OEM: tOgether Everyone achieves More
Over the last two weeks, we have been nose down improving our tech, negotiating a few deals, and supporting our clients. But we wanted to complete the answer to Mr. Rob Barrimond’s question on “How to best manage IP with regards to OEMs?”. Last time, we spoke on the six steps of good IP hygiene. This time, we will speak to how to select your OEM. The two together helps to answer Mr. Barrimond’s question.
A retired Navy mentor shared with me one time “expect what you inspect”. The natural extension of that statement is that “the level of your expectation is proportional to the results and quality of your inspection”. That is a thorough inspection with quality results will mean you should have positive expectations from the manufacturing process and manufactured technology.
Areas of Strength. Each OEM will ideally staff up and purchase equipment to its strength and outsources its weaknesses. In controlling your supply chain, you can hire each outsourced organization. We use and have deep relationships with our component vendors. The component vendors are an important part of our team. That is, each team member in our supply chain plays to their strength. Therefore, we strategically manage the relationships and align their interests.
Portfolio Companies. Each portfolio company (PC) provides great insight to what you will expect from your OEM. This includes what do the PCs do (i.e. do they use similar manufacturing processes as your technology?), the brand equity associated to the OEM’s quality and performance (i.e. how do the PCs feel about working with the OEM?), and the financial performance of the OEM. Therefore, PCs can give you specific insights into how to get the most out of the OEM.
Financial Health. The stronger your OEM is, the better for you. If you are not able to get the financial statements from your OEM, there are key leading indicators of their financial health. Many OEMs are privately held concerns and so getting their books might not be easy. The best indicator is their year over year growth. Ways of looking at that includes their top-line revenues, staff increases, number of shifts, size of the firm (sq. ft.), and number of new (and total) pieces of equipment are the indicators that we have used. Of course, this does not give as specific as their financial statements, it does however provide an indication that this is a healthy partner.
Innovation History. Your OEM should be a 1) manufacturing partner, 2) financial partner (help you with your cost of goods and inventory), AND 3) technology partner. You want an OEM that will help reduce your cost of goods sold. This process needs to be measured and incentivized. You have to know the cost of all components, cost of assembly, cost of inventory, cost of shipping, etc. If they are able to lower that cost by $1, how many cents do they keep is their incentive to find cost savings. Proper measurements are the way to know that that $1 is saved. The more innovative the OEM, the better overall your profitability will be. The caveat here is 1) that all improvements are owned by you, 2) that the OEM has a solid reputation, 3) the starting price is profitable, and 4) that the incentive is attractive enough to your firm. The incentive being attractive to you is important inasmuch time and competition will erode your profitability. If you are not able to continuously to lower your cost of manufacture, ship, etc., your business will slowly become nonviable. Therefore, there has to significant room in the savings to accommodate a drop in prices.
Conclusion. Now, in answering Mr. Barrimond’s question, we suggest that you manage your IP carefully. Then, you have to select your OEM carefully, as well. Together, you can ensure that you do not have to concern yourself with “How to best manage IP with regards to OEMs?”. That is, the question is not how to make sure that they do not abuse your IP. In general, they are not in the business of misusing or stealing your IP. Why? They would lose their PCs and sued at minimum. The question, however, is how to best manage your IP and select your OEM. Your IP is the core of your business. Your OEM should be your partner in helping you monetize your IP. Therefore, you should expect that your OEM will help you make your IP more valuable. Therefore, select your OEM that is most strategic for your IP development.
