Without in-house engineering expertise at their fingertips, a growing number of small EMS providers are reaching out to third-party firms or larger contract manufacturers to enhance their design capabilities.
In the next few weeks, Teradyne Connection Systems, Nashua, N.H., expects to sign a major midwest EMS company to its newly formed three-member design alliance. TCS, like several other small EMS providers with a similar strategy, including Express Manufacturing Inc. and Nu Visions Manufacturing LLC, can't afford to pour resources into developing the engineering expertise to complement manufacturing services.
"Doing the alliances that we've done, we've set ourselves up to take advantage of design capabilities and hopefully improve our ability to capture designs at an early point and start to influence projects," said Tom Pursch, vice president of the Teradyne Components Business unit and manager of TCS.
TCS, the contract manufacturing and connector division of Teradyne Inc. in Boston, partners with independent design company Design Solutions Inc., Santa Barbara, Calif.; backplane maker Kaparel Corp., Waterloo, Canada; and midtier EMS provider Manufacturers' Services Ltd. (MSL), Concord, Mass.
Earlier this month, TCS opened a design center on the grounds of its New Hampshire high-performance circuits facility, which is staffed with engineers from Design Solutions. TCS sees the move as a way to boost its capabilities in signal integrity characterization, material selection, and design for manufacturability.
TCS' design push began earlier this year as large EMS companies started to vie for lower revenue-generating projects typically handled by smaller companies, because more lucrative contracts have been harder to come by during the economic downturn.
Since large contractors have been beefing up their component engineering skills for several years to better compete against each other for design-related business, small EMS providers improving their design services face some tough competition.
"Smaller guys without a technological advantage and without good cash flow will continue to have trouble weathering the increased competitiveness among all players in the industry," said Mark Zetter, president of Venture Outsource Group, San Jose.
But that's not stopping them from giving it a try. According to a survey conducted by EBN and Design Chain Associates last September, about 48% of the 45 small contractors polled offered design services. That number is expected to increase to 52% by year's end, said Michael Kirschner, president of Design Chain Associates LLC, San Francisco. Small EMS providers are defined as having revenue of less than $100 million, and large contractors as having revenue of more than $1 billion.
Outsource Venture's Zetter said that most small contract manufacturers offering design services are "not necessarily good at it."
"Having design software and an engineer who knows how to use it is not the answer," he said. "Providers offering solid design capabilities have experience with not only a multitude of design projects across multiple industries, they also have the hand-holding capability to guide OEMs through the maze required to anticipate issues and keep iteration costs at a minimum."
But small contractors plan to continue to maintain their presence in design. Last year, Nu Visions Manufacturing LLC recorded sales of $50 million from its manufacturing and design-related activities, said president and chief excutive Steve Pudles. The Springfield, Mass., EMS provider works with three design partners to offer OEMs fast and flexible service.
"We have three active customers for our design services and we're on the hook for three more," Pudles said.
Express Manufacturing Inc. (EMI) is always on the lookout for design partners, according to president C.P. Chin. The Santa Ana, Calif., contractor tallied sales last year of $43 million and has a handful of U.S.-based design alliances.
"Originally, we planned to incorporate our design efforts under one roof," Chin said. "But design is so different from the assembly service that we provide. Not every independent designer can provide the complete solution for our customer needs, so we're constantly working with five design companies."
EMI, which operates a low-cost plant in Donnguan, China, hopes to soon add a Minnesota design company to its design alliance.
"A lot of OEMs are looking for the best solutions with the best cost controls," Chin said. "We may be able to offer design at cost, hoping we can make some money on turnkey projects."
The two design engineers on EMI's staff both specialize in networking and telecom products.
"If we get a medical OEM, those engineers are not the right fit," Chin said. "So we're not that flexible when it comes to design services, which is why we work with multiple partners."