Issue



The ‘Lab-less’ Outsource Model


02/01/2005







BY JONATHAN HARRIS

Everyone in the semiconductor industry is acutely aware of the tremendous benefits that the “outsourcing model” has afforded our industry. Outsourcing spreads capital costs over a much wider production base, allows companies to focus resources and expertise on those competencies that truly drive market advantage, and allows the particular advantage of each country or region - whether it is low wages or a strong technology base - to develop those portions of the supply chain that benefit most from those advantages.

The “outsourcing roadmap” has already progressed through many phases. In a sense, outsourcing began with the Manufacturers Representative model, where a rep allowed a principal to outsource the sales function in a specific region and spread costs over a number of different companies. From this beginning, progressively assembly, test, and device or package fabrication have followed the outsource model.

It is clear that the key drivers for outsourcing (cost savings, focus on core competency, and regional advantages) will continue to drive changes in the semiconductor business model. Whenever expensive resources can be shared by a broad range of users to help mitigate costs, this will be a strong candidate for outsourcing. In contrast, “ownership” of the customer relationship, marketing strategies, and product roadmaps will remain key competitive advantages and will not be candidates for outsourcing, except in cases where outsourcing can serve to strengthen these core areas without compromising competitive position.

The trend toward outsourcing increasingly technical functions will continue, and this trend will move from the basic engineering and design functions of today to more specialized technical functions such as advanced materials analysis and development, reliability testing, product development, prototype fabrication, incoming inspection of raw materials, outgoing inspection of final product, and customer technical support.

From a skills-base point-of-view, companies that provide technical outsource services focused on electronic interconnect applications will need to have materials scientists, analytical scientists, fabrication technicians, and trained inspectors. Critical equipment should include SEMs and other microscopic capability, mechanical characterization capability, electrical and thermal characterization, reliability testing equipment, prototype fabrication and assembly equipment, and production inspection capability.

The ongoing trend to outsource technical functions will result in a number of critical advantages to the industry, including:

  • The cost of expensive analysis, test, reliability and prototyping equipment will be spread over many users, and equipment utilization at a centralized provider will be high.
  • The materials and product development expertise gained by companies that focus exclusively on this model will result in shorter development cycles.
  • The ability to maintain a core trained technical resource even through the individual peaks and valleys experienced by various business sectors.
  • Customer technical support can be provided immediately by technical service providers in the same region.

Whereas outsourced manufacturing is often located in close proximity to the ultimate customer, outsourced technical support can provide services to both the originating company (materials development and analysis, product development, prototyping), to the manufacturing site or manufacturing outsourced vendor (incoming raw materials inspection, final product inspection) and to the end-customer (technical customer support). The technical support business model is very much a local or regional resource, however, because of the paramount importance of “hands-on” engineering interaction and fast turn-around needs for critical technical problem solution (particularly when manufacturing is affected).

Outsourcing these functions is expected to provide a number of key benefits, including decreased capital costs, cost and time efficiency from the concentration of expertise, and decreased human resource and training costs to react to business cycles and increased responsiveness to customer issues.

Of course, aspects of this model will not be applicable to some businesses, at least to start, that have highly specialized technical requirements. However, just as manufacturing over time has expanded to include some niche business sectors, the same will probably occur for the technical services sector. In the end, the power of this business model will enable companies to focus all of their financial and manpower resources on those aspects of their business that produce competitive advantage by creating customer value.

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JONATHAN HARRIS, Ph.D., president, may be contacted at CMC Interconnect Technologies, 7755 South Research Drive #115, Tempe, AZ 85284; (480) 496-5000; e-mail: jharris@cmcinterconnect.com.