Outsourcing is changing the way U.S.-based companies do business. NCR Corp. and redbox are two in point, and each is reaping the benefits of having someone else do the manufacturing "dirty work" for them.
Redbox, based in Oak Brook Terrace, Ill., is a small company jointly owned by Coinstar Inc. and McDonald's Ventures LLC. Redbox operates a small army of DVD-rental kiosks located in McDonald's restaurants and grocery stores throughout the United States.
Dayton, Ohio-based NCR manufactures kiosks for multiple applications and businesses, most notably financial institutions and retailers.
Both companies have partnered with the Milpitas, Calif.-based Solectron Corp., provider of electronic-manufacturing services and integrated supply-chain solutions. In redbox's case, Solectron is manufacturing redbox's entire line of kiosks. In NCR's case, the company is overseeing the manufacture of specific segments.
Redbox and NCR, despite their differences in size and focus, have taken advantage of their outsourcing agreements with Solectron.
Franz Kuehnrich, vice president of engineering for redbox, said designing and building its own kiosks from scratch was a quickly scrapped notion.
"We were emerging into a new market and emerging quickly," he said. "The timeframe where you have to establish yourself is fairly short. There really aren't enough years to work yourself into the space you need to be in, manufacture and deploy your hardware, and be successful. You have to be out there in weeks, not months, or else the door of opportunity closes."
Solectron isn't the only manufacturing giant with toes in the self-service world. In February, Flextronics acquired WebRaiser Technologies, whose Vendi platforms power applications such as bill payment, photography, public-Internet access and e-commerce.
Flextronics, which manufactures electronics for companies like Dell, Ericsson, Hewlett-Packard and Siemens, reported sales of $15 billion in 2006. The company operates factories on four continents and has approximately 99,000 employees. During the third quarter of fiscal year 2005/2006, Flextronics announced profit that nearly tripled from the previous year.
Focusing on the core
Kuehnrich said in order for redbox to develop, build and manufacture a kiosk suitable for a quick expansion, it would have had to shift its focus from what it already targeted as its core competency, DVD rentals.
Mike Webster, vice president and general manager of NCR's Self-service division, said going with an electronics-manufacturing-services provider "allows us to leverage our providers' experience" and "focus on our core competencies. All of it is done with a keen eye toward benefiting our customers."
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| The Solectron manufacturing plant in Milpitas, Calif. |
Britt cited the high rate of growth in emerging markets like Asia and Eastern Europe as a reason companies are turning toward EMS partners. The cost to develop, manufacture and then successfully deploy a kiosk network, including its supply chain and services, is too much for many companies. The solution, Solectron maintains, is to turn toward an EMS partner that has those resources in place.
"We have worked through our broad spectrum of customers very hard to develop local suppliers in the emerging markets, specifically in this area around the mechanical supply chain," Britt said. "And that's a benefit to the customer as we engage in helping them design the product, not only for lead time, but also for cost reduction."
Britt said through programs called "Redesign for Cost" and "Redesign for Lifecycle Extension," Solectron is able to extend a product's life expectancy by years.
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"We can reestablish that product through a redesign and help the customer generate more margin into an existing product, where maybe they weren't investing the resources to redesign that product because all their resources were diverted to generating new products," he said. "We find that our customers just don't have the R&D resources to do that."
Redbox considered quality assurance and the added value of engineering support. And experience is the first thing NCR looks for when assessing a manufacturing partner, Webster said.
"We want a level of experience that aligns with our volumes," he said.
Kuehnrich and Webster say the outsourcing model will become more prevalent in kiosk manufacturing.
Possible disadvantages?
Webster said there are no disadvantages to outsourcing, rather there are "trade-offs," such as issues with an EMS company regarding flexibility and the speed to market, that must be accepted.
Kuehnrich said in the DVD-rental space, nimbleness and speed were key factors, since redbox was entering into a relatively untested retail market.
"If a company does not have the in-house knowledge and wherewithal on how to go quickly on a ramp up, then the safer route is to go with outsourcing," he said. "But there is a lot of risk mitigation."
