Feature Article

Eastern Europe: a Mosaic of Outsourcing Opportunities


Posted in Supply Chain by Camilla Andersson on February 8, 2013

EU member states that were formerly part of the Eastern Bloc are all over the map in terms of global competitiveness. An EMS supplier to medtech manufacturers explains why it chose to locate its facility in Poland, rather than in one of the EMS giants in the region, and how that benefits its customers.


Unlike many consumer products, medical contract manufacturing typically requires a skilled labour force, strong quality management disciplines, excellent systems for traceability and device history recordkeeping and the ability to support high-mix and/or low-volume production. In selecting the right electronics manufacturing services (EMS) provider, criteria beyond contractor capabilities should be evaluated. Factors to consider include economic trends in the region, workforce availability, education, turnover and logistics.

Regional economic trends

Employees at the Kimball Electronics facility in Poznan, Poland, manually inspect and assemble PCBA components.

In terms of manufacturing outlays and hidden costs, labour markets can be loosely grouped into three categories: emerging, established and mature. A given country can have multiple labour markets. As an example, overall the United States constitutes a mature labour market. However, variations in levels of employment, state regulatory policies, age of the available workforce, level of unionisation, cost of living and dominant employers in the region can change the cost structure. Each type of market category has tradeoffs.

Emerging markets are characterised by:

  • low labour costs;
  • an inexperienced workforce;
  • inefficient labour utilisation because of overspecialisation or lack of automation;
  • focus on consumer goods with lower quality expectations;
  • minimal infrastructure;
  • gaps in supply base;
  • difficulty in communications;
  • high potential for cost surprises.

Established markets are characterised by:

  • better labour utilisation and existing skills mix;
  • higher turnover in popular regions;
  • increasing use of automation, but equipment may be old or region-specific;
    preference for high-volume business models;
  • fairly comprehensive supply base (but service issues may be present);
  • possible communications issues;
  • market popularity may drive cost increases.

Mature markets are characterised by:

  • best skills mix and labour utilisation;
  • higher technology automation;
  • strong focus on high-level quality systems and continuous improvement initiatives;
  • specialised supply chain;
  • strong communications and programme management focus;
  • business-friendly environment;
  • good technical and educational infrastructure;
  • predictable costs;

Evolutionary stages
Eastern Europe’s manufacturing centres represent the full spectrum of these evolutionary stages. Countries such as Hungary and the Czech Republic have the largest EMS infrastructure, but they also have the higher costs and turnover issues that come with the evolution from an established to a maturing market. Turkey has relatively low labour costs, but harbours many of the tradeoffs associated with an emerging market.

The overall economic climate in a given country can impact a contractor’s ability to grow, hire qualified workers, meet production and delivery schedules and operate in a predictable cost structure.

 Table I: Overall rankings for former Eastern Bloc EU Members1

As shown in the World Economic Forum’s Global Competitiveness Index1 in the Global Competitiveness report, the former Eastern Bloc EU member states vary widely in global competitiveness rankings. (See Table I.)

Understanding the economic trends in a particular country can help predict the probability of cost increases or labour shortages driven by economic policies.

As an example, Kimball Electronics chose Poland and established its initial operation in Poznan in 2000. Although both Hungary and the Czech Republic were the more popular choices for EMS providers at that time, Poland has turned out to be a better long-term choice. The region has seen positive economic growth over the last decade. From an economic and business perspective, there are no barriers: there is still substantial growth potential without significant inflationary pressures. Comparatively, the EMS clusters in Hungary and the Czech Republic have focused on high-volume production, which has in turn driven inflationary pressures. Economies and cost structures in these more mature countries have grown and outpaced the cost structures the company has seen in Poland. Turnover is also higher in these more mature markets.

Workforce factors
Workforce availability, education and turnover are other factors to evaluate. Access to higher education and training can be critical in ensuring availability of workers with the higher level of skills needed in a high-mix, variable-demand production environment focused on mission-critical products. Table II shows a sampling of country rankings for higher education and training in the World Economic Forum’s Global Competitiveness report. According to the report, this set of rankings measured secondary and tertiary enrollment rates and the quality of education as evaluated by the business community. The extent of vocational and continuous on-the-job training was also taken into account.

 Table II: Higher education and training rankings for former Eastern Bloc EU Members2

Other factors to consider include:

  • language skills of engineering and programme management;
  • labour market dynamics such as turnover and availability of employees with required skills;
  • number of projects of similar size and scope in the facility;
  • quality of data collection systems.

An EMS company’s existing experience with high-mix and variable-demand programmes is particularly critical. Switching from a high-volume to a high-mix, variable-demand environment not only represents process change, it may also represent a fundamental cultural shift.

For example, Kimball acquired its initial facility in Poland from an OEM. Converting the workforce from a group focused on meeting the needs of a single company in a single industry to running a mix of projects for multiple companies over multiple industries was a training challenge.

Originally, employees were focused fairly narrowly in terms of job skills. As the company’s customer base grew in size and diversity, so did the need for greater flexibility in production activities on the floor. The requirement to maintain headcount meant that operators needed to be trained for several job stations. Initially, employees were uncomfortable with multitasking. They were accustomed to doing the same job repetitively. The company created an incentive programme that rewarded employees willing to expand their skills and knowledge through training. The rewards included promotion opportunities and pay increases. Some employees embraced this; others did not.

The new programme created a core group of employees called multi-operators. When demand varies, employees can be shifted between production lines. To qualify as a multi-operator, the person must be trained and certified for 60% of the job stations within the production area.

A strong management development programme was also launched. Polish managers were accustomed to a hierarchical structure where focus was placed on pure efficiency. Softer management skills weren’t part of the culture of the acquired facility. Kimball began including the facility in its Vision and Guiding Principles Surveys in 2004. In 2007, the Polish group included an additional step in the survey process to provide group leaders and production unit leaders with 360 degree feedback on soft management skills. Employee comments on areas needing improvement in previous guiding principle surveys were used as criteria in the feedback process.2

Turnover is one of the key measures used to track the success of employee development programmes. From a voluntary turnover perspective, Kimball’s Poland facility has averaged less than 1% turnover per month during the past year, in spite of the fact that the company relocated operations to a new facility, thereby lengthening commute times. Management tenure in the facility averages 10 years.

This example illustrates the level of cultural change required to refocus a facility on high-mix, variable-demand production. In this case, the results of a multiyear programme included turnover that is below labour market averages. Workforce stability has a direct impact on quality in complex projects. Consequently, supplier audits should look closely at:

  • factory turnover compared with averages in the region;
  • alignment of operator training and certification programmes and workforce utilisation strategies with high-mix, variable-demand production;
  • widespread use of tools such as lean manufacturing or Lean Sigma to drive a strong focus on efficiency and continuous improvement.

Logistics
Another factor to consider is where products are likely to be shipped. Aspects to take into account include:

  • whether or not the country belongs to the European Union;
  • transport options and likely costs;
    quality of the logistics-support infrastructure;
  • geographic proximity to predominant end markets or distribution centres.

Kimball’s choice of Poznan, Poland, offered significant advantages from a logistics standpoint. Poland is part of the European Union, so there is no barrier to market entry. From a logistics perspective, the facility is located 130 km from Gdansk, which is Poland’s largest port. Export to Hamburg is also easy. Munich and Frankfurt have direct links. Many customers have distribution centres in Germany and transport time to these centres is less than 24 hours.

Putting it all together
Eastern Europe offers a variety of EMS options. Selecting the right one requires careful evaluation of contractor capabilities as well as the alignment of a country and labour market with a project’s long-term needs. Key factors to evaluate carefully include:

  • experience of a particular facility with high-mix, variable-demand production;
  • inflationary pressures in the country and labour market;
  • overall economic stability of a particular region;
  • availability of skilled labour and average turnover in the region;
  • how systems and processes in the facility align with programme requirements;
    language skills of the programme team;
  • quality of logistics support and predictability of logistics costs;
  • proximity to preferred distribution centres and end markets.

References
1. World Economic Forum, 2010, The Global Competitiveness Report
2. S. Mucha, “Investing in Employees Is Still in Vogue,” Printed Circuit Design & Fab, 27, 4, (2010).

 

Tom Ferris is
Director of Business Development at
Kimball Electronics Group’s Medical Solutions, 6 Derra West, Listowel, Co. Kerry, Ireland
tel. +353 68 577 96
email: tom.ferris@kimball.com
www.kimball.com



Find more content on:
No votes yet


Login or register to post comments

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

What a blog post!! Very

What a blog post!! Very informative and also easy to understand. Looking for more such comments!! Do you have a facebook? I recommended it on digg. The only thing that it’s missing is a bit of new design. mancare acasa

Great post full of useful

Great post full of useful tips! My site is fairly new and I am also having a hard time getting my readers to leave comments. Analytics shows they are coming to the site but I have a feeling “nobody wants to be first”. Chiropractor Charlotte NC

Great job for publishing such

Great job for publishing such a beneficial web site. Your web log isn’t only useful but it is additionally really creative too. There tend to be not many people who can certainly write not so simple posts that artistically. Continue the nice writing

the best trick photography

I've just decided to create a

I've just decided to create a blog, which I have been wanting to do for a while. Thanks for this post, it's really useful! Billige GHD

Great Article it its really

Great Article it its really informative and innovative keep us posted with new updates. its was really valuable. thanks a lot.
how can i lower my blood sugar at home

This is such a great resource

This is such a great resource that you are providing and you give it away for free. I love seeing websites that understand the value of providing a quality resource for free. It is the old what goes around comes around routine.
small usb flash drive

Xamthone Plus

Jelly Gamat Gold Merupakan bagian Agen Xamthone terbaik & terpercaya, kami memberikan pelayanan terbaik penjualan Xamthone Plus via online atau transaksi langsung di tempat kami. Xamthone Plus Harga Ace Maxs Amazon Plus merupakan pusat grosir obat-obatan herbal terpercaya di Indonesia. amazon plus kulit manggis

It was wondering if I could

It was wondering if I could use this write-up on my other website, I will link it back to your website though.Great Thanks.
https://www.rebelmouse.com/textyourexback2review/

It was wondering if I could

It was wondering if I could use this write-up on my other website, I will link it back to your website though.Great Thanks.
http://slideshare.net

If more people that write

If more people that write articles really concerned themselves with writing great content like you, more readers would be interested in their writings. Thank you for caring about your content.
watch movies online for free

Really a great addition. I

Really a great addition. I have read this marvelous post. Thanks for sharing information about it. I really like that. Thanks so lot for your convene.
https://www.rebelmouse.com/thedesiresystemreview/

Thanks for sharing nice

Thanks for sharing nice information with us. i like your post and all you share with us is uptodate and quite informative, i would like to bookmark the page so i can come here again to read you, as you have done a wonderful job.
http://www.girlfriendactivationsystemreview.org/

This was a really great

This was a really great contest and hopefully I can attend the next one. It was alot of fun and I really enjoyed myself..
enriqueiglesias

Thanks for taking the time to

Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.
Diner transportable aarhus

This blog is really great.

This blog is really great. The information here will surely be of some help to me. Thanks!.
gfas girlfriend system

This is highly informatics,

This is highly informatics, crisp and clear. I think that everything has been described in systematic manner so that reader could get maximum information and learn many things.
how to buy the pdf

This is really a nice and

This is really a nice and informative, containing all information and also has a great impact on the new technology. Thanks for sharing it,
vaporizador de ervas

I really appreciate the kind

I really appreciate the kind of topics you post here. Thanks for sharing us a great information that is actually helpful. Good day!
judi sbobet

Great article Lot's of

Great article Lot's of information to Read...Great Man Keep Posting and update to People..Thanks
christian h. girlfriend system

What a fantabulous post this

What a fantabulous post this has been. Never seen this kind of useful post. I am grateful to you and expect more number of posts like these. Thank you very much. test e zigarette

This is a great inspiring

This is a great inspiring article.I am pretty much pleased with your good work.You put really very helpful information... https://www.rebelmouse.com/oldschoolnewbodyreviewf4x/

This is just the information

This is just the information I am finding everywhere. Thanks for your blog, I just subscribe your blog. This is a nice blog.. wooden garden trellis

This is such a great resource

This is such a great resource that you are providing and you give it away for free. I love seeing websites that understand the value of providing a quality resource for free. It is the old what goes around comes around routine.
natural vitiligo treatment system review

thanks for this usefull

thanks for this usefull article, waiting for this article like this again.
get her interested

The opportunities they have

The opportunities they have is really good. Something has been done to get it right. - Ellerslie Training

baf Recherche dans Video m’a

baf Recherche dans Video m’a conduit ici, je viens de trouver ce genre de lectures satisfaisante que je cherchais for. pdf to flash converter | pdf to word transfer

Reply

This era, global competitive markets is not a new thing to us. Unlike all the other marketers, the medical field also requires skilled labor, ample resources and all such things that are necessary to meet the demands of the consumers.
windows help and support

Machinable Glass Ceramic -

Machinable Glass Ceramic - Multi-lab offer BNP 2 Machinable Aluminium Nitride in blocks, rods, sheets and finished components for industries including aerospace.