Joint Development Manufacturing (JDM) is a popular alternative to Contract Manufacturing (CM), largely due to the smaller in-house engineering team needed and potential corresponding cost-savings.
Since the contract for your JDM partner is negotiated in NPI, it is important to
consider how you want the relationship to work in production during those negotiations, even if production seems a long way off. It’s also important to set the proper expectations internally around what support you’ll need to provide from your own team to make the production relationship successful and to deliver a quality experience to your customers.
Given the popularity of the shift from CM to JDM models over the last few years, I interviewed several leaders who have worked across multiple companies with these relationships and sometimes executed those transitions themselves. From there, I compiled a list of Best Practices you can use when considering your own JDM arrangement. Read on.
Best Practices for JDM Operational Excellence in Production
Staff production the same way you would a CM-model
There’s no such thing as a “Joint Production Model” – the D in JDM is for development. The model is about outsourcing and accelerating development. It’s not about outsourcing production, quality, and oversight.
The liability in production can be millions or tens of millions of dollars, especially for things that touch the body or can start a fire. There is too much company risk, and potentially even negligence, in having no in-house oversight.
“But what’s the problem if you set the specifications and the products meet them?” someone in finance might ask when reviewing your headcount request. Even for the best teams in the world, it’s unreasonable to expect that engineering requirements can fully specify every variation that could cause a problem – for example, a proud depanelization tab could slice into a LiPoly battery pack, but the engineer forgot to specify the maximum remnant size. Or the sharpness specification on an exterior metal component. These are the kinds of mistakes that engineers and leaders either learn as legends (from the time it happened a decade ago) or in the school of hard knocks for themselves. That’s why it’s critical for the company to have a real plan to provide oversight throughout production: so you can know as challenges arise and be part of defining the solution before they cause significant company damage.
Keep your eye on FPY and quality metrics
According to one supply chain leader, FPY is an excellent on-the-line predictor of field quality. That’s because it takes into account workmanship, design for manufacturing (DFM), and process capability. He tries to keep a close eye on FPY during production but has often struggled to get regular reporting from his JDM partners. Once a month is a lot of faith to put into a partner whose incentives are not completely aligned with yours (you want to delight your customers, and your partner gets paid to ship products).
One question I often hear from leaders newer to JDM models is, “Why should I care about FPY? The JDM partner signed up to deliver a certain yield and it’s on them if they cannot meet the target.” While this may be contractually true, FPY is not just some internal metric – it’s a predictor of field quality. Field quality has trickle-down impacts on return rates, refurbishment costs, customer satisfaction, online reviews, and revenue. Even in the most ironclad contracts, not all of those impacts are something the JDM will pay for.
This need has led many companies to invest in getting their own automated reporting – either by leveraging a technology partner like Instrumental or building their own data repositories with reporting. Instrumental provides real-time FPY and insights broken down by station and test, giving your responsible individuals oversight and transparency into what’s happening on the line at any time.
Reduce costs and renegotiate your BOM (if you didn’t opt for free NRE)
When companies first hire JDMs to perform non-recurring engineering (NRE) and design in development, they can opt for one of two options:
- Free non-recurring engineering (NRE) with a small (5-10%) BOM cost adder in production
- Paid NRE with deep involvement in sourcing and pricing
If your company has gone the first route, you’re locked into the absolute value of that BOM adder for the length of the contract, even if the baseline BOM costs can come down.
If your company has paid for its NRE, however, you have the opportunity to renegotiate the BOM during production. This enables you to take advantage of new opportunities that may not have been possible to anticipate upfront. This could include joint investment in automation that can bring down the transformation component of the BOM. One leader shared, “Our JDM partner took on another client who had the same expensive off-the-shelf component in their product, so in production, we all benefitted from much larger bulk purchasing from our combined volumes.” Since the NRE isn’t on the BOM, these changes have a larger impact on the product margin than they would have if that had been the case.
Be vigilant for inevitable team changes
During production, JDMs may reassign the team supporting your product. Contracts can be drafted to attempt to prevent this – but sometimes people quit, and there’s not much the JDM can do about that. You should just prepare for this to happen and plan accordingly.
This team turnover is why it’s critical to have worked with your JDM to set up documented processes and oversight plans that enable your team to keep an eye on what’s going on, even if someone new is coming up to speed. It also emphasizes the need to have staffed your production sufficiently with your own in-house team – so they can maintain vigilance and continuity through those changes.
In particular, leaders recommended proactively building weekly or daily oversight of yield (FPY and final yield), IQC, and OQC – because that’s where most of the problems will arise.
You Can Throw Money At the Problem
When companies employ a JDM model, it’s often coupled with the attempt to lower in-house engineering headcount. However, if a company has mistakenly assumed that they can outsource quality and operations to the JDM in production, they generally lose the oversight they need to ensure high (or tolerable) yields and quality. Maybe it works out fine for them once, or even twice, but eventually, lack of oversight will cause a very expensive problem.
Clawing back to a good place on yields and quality may require significant spending. Usually, it means hiring engineers and Engineering Program Managers, increasing the number of boots on the ground at the factory, and potentially even significant process overhauls. But when push comes to shove, this may be the last and only option available – and much of the savings planned from the JDM model can be wiped away very quickly.
The relationship with your JDM is established during NPI – and while there are some places where misalignments can be course-corrected in production, they are often expensive because so much is on the line. If you take away one thing from this article – it’s to have built your own oversight into your production plan with your partner. If you have time-relevant oversight of your critical manufacturing metrics, you can often head off these issues early, saving significant expenses.