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How to Develop Mutually Beneficial OEM Relationships
The Editorial Team2010/7/16

Want to know a secret? When it comes to production, demand sometimes outstrips demand. A number of reputable security manufacturers rely on OEM partners to deliver products in a timely fashion, requiring trust and effective communication.

Want to know a secret? When it comes to production, demand sometimes outstrips demand. A number of reputable security manufacturers rely on OEM partners to deliver products in a timely fashion, requiring trust and effective communication.

The OEM business is hush-hush in the security industry, yet it is essential for continued operations. While manufacturers do not always acknowledge their suppliers, it is an open secret that Asia produces most of the equipment for American and European brands. This ensures a stable supply of products and keeps Asian equipment makers in business. Rumors fly about which Asian supplier delivers to what brands, cementing how OEM contracts are a given in security.

Outsourcing production can be cheaper in some countries, compared to labor and material costs in the West. Factories and production machines require space and expense, which is why a partner's existing facilities are an attractive option for meeting production shortfalls. Also, Asia's IT know-how ensures quality is as good, if not better. Moving production overseas can be a clear win-win solution for security brands and equipment manufacturers.

Overseas production has proven so effective that some companies have set up shop outside their home countries. Two such companies are Bosch Security Systems and Panasonic System Networks, which established production facilities in China. Unlike traditional outsourcing, most OEM contracts are for a limited number of products, rather than a complete product lineup.

Despite the advantages of overseas partnerships, plenty can go wrong. Stories run amok of unscrupulous Asian makers who “borrow” features from their OEM'ed equipment, with the same features appearing at the next product launch. Some Asian suppliers — such as Korean DVR powerhouse IDIS — assuage this concern by not having their own brand, choosing not to compete against their clientele. However, not having a branded identity reduces a supplier's visibility and its chances of winning OEM contracts. It is also difficult to survive long-term by producing for contract alone.

Integrity is an old-fashioned concept that remains relevant for business today. “Speco Technologies is currently celebrating its 50th year in business,” said Gary Perlin, VP of Video Products, Speco Technologies, a video manufacturer. “This accomplishment would not have been possible without having ‘world-class' partners to support us, but what brings a partner into this category? One word: honesty.”

A number of things can go awry, which requires frequent and open communication. “There will always be mistakes, defective products, misunderstandings, shipping errors, improper paperwork and more,” Perlin said. “This has to be accepted as a byproduct of doing business. It is how these situations are handled that makes a long-term relationship work.”

Accountability is a hallmark of a good partnership. An OEM maker must provide consistent service for a lasting relationship. “Our suppliers must be a reliable source for pricing, quality and product continuity,” said Patrick Lim, Director of Sales and Marketing, Ademco (Far East). “We cannot allow our prices to fluctuate, the quality must be consistent and the product cannot be discontinued abruptly. If there are any manufacturing faults with the products, we expect the manufacturer to take responsibility, as we will with our customers.”

For a security provider like Ademco, its brand image makes finding the most dependable supplier more important than scoring the best deal. “If performance is
met, we will source for the most cost-effective product for our long-term needs,” Lim said.

Axis Communications, the leading maker of network cameras, does not OEM its finished products. However, it does require third-party components to power its equipment. “As a premium product manufacturer, we have to use the best components in the industry,” said Oh Tee Lee, Regional Director, South APAC, Axis Communications. “We will not settle for cheap components that are not to our standards.”

The company takes its environmental responsibility seriously, with an in-house engineer dedicated to evaluating vendors on their environmental practices. “Axis is a green company; we do not do business with companies that aren't environmentally friendly,” Lee said.

Market Demand
A security provider must determine what products are in demand, long before it looks for OEM vendors. Last quarter's product may require some fine-tuning, but cannot be so advanced that users cannot use it. “Experience lets us know what is needed in the market — we know a lot of interior design companies, construction companies and so on,” said Steve Harle, Deputy MD of ISS Security Services.

As a distributor, ISS interacts with installers and integrators. Their opinions influence which products it chooses to stock, usually directly from specific manufacturers. “Ultimately, our customers are the ones that will be using and operating the systems,” Harle said. “So at the start, we need to find out what they want and what they need.”

Ademco conducts quarterly surveys through internal and external channels to stay ahead of the market, Lim said. Aditya Infotech is one of India's largest video distributors, with 30 branches in India. It maintains close links to Asian manufacturers with offices in China and Taiwan. “We keep a direct check on the market demand trend via our enormous dealer segment interaction, servicing the end users of surveillance products on a day-to-day basis,” said Aditya Khemka, CEO and Director for Aditya Infotech.

The company' s branded products are distributed as CP Plus. “The introduction of CP Plus is to give customers an added advantage in terms of options, while selecting quality solutions having the best performance and cost combination,” Khemka said.

Product Criteria
Ensuring product scan match up to expectations is the gold standard for OEM. The manufacture may not take place in-house, but the final product has to perform as if it rolled off the original product line.

This straightforward concept is notoriously tricky to replicate in real life. Quality control becomes a deciding factor in selecting vendors. “We have a technology center that we test the products extensively, sometimes for many months,” Lim said.

International certifications are reviewed, to see if suppliers conform to relevant standards. “We visit our partners' other installation sites and production facilities too,” Lim said.

Finding good suppliers was a boon for Axis, which deployed a P-Iris technology from Japan for a 3-megapixel camera. The precise iris control effectively improved image clarity even in challenging lighting conditions, Lee said. It provides images with better contrast, clarity, resolution and depth of field.

A product must perform reliably after initial tests. In Harle's experience, tested equipment may get the job done, but fail after a period of time or fall short of vendor hype. “We sold an access control system on the basis that it could do XX,” he said. “When we came to install it, the supplier asked us to change the controllers. We change the controllers, but it still didn't come up to expectations. We were then told to do A and B with the software, which we did. After maybe one month, we were told the system couldn't do what the supplier promised it could do.”

Performance outweighs upfront product costs. “The customer on a multimillion-dollar project isn't worried about an extra US$5 or $10 per camera,” Harle said. “He's worried about the initial system he's receiving, then the backup services and maintenance from company he's dealing with. You wouldn't get either of that if you went and bought a cheap camera from the local market.”

In short, an OEM supplier has to deliver results consistently. Overpromising or rigged product demonstrations will only result in disappointment and less business. While the label on the box may not be the supplier's name, it reflects poor judgment to cut corners for an extra buck. Landing big OEM contracts requires exacting quality control, open communication and ethical conduct.

Messe Frankfurt New Era Business Media Ltd. All rights reserved. 2016/10/23 print out