How a VAVE Risk Mitigation Strategy Improves the Bottom Line

A VAVE analysis is considered a game changer to OEMs because of its potential for major cost reductions.

VAVE is not about a quick fix to cut expenses. Good EMS providers can leverage VAVE to improve product quality and lower lifecycle risk. This focus on risk mitigation will translate into long-term savings and greater revenue opportunities for OEMs.

Here are the ways VAVE teams are achieving this.

Entering the Market with Confidence

Being first to market is important, but it is ineffective if you are not priced appropriately. An OEM may have a great product but will fail in the market because of its high unit cost.

If a VAVE analysis is performed during the prototype phase, you will get expert opinions from your EMS partner on pricing strategies. Early supplier and engineering engagement, before the design is finalized, will ensure there is feedback and approval from all stakeholders.

Putting that upfront investment in VAVE will drive the unit cost down and allow you to enter the market at the right price point. You have an opportunity to capture a competitive market share and maximize revenue potential.

Extending your Life Cycle

A thorough EMS partner will put a large emphasis on quality and risk management when conducting a VAVE analysis. They will make sure that the product and all of its components will last the entire product lifecycle. This is usually done during the risk analysis phase, where your partner evaluates your bill of materials (BOM) and identifies areas of improvement to reduce risk within the product lifecycle.

Making sure that the product BOM has longevity will avoid redesign costs in the midst of the products life.

Part of their task is to get as many approved sources in the design as possible (more on that later) so that if one or two sources become obsolete in a few years, you still have a supply chain that won’t cause you shortages.

Experts in the Supply Chain

Mitigating risk is all about being able to foresee barriers and having a contingency plan to address them without missing a beat. OEMs that aren’t prepared will not be able to react quickly if a major quality issue arises.

Almost 93% of critical shortages where delivery is effected is attributed to OEMs single sourcing their components. That means there are other supply chain options available that haven’t been vetted or approved. When your customer wants an extra 10,000 units, a single sourced component on your BOM can cause you to lose revenue if the supply chain can’t react in time.

We often see in startups or smaller companies, a design engineer is simply not looking for multiple component sources under the pressures of a launch schedule. If they are looking, they may not have the supply chain relationships to identify the lowest cost options.

A capable EMS partner can help you design a sustainable supply chain. They can lessen your risk during a VAVE analysis by identifying and qualifying a second or third source for components, so if there are quality issues, you have the flexibility to adapt.

The BOM might start off with 80-90% single sources, but can drop to 20% single sourced after a successful VAVE analysis. This will not only improve the products longevity, but will eliminate unnecessary long-term costs.

 

 

What the Recent Conflict Minerals Compliance Ruling Means for Companies

United States Capitol Building, Washington, DC

Conflict minerals compliance is once again a hot topic in the manufacturing industry.

As companies are preparing to file their 2015 reports due May 31st, 2016, it’s important to note that the U.S. Securities and Exchange Commission (SEC) guidance for this reporting year has not changed, despite the recent legal headlines.

Confusion arose when the SEC allowed the April 2016 deadline to challenge the previous ruling of the Court of Appeals to pass.

The issue at hand was a specific phrase of the conflict minerals rule’s disclosure requirements, specifically, that disclosing that a product has “not been found to be DRC Conflict Free” violated the First Amendment.

Ultimately, the court found that requiring a company to make this statement in their SEC filing, which is posted on the company website, was unconstitutional.

Going Forward

Now that the SEC has decided not to challenge the ruling to the US Supreme Court, what does this mean for us?

Nothing should change for the upcoming May 31st 2016 reporting period. We forge ahead continuing to use the April 2014 SEC statement for guidance. Companies are not required to describe their products as “not found to be ‘DRC Conflict Free’”. They may choose to voluntarily describe products as “DRC Conflict free” if they have had the independent audit passed, however the requirement for independent private sector audits (IPSAs) had previously been removed for the 2014 and 2015 reporting year.

As we wait for the court of appeals decision to go back to the district court for further proceedings, we begin a new reporting period using the newly released CMRT version 4.10 released by CFSI.

In other words, it’s business as usual.

EMS Industry Still Conflicted over Conflict Minerals

PERMITTED USE: This image may be downloaded or is otherwise provided at no charge for one-time use for coverage or promotion of National Geographic magazine dated October 2013 and exclusively in conjunction thereof.  No copying, distribution or archiving permitted.  Sublicensing, sale or resale is prohibited. REQUIRED CREDIT AND CAPTION: All image uses must bear the copyright notice and be properly credited to the relevant photographer, as shown in this metadata, and must be accompanied by a caption, which makes reference to NGM.  Any uses in which the image appears without proper copyright notice, photographer credit and a caption referencing NGM are subject to paid licensing. You MUST follow these requirements if using the images: 1. Include mandatory photo credit with each image © Marcus Bleasdale/National Geographic 2. Show the October cover of National Geographic somewhere in the post (credit: National Geographic) 3. Provide a prominent link to: http://ngm.nationalgeographic.com/2013/10/conflict-minerals/bleasdale-photography 4. Mention that the images are "from the October issue of National Geographic magazine.” Workers rip the earth apart in search of gold at the Sufferance mine in the Ituri region. Much of Congo’s gold, more than $600 million worth a year, is smuggled across borders.
Photo: Marcus Bleasdale/National Geographic

How well do you know your supply chain? Does your supply chain have Conflict Minerals?

These are the questions manufacturers around the globe are being forced to answer as part of the Conflict Minerals legislation.

The aim of the law is to dissuade companies from engaging in trade that supports regional conflicts and human rights abuses.

A worthy cause, but many electronics companies – even global giants like Apple and Intel – are discovering that complying is no easy matter.

Under Section 1502 of the 2010 Dodd-Frank Act, companies filing with the Securities and Exchange Commission (SEC) are required to determine whether their products contain conflict minerals (tin, tantalum, tungsten and gold) that are necessary to the functionality of the product.

If so, they must determine whether the minerals originated from the legislation’s Covered Countries, like the Democratic Republic of the Congo, known to have associations with terrorist groups.

And unless the materials are from a recycled or scrap source, companies must also conduct due diligence on the origin and chain of custody.

The Cost of Compliance

The time, resources and capital necessary to identify the origin of these raw minerals has been challenging for companies, if not impossible.

According to a recent WSJ article:

 “90% of the 1,262 companies that filed conflict-mineral reports with U.S. securities regulators last year said they couldn’t determine whether their products are conflict-free.”

As commodities, a good portion of these minerals are bought on the open market, making the paper trail for some raw materials almost untraceable.

So what’s a company to do?

At Creation, we’ve seen many of our OEM customers face this challenge head on by outsourcing this process to leaders in the compliance reporting field.  These providers, like Creation partner GreenSoft Technology, help by gathering intelligence and maintaining product and component data.

We’ve even seen some OEMs adopt a very proactive Design for Environment / Design for Supply Chain strategy in order to describe their products as “DRC conflict-free.”

CM3
Photo: Marcus Bleasdale/National Geographic

Evolving Requirements

Despite all of the challenges and the approach a company takes, most organizations are on side with the legislation.  After all, it’s intended to eradicate the exploitation of people, terrorist-funded operations, and human rights abuses.

The business challenge remains how to navigate the reporting requirements as the legislation continues to evolve.

A few weeks ago, the U.S. Court of Appeals reaffirmed its previous ruling that requiring companies to declare a Conflict Minerals compliance status is “compelled free speech” and violates the First Amendment. But that doesn’t let companies off the hook as the rest of the legislation remains in effect.

As GreenSoft said in a recent blog post:

Although Affected companies will still be required to report or disclose their conflict mineral data, the provision requiring companies to state whether their products are “DRC conflict free,” “not been found to be DRC conflict free” or “DRC conflict undeterminable” has been struck down.

Making Smart Supply Chain Decisions

While the debate continues, and the legislation and the guidelines evolve, the fact is that companies are still struggling to comply. The IPC association has recently published a white paper that is designed to help guide companies through the process.

OEMs, (especially those filing with the SEC directly), rely heavily on their partners to help them navigate the changes, collect the necessary information, and stay informed.

At Creation, we will continue to help our customers make smart Design for Environment decisions, as we work with our supply chain partners to make the data collection and reporting process easier.

We believe the key is partnering with the right suppliers.  Suppliers that are responsive, ethical, credible, and educated about how they impact product compliance in the end-to-end supply chain.

 

How do you feel about the recent U.S court of Appeals Decision? Will it affect your current strategy to comply with Conflict Minerals legislation?

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