No one would disagree that global outsourcing of manufacturing has helped electronics original equipment manufacturers (OEMs) drive down costs and get products to market faster. On the downside, though, outsourcing has disrupted the demand creation and supply fulfillment chains, especially for the semiconductor and component suppliers that serve those OEMs.
When an opportunity moves to a production order offshore, suppliers risk losing margin, revenue and market share—not to mention the significant time and money they’ve invested in trying to win new opportunities. The initial response by some manufacturers has been to adapt traditional CRM applications to this complex and non-traditional opportunity management problem—with very expensive, highly frustrating and, frankly, unsuccessful results.
To better understand this complex and frustrating problem, you need to understand how splits occur between demand creation and supply fulfillment in the electronics world. Semiconductor and component suppliers’ demand creation teams work with OEM customers on new design opportunities—called “design wins”—in Europe, Asia and North America. Yet, these teams are completely separated from the “business win” teams who book the corresponding sales orders with the OEMs’ outsourced electronics manufacturing services (EMS) partners in China, Southeast Asia and Mexico.
Where traditional CRM goes wrong
When an opportunity moves to a design win and then offshore to production, there are changes in both the sales teams and the customer that does the purchasing. To compound this problem, the design win and sales-order teams are often a complex combination of direct sales, sales reps, agents and distributors, each with separate geographic territory responsibilities and conflicting financial motivations. Here’s a hypothetical example of the steps involved in a typical deal:
- In North America, the manufacturer (or its sales representative or distributor) works with an OEM to include its component in a new product design bill of materials.
- The OEM agrees to design the component into the new product and accepts the North American manufacturer’s price quote.
- The OEM outsources production to an EMS company in Southeast Asia.
- The EMS orders the component in production quantities from a local sales agent or distributor—not from the original supplier, rep or distributor that won the design with the OEM in North America—and pays the company that fills the order.
- During the year or more it takes to move from design win to production order, the component price may be renegotiated several times and in more than one global region. The EMS may even place all or part of the order with a competitor.
Throughout this process, the component supplier has little or no visibility in the activities between the OEM and the EMS, its own globally dispersed sales teams or the region-to-region CRM process. The situation is further complicated when the component supplier changes organizations or sales channel partners.
Why can’t traditional CRM applications solve these problems? Because they try to manage either the customer or the salesperson but not the opportunity, particularly when the customer or the sales team changes as the opportunity moves to production. They also cannot effectively link demand-creation efforts with supply fulfillment to keep from losing an opportunity when it moves to a production order offshore.
The solution lies in managing the opportunity, which is where Opportunity Relationship Management (ORM) comes in. No matter how many times the customer changes; how many different sales people are involved; or how many times the sales team is geographically restructured, the component manufacturer must retain ownership and visibility of all the actions related to any given opportunity.
One company’s success
Successful manufacturers recognized the need early on for a new breed of ORM solution. In one example, the regional headquarters of a leading semiconductor supplier faced motivation and compensation challenges when their sales organization and channel partners won designs that subsequently were manufactured through an offshore EMS customer, managed by a separate regional headquarters.
The team that won the design was entitled to a commission split with the team that won the production order. The problem was: No one could prove who won the design.
Three years ago, the company relied on email strings—and hope—to validate design wins. Today the company tracks its opportunities in one integrated design-win management system, enabling it to easily substantiate claims to design wins and commissions, even when the sales team and customer change.
Effectively managing opportunities yielded additional benefits that can affect the top line. The COO of the company was quoted in the December 2004 edition of Electronics Supply & Manufacturing Magazine as saying:
In real time, I can see what our revenue per design win is on average, what our revenue will look like at any point in time, how many designs we actually won in any given month, what the status of past design wins are.
Regardless of the cyclical nature of the semiconductor and components industry, revenue, market share and margin increasingly depend on how effectively a supplier can manage its opportunities and design wins. ORM systems can help eliminate the vulnerabilities inherent in a global and outsourced environment and provide the visibility needed for growth.