex activity, and SMBs face more risk than their larger competitors because they can’t rely on the brute force of dollars to achieve their outsourcing goals. SMBs must apply more scrutiny and due diligence than large companies when it comes to establishing and managing their contract manufacturing relationships. Having the right tools, resources, strategy and business processes in place to manage these relationships is essential,” said Bijan Dastmalchi, co-founder and senior consultant at Symphony Consulting.

Changes are typical during the design-through-manufacturing process. How accurately and consistently those changes are communicated between the SMB and its CM can significantly impact a product’s success in the market. According to the survey, one-third of the respondents either do not receive confirmation of product changes from their CMs or receive confirmation only upon request. For respondents who manage changes manually, 52 percent have experienced communication challenges that have led to scrap, rework and/or missed ship dates, and 24 percent have had sales hurt by quality issues.

“Good communication and having the right tools to manage change are critical. Without it, a tremendous amount of confusion results—not to mention expensive cost overruns due to unresolved design changes and botched adherence to compliance requirements. This is an area where the right tools can really make a difference,” said Eric Larkin, chief technology officer of Arena Solutions. “The data suggests that SMBs who rely on BOM management systems to track and communicate product information incur far fewer unanticipated costs than those who manage communication practices manually. I certainly found that to be true in my manufacturing days, and we see it with Arena customers too.”

About the Survey Respondents
The Contract Manufacturing for Small to Mid-Size Companies: Summary Findings of the 2008 Arena Solutions and Symphony Consulting Joint Study yielded 672 responses, predominantly from senior executives across a wide variety of discrete manufacturing industries, including high-tech electronics, medical devices, consumer products, aerospace and defense, automotive and industrial. All respondents work for companies that generate $250 million or less in annual revenues. Participants included professionals from engineering/product development (44 percent), manufacturing/operations (31 percent) and other functional roles (25 percent).

About Symphony Consulting
Symphony Consulting is a Silicon Valley-based company that provides strategic supply chain, procurement and manufacturing outsourcing expertise to help high-technology companies reach their financial and operational goals. Symphony's strategic consulting services and in-depth training workshops on advanced supply chain methodologies show companies how to enhance revenue potential, increase profitability and reduce inventory liability.

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