Understanding the Relationship Between OEM Engineers, Contract Manufacturers, and OCMs

By Logan Wamsley

There are many exciting trends occurring in the electronics manufacturing industry, and while there will always be concern as analysts err on the side of caution, collectively it speaks to an optimism about what the future holds. One of the elements that is impacting this anticipated market growth has to do with the increasing role contract manufacturers are playing in the OEM supply chain, and how OEMs and OCMs are adapting.

In addition to the traditional role of contract manufacturers providing product assembly services on behalf of an OEM customer, many contract manufacturers have evolved to offer additional services that, in many respects, rival the capabilities of any large-scale manufacturer. For example, many CMs staff their own engineering teams that can work in sync with OEM engineers to find more efficient and cost-effective design solutions for their products. It’s a healthy, collaborative atmosphere that has quickly began to blur the lines between OEM and CM, and as the contract manufacturing market continues to become more competitive, CMs will continue to find a way to provide more value to their customers beyond the basic contract manufacturing role. Despite this evolution, however, the industry has been slow to address one important disruption that exposes one of the few shortcomings CMs have yet to address: last time buys.

Last time buys can occur suddenly and without warning, and due to the CM’s place near the front end of the supply chain, it is typically the first party that is notified by the OCM when a critical electronic component or semiconductor approaches obsolescence. However, despite the CM having the knowledge in place to know if a last time buy is needed, narrow profit margins averaging between 3 and 5 percent mean CMs typically have no realistic means of completing the last time buy on their customers’ behalf. As a result, there is often a degree of confusion regarding where the responsibility of completing last time buys falls. Such issues, if left unresolved, can linger well beyond the last time buy date, and ultimately force the OEM to either commit to a total product redesign or enter the third-party market, tarnishing long-standing CM relationships in the process.

Partstat offers two unique solutions that, together, eliminate this prevalent scenario and allow CMs and their customers to coordinate their respective businesses more seamlessly. First, Partstat BOM Monitoring, with its ability to accurately predict obsolescence and allocation issues before they occur, allows both parties to stay on the same page. Using over 50 billion data points compiled from thousands of authorized suppliers, this solution provides an accurate, real-time view of the market for each individual component — and with two entities monitoring simultaneously, no additional briefings will be required on what steps are needed to continue production.

Once it is determined what steps are needed, then the Last Time Buy Solution comes into play. Through this solution, Partstat will purchase all of the critical inventory required to support the OEM product, regardless of how much is needed, without the need for the OEM to sacrifice any working capital. This preserves the books of both the OEM and the CM, while the OCM in turn receives immediate payment for a single bulk transaction. No party has to alter any aspect of their supply chain — even the long-term storage and shipment of the electronic component is handled by Partstat — and all relationships from the OCM up to the OEM remain intact.

A supply chain is not an entity that exists in isolation; rather, it is a product of a complex web of relationships, roles, and responsibilities that must work in harmony to accomplish a shared goal. Partstat solutions offer the final piece needed for CMs to complete their transition from an outsourced manufacturer to a full partner in the production process, and all other parties are in prime position to benefit.