Zentech: Expanding EMS Solutions and Supporting Innovation

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zentech_isocert.jpgWe currently do a lot of Aerospace Specification 9100 and medical ISO 13485, which is heavier weight, quality system work, and having a model that's more of a straight ISO9000 model like CA&D’s can help us be a little bit more cost-effective on the smaller volume, quick-turn prototype stuff. And that leads to earlier engagement and positioning within emerging programs. That was attractive to us. I have tasked our VP of Sales and Marketing, John Vaughan, with rolling out a ZenPRO (Prototype and Rapid Order) service near term to our combined customer set, to leverage these new capabilities.

CA&D has a much more extensive cable assembly and wire harnessing offering than we've had at Zentech. We are IPC-certified for cable assembly at Zentech and have IPC-certified operators and inspectors, but we have traditionally limited our cable assembly to supporting box builds for our current programs and not pursuing stand-alone cable assembly opportunities. Now, having a more mature organization that's used to doing high-complexity cable and wire assemblies is certainly going to open up that market to us. On the machine shop side, we currently rely on outside support for machining and sheet metal at Zentech, but when you're trying to shrink the overall lead time of a project, particularly on a prototype, having a captive source can dramatically shrink the lead times. Those are some of the capabilities and growth we’re targeting.

Matties: That will help with overall quality as well as lead times, because you then control every facet of the quality in each step. 

Turpin: Absolutely, although to get your supply chain right you have to make sure you deal with suppliers that have good quality. But certainly any time you're collapsing the lead time, which you are oftentimes forced to do because of customer requirements, quality is generally the one area that is at risk. And you're right, having that under your own control helps mitigate that risk and the collapsing lead times.

Matties: It's interesting because we are working on an upcoming issue that is focusing on the supply chain. So we’ve been conducting surveys, and overwhelmingly we are finding delivery times are a huge issue in each area, and quality is also an issue. You mentioned that, if you source it right, your quality is there, but I'm finding that with regard to sourcing, it is very difficult to get delivery and quality in a complete package. Not saying it is not achievable, but it seems to be one of the largest obstacles we face in the industry. We’ve also found that supply lines with obsolete components or base materials such as laminates are also challenging. Do you see that in your own supply line?

Turpin: We do. Certainly, when you have to do things quickly and are enabling people to innovate faster and more efficiently, that's generally where you get caught. In a five-year program, you can generally set up your supply so that you mitigate all those risks and shortages and such. But when you have a new product that's coming out and the engineering group doesn't necessarily have their supply chain set up, if you have designers working with that innovation center and know ahead of time what materials or issues you can expect, you’re able to do the pre-planning—particularly if you have direct control of the supply chain.

In a perfect world, you don't need to vertically integrate if you are using a good supplier. In a perfect world, you can set up all your systems so you don't have to worry about quality. But we don't live in a perfect world and the world becomes a lot more imperfect when you're collapsing lead times in a robust, innovative environment, where you're trying to get six weeks of work done in two weeks. Generally that is where things fall apart. In that model, vertical integration does make sense.

Matties: It sounds like this is where your acquisition comes into play, bringing all of those features in-house and giving you control.

Turpin: Correct, and certainly it is a benefit to us, but the ultimate beneficiary is our customers. The customer set that we have, fortunately, are investing heavily in new product development and design, particularly as compared to, say, four years ago. The level of design activity is a magnitude higher.

Matties: That is great news.

Turpin: It's great news for everybody and I think it's a sign of a resurging economy too, because it's not just our customers, but people I talk to in the industry. It seems to be a consistent sign that people are doing more and more new product development and investing in things like this. It's in the news; there are more companies, like Zentech, making investments, not just in capital, but in other businesses to help accelerate that whole process.

Matties: As you're making your acquisitions and looking at your competitive position in the marketplace, do you see automation as a key factor in your future?

Turpin: Absolutely, we do see automation in that light. Going back to the re-shoring discussion, there are a couple of things that have helped drive re-shoring and one is the financial industry. The interest rates in the U.S. are a lot lower than they were 15 years ago. Certainly, as compared to Asia, they are a lot different. The labor rate, fortunately or unfortunately, depending on which side you are on, has been more or less stagnant in the U.S. for the last 15 years—but not in Asia. They've grown by leaps and bounds, so that has helped normalize the labor cost. Of course, there is still a labor cost disparity between China and the U.S., and then certainly between the U.S. and Mexico, Indonesia, Vietnam and some other countries. Automation is the number one thing that people like Zentech and our machine and cable shops must do to maintain that productivity advantage compared to China and the other countries. That's the best way we can compete—by being more productive, investing in automation, getting it right the first time and then offering other cost advantages like time-to-market, speed-to-market, and so on.



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