Article

Outsourcing offers alternative

ATM manufacturers reap benefits from outsourcing deals.

April 29, 2007

The writer is editor ofSelf-Service WorldandKiosk Marketplace, ATM Marketplace's sister sites.

Outsourcing is changing the way U.S.-based companies do business. In January, NCR Corp. announced plans to realign its ATM manufacturing - a move that resulted in an outsourcing dealwith Milpitas, Calif.-based Solectron Corp. and the cutting of some 1,200 jobs.

"Managing three separate factories (in the Americas) is hard to manage," Bob Tramontano, NCR's vice president of self-service, told ATM Marketplace in January. "We feel very sure of our capability to manage each of the (contract) sites to make sure the customer knows he is getting the highest quality from NCR."

Competition and cost have made outsourced manufacturing a viable alternative, not only for ATM manufacturers, but technology providers across the board.

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Solectron's vice president for self-service automation, Phil Metz, said the outsourcing of ATM manufacturing is likely to grow as companies like NCR invest in new-growth markets or build machines with additional functions and services, such as check cashing.

Oak Brook Terrace, Ill.-based Redbox, a self-service DVD-rental company owned by Coinstar Inc. and McDonald's Ventures LLC, also is working with Solectron for the manufacture of its DVD-rental kiosks. Redbox operates its kiosks in McDonald's restaurants and grocery stores throughout the United States.

Franz Kuehnrich, vice president of engineering for Redbox, said designing and building 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."

And 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, would have required a shift in company focus. AndMike 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."

Douglas Britt, executive vice president of Solectron's sales and account management, said it's time for original equipment manufacturers to rethink their strategies and focus on their core businesses.

"There's a better utilization of (the company's) working capital when you can partner with the manufacturing partner that has the capabilities of manufacturing and managing the supply chain," he said. "Is manufacturing a core competency or is it not a core competency?

Britt points to the high rate of growth in emerging markets like Asia and Eastern Europe as a reason companies are turning toward manufacturing and service partners. The cost to develop, manufacture and then successfully deploy self-service terminals, for instance, including the supply chain and services, is too much for most companies.

Turning to companies that already have those resources in place simply makes more sense, he argues.

"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."

Solectron also touts its ability to extend a product's life expectancy.

"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," Britt said.

NCR says experience is the first thing it looked for in an outsourcing partner. For Redbox, the focus was more on quality assurance and engineering support.

Kuehnrich and Webster say the outsourcing model will become more prevalent in kiosk manufacturing.