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December 30, 1999
8 Min Read
Intense competition, parts shortages, and industry consolidations are shrinking the profit margins in the consumer products division of some of the major wireless phone manufacturers. Some are disconnecting. For example, Qualcomm has announced its intention to sell its mobile phone business to concentrate on other more profitable ventures. And earlier in 1999 Sony announced that it was discontinuing its North American wireless phone business.
Still, the mobile phone marketplace itself is booming and competitive. Analysts expect there will be at least one billion mobile phone users by 2003, accounting for nearly $514 billion in revenue. The infra-structure that supports this wireless (and wired) service is booming as well.
Where does the molding industry fit in with all this growth? The fight among molders for a slice of the telecom pie is intense, but those who get the business will likely be rewarded with a partnership or a strong business alliance that could prove profitable. The telecom wish list follows.
Suppliers Must Add Value
The term value-added is often used, but has many definitions. To the OEM value-added means you can do something your competitors can’t. Jack Dispenza, design supervisor at Lucent Technologies’ Design and Engineering Center of Excellence (Bell Labs), says many molders knock on his door, but not all can be suppliers to Lucent.
“When a moldmaker or molder comes to Lucent and says he wants to be our supplier, the question I ask is, ‘What can you as a supplier of plastic parts offer that is an improvement over your competitors?’” says Dispenza. “The first thing I look for is something that would set that supplier apart from the rest. This may include CAD/CAM expertise, online SPC, high-precision moldmaking, or specialized material knowledge. It may include gas assist for large outdoor parts, structural foam molding for load-bearing parts, insert molding for board-mounted components, or two-shot overmolding of conductive elastomers.”
Evencio Fernandez, global commodity manager for plastics at Motorola, says the ideal supplier is one that can add value by giving Motorola’s products a competitive advantage. Whether it be through faster cycle times or through helping give a product an attractive new look, a supplier’s ability to use technology to help Motorola distinguish its products is of vital importance.
“We do not want a supplier that we have to bring along,” says Fernandez. “What I want from a supplier is something that I cannot get anywhere else, some sort of whiz bang, something that will help Motorola compete. Or, we want a one-stop shop that provides us with a variety of different ideas that can help us to improve our products.”
Dispenza says that a molder who provides a total package of services frees up Lucent to do what it does best. “What Lucent wants to concentrate on are its core competencies—the technology, the packaging, the software, the operations,” he says. “We look to outside molders, as well as our own factories, for advances in processing, tooling, and materials.”
The final piece of the value puzzle is a global presence. “Overseas business has increased phenomenally over the last several years,” says Dispenza of the company’s 59 percent increase in non-U.S. sales over the last year for network and network wireless business. “Our goal is to design anywhere, build anywhere, and the purpose of having a global vendor base is to serve these diverse and emerging markets.” Molders don’t necessarily need facilities overseas, but at least the ability to manage projects with overseas partners.
Partnerships for Growth
Fernandez says stronger relationships with a smaller number of suppliers will be essential to Motorola’s future growth. He says that all of Motorola’s competitors have realized the need to downsize their supply base, but says Motorola is putting more emphasis on it than others. Motorola believes stronger strategic partnerships can be forged when there are fewer allies.
“We are going to be putting a big chunk of business with our suppliers, and they have to make a substantial commitment to us in terms of capacity and performance,” he says. As the stakes get higher, the need for mutual trust becomes greater. “You need to develop strong relationships, but that takes time. With fewer suppliers we can put more time into it.”
The same trend exists at Lucent, which, although it has captive molding operations, outsources half of its molding volume and wants a small group of specialty molders with which to partner in the future.
“The field of injection molding is so diverse, and the needs of telecom at Lucent are so varied, however, that minimizing the vendor base is not without some major challenges. The vendor we give the fiber-optic ferrule to is not the same vendor we give the 6-ft outdoor structure to,” says Dispenza. In addition, market introductions are so aggressive that many times production tooling needs to be completed in weeks rather than months. Not all of Lucent’s toolmakers can turn these molds in such short intervals.
The Hot-button Problem
“There are opportunities for future improvements in all of the major supplier criteria we track, but the hot button right now, today, is cycle time,” says Fernandez. He defines cycle time holistically, including moldmaking lead times, ramp-up on new programs, and getting in the raw materials. A supplier’s cycle times must support Motorola’s efforts to meet market demands. A molder’s inability to ramp up quickly on new projects has been a problem that slows cycle times, a problem that Motorola is solving by strengthening its supplier relationships. Advances in CAD/CAM have substantially reduced mold construction cycles. But Fernandez recently identified a new obstacle—Tier Two suppliers.
“Tier Two suppliers—suppliers of molded components, raw materials, inmold decorating films, and paints for decorative finishes—are starting to impact cycle times. They have now become the bottleneck in a lot of cases,” Fernandez admits.
Motorola plans to get Tier Two suppliers involved in projects as early as Tier One suppliers. “Now we have to go further down into the supply chain, get them on board early, and also get them involved with our whole philosophy of strong supplier relationships,” he explains. “No one ever thought of forming a strategic partnership with a second tier supplier before. It has now become a necessity.”
Once on the List
For molders who do make the supplier list for companies like Lucent and Motorola, the demands may be great, but the rewards might be worth it. Molders and moldmakers would be more involved and invested in the customers’ products. “There’s an interrelated triangle of suppliers involved with a project,” says Dispenza of Lucent’s operations. “It includes material suppliers, molders, moldmakers, and Lucent. You’ll see a number of disciplines at the table when we plan a product launch.”
At Motorola, communication is an absolute must. The company has had a program in place it calls Partnerships For Growth (PFG). It periodically brings in representatives from a cross section of its complete supply base to communicate with them the state of Motorola’s business and its future plans. Suppliers are encouraged to express their concerns to Motorola’s upper management. Both sides come away with better ideas of how their relationships can be improved, because they have more time to discuss them.
“Plastics is a very important commodity to Motorola,” Fernandez concludes. “We have identified plastics as something that has to be perfect. Otherwise, we cannot continue to deliver successful products. There is a tremendous amount of internal effort being put into continuous improvement, and we want to strengthen our relationships with our suppliers so we can continue to be a major player in the telecom market, and keep up with its explosive growth.”
Six supplier mustsOne of Fernandez’s chief responsibilities is consolidating the company’s supply base. He says there are six key criteria that Motorola now tracks to evaluate and select suppliers for new programs and to be part of its supply base. These are quality, cost, delivery, engineering support, a regional presence, and technological leadership.
Quality. Quality is a must to support high growth. Motorola uses internal databases of supplier performance to monitor and evaluate a supplier’s quality. “We need to see a quality improvement trend. Continuous quality improvement is what we focus on in our business reviews. We look at both the supplier’s quality performance in our production lines and its in-house quality. In each case, we need to see Six Sigma quality levels or a 70 percent annual improvement trend.”Fernandez says Motorola looks beyond basic minimums like ISO and QS and into the operational aspects of an operation. It wants to see a corporate culture in place that is dedicated to the spirit and practice of continuous improvement in everything it does.Cost. Cost drivers are analyzed to make sure they are at benchmark levels in Motorola’s review process.Delivery. “We track the percentages of deliveries that were on time, not early and not late. The goal is that they be met 100 percent of the time.”Engineering support. “We hold our supplier improvement meetings in the concept stage of a new product. Molders participate, as do mold-makers. Our expectation is that our suppliers will actively participate in helping us design a part and a tool.”Regional presence. “With the cycle times and deliveries we need, there is no time to wait for parts to cross international borders, there is no time for clearing customs, and there really is no time to have even a day’s worth of inventory either on the road or in the air. Our suppliers need to be within hours of the manufacturing site they are supporting.” Molders that provide global support will be extremely important to Motorola as the telecom industry continues to grow into emerging world markets, particularly those in Europe and Asia. “A molder can no longer just be located, say, in the U.S. That will no longer be the nature of the business.”Technological leadership. Motorola expects its suppliers to have holistic art-to-part expertise. It does not specify brands of injection molding machinery. But Fernandez says Motorola has developed a proprietary list of equipment characteristics that it has found to be important to produce good-quality parts. It expects to find these characteristics in its suppliers’ molding equipment.
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