Easton Electronics

Easton Electronics in Irvine, California, is a contract manufacturer that assembles complex solid- state circuit boards for advanced technology companies in the aerospace and health sciences indus- tries. The contract manufacturing industry is very competitive in terms of pricing and performance (quality and on-time delivery). Outsourcing clients specialize in the design of sophisticated electron- ics products and then rely on their contract manufacturing partners (like Easton) to produce their designs. Once a new product is designed, the advanced technology firm solicits firm, fixed-price bids for the electronic components.

A completed electronic component consists of several assembled circuit boards, a box con- taining the boards, cables connecting the boards inside the box, cables connecting the box to other components, and exhaustive testing of the complete box build. The technology firm either solicits bids for each separate component (box, boards, and cables) or selects an integrated supplier that can deliver a completely assembled box that has been tested. After receiving the initial bids but prior to selecting the winning bidder, the technology firm selects two or three finalists and then spends considerable resources to qualify new suppliers by sending teams of engineers and purchasing spe- cialists to inspect the bidders' manufacturing facility, procurement process, and quality programs.

Once a contract manufacturer is chosen, most clients are reluctant to switch to new suppliers because of the high search and startup costs of moving to a new supplier. Although some Easton customers source their metal boxes, boards, and cables from different contractors and then assemble the final electronic components into a complete unit that they test, most Easton clients rely on Easton to provide a complete unit (box, circuit boards, connecting cabling, and final testing).

Easton has recently acquired a wholly owned cable company (TT Cabling). With the acquisition, Easton has two profit centers: Irvine (which manufactures the boards, builds the complete box, and assembles and tests it) and TT Cabling (which only makes and tests the cables). Currently, TT sells most of its cables to a different set of customers than those who have their boards built by Easton. After the acquisition, Easton has a single sales force that sells board assembly, box build, and cables.

Easton assembles the electronic controller for a particular health imaging system for Scopics Imaging (SI). Easton manufactures the circuit boards, buys a sheet metal box designed specifically to house the boards, buys the cables to connect the boards within the box and other cables to connect the box to other components, tests the box, and delivers the completed unit to SI to plug the box into its imaging system.

Irvine currently purchases four cables for the SI program. The following table summarizes Irvine's cost foronecomplete SI box:

Fixed Costs Variable Costs Total Costs Metal box $ 347 $ 347 Circuit boards $1,460* 9,375 10,835 Cable harnesses 1,275 1,275 Box build and test 998* 720 1,718 Total $2,458 $11,717 $14,175 *Represents the proportionate utilization of both equipment necessary to populate the circuit boards with components and the testing equipment