CASE STUDY

Teradyne Outsources

Manufacturing,

But Keeps Visibility

and Control

BY JEAN V. MURPHY

Having visibility into its contract manufacturers allows Teradyne to better manage component sup-

plies as well as finished inventory.

Like a lot of high-tech companies, Teradyne in recent years has outsourced the bulk of its manufacturing and assembly operations to contract manufacturers. Unlike many such companies, however, the supplier of automatic test equipment managed to maintain visibility and control of its outsourced operations, while at the same time implementing processes to mitigate supply risk, reduce costs and improve customer service.

Jim Wood, director of supply chain information systems, cites two reasons for this success: Teradyne’s innovative use of Kinaxis RapidResponse software and a “heavyweight internal team” that reengi-neered the way the company works with suppliers of high-value parts. “Even as we moved to an outsourced environment, where the contract manufacturers actually

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place the purchase orders for parts, we still applied the supply chain principles we had developed,” says Wood.

Teradyne’s automatic test equipment is used by the semiconductor industry and also for testing complex electronics in automotive, computing, telecommunications, aerospace, defense, and consumer electronics products. The decision to outsource manufacturing added another layer of complexity to an already complex supply chain, which begins with the nature of Teradyne’s products. Its testing systems can have as many as 5,000 components, including some very expensive parts, explains Wood. “You have to have a lot of electronics to test state-of-the art electronic devices,” he says.

End products are big pieces of capital equipment that generally sell for half a million to a million and a half dollars. While not designed to order, the testing equip-

ment is highly configurable. “Think of buying a personal computer and choosing what kind of processor, hard drive, video card, monitor and so on that you want,” says Wood. “Then multiply that times a hundred and you have an idea of the number of different options you can buy with our systems.” As a result, he says, “ours always has been a relatively high-mix, low-volume type of business.”

It also is an extremely cyclical business. “Capital equipment generally is at the tail end of the bullwhip,” says Wood. “Many of our customers, like the semiconductor industry, also are boom/bust kinds of industries, and we get jerked around on that as well. Demand is very unpredictable.”

Unpredictability has increased in recent years due to another aspect of the outsourcing trend—Teradyne’s customers are push-