28 February 2012
Strategic relationship helps security company unlock new export markets
The trend amongst electronics companies is to outsource manufacture of their products and the larger the projected sales volume, the further away the contract manufacturer tends to be from where the product has been designed.
Yet a Brighton based company has decided to go against the flow: it has brought pcb manufacture back from a West Midlands subcontractor into a purpose built factory. Along the way, it has forged a strategic relationship with an electronic components distributor. Now, the company is poised to take advantage of both moves to address the future with growing confidence.
Paxton Access, a leading manufacturer of electronic access control systems, was established in 1985 to design and manufacture intelligent and innovative products that are fit for purpose.
The market which Paxton addresses is large, but it has the advantage of being one of only a handful of companies selling access control systems on the UK market. Currently, 80% of revenues come from sales through UK distributors, including some well known names, but that is set to change as Paxton looks to enter a new growth phase by targeting the export market.
Paul Rawlinson, Paxton's joint managing director, whose responsibilities include R&D and manufacturing, said the company is looking to grow sales by 25% in 2012. "We have just launched our first new product for five years and will be following that with another in the next few weeks. Developing both products required substantial financial investment and it's an exciting time for Paxton."
The latest product is Net2 PaxLock, a battery powered access control unit contained in a slimline door handle. It communicates with a server over a wireless link. Said to be simple to use and fit, the system is suitable for use with internal doors.
Meanwhile, Paxton has been on a growth curve for the last couple of years and, according to technical procurement manager Timon Mutter, this has been strong over the last decade. "The company has shown an average growth in sales of 19% a year for the last 10 years. Even last year, our sales grew by 15%."
But success brings with it some challenges. Mutter explained: "We have invested around £1million to create a surface mount/through hole pcb manufacturing facility in Eastbourne. All of a sudden, we have found ourselves needing to buy significant quantities of components. We needed the right partner – both technically and commercially – and Future Electronics has filled the gap. Future is now Paxton's number one supplier and it's a strategic relationship which is beneficial to both sides."
Rawlinson expanded. "We decided to bring manufacturing in house, but had to look at the cash flow and what Paxton could achieve. We talked with Future, with whom we were spending a relatively small amount. The result has been better control and better prototypes.
"One of the problems of using a sub contractor is that we couldn't tell them to use a particular supplier and that meant we didn't have as much control over quality as we would have liked."
While Future brings obvious benefits to Paxton when it comes to component supply, it is also providing unexpected benefits through technical support.
Mutter said: "Future is helping us when we're looking at developing new products. While our engineers will take a spec and work on an architecture for the idea, we also need to know what's out there; for example, processor choices. Should we be looking at an ARM based device, for example, and what are the cost and availabilities?"
But while there is help in identifying the right components for future products, Future has also taken a look at existing products. "Future has looked at some of our key products," Mutter continued, "and came up with a redesigned bill of materials for cost reduction in one of our key products. This process will be completed in the next couple of months.
"We have 25 development engineers addressing the hardware, software and mechanical aspects of our products. There's only so much resource available, so cost reduction of existing products takes a back seat because we're looking to develop new products," he added.
Simon Groat, Future Electronics' area sales manager, said the redesign started as a commercial transaction, but moved on rapidly. "There was a high value part on the board which Future wasn't supplying," he said, "so we asked ourselves what could we do? Future's engineers had a look at the design and, rather than sourcing the product on Paxton's behalf, we looked to add value by removing the part altogether. We engaged with another supplier and generated a schematic."
Since then, Future has taken a look at a Paxton power supply. "While Future didn't hit our cost target," Mutter observed, "it's another example of how we've been able to focus on new product development, while Future has done work we didn't have the opportunity to do."
Groat pointed out another benefit. "Customers get the benefit of an aggregation of our experience. As a company, we see a lot of examples of how things are done well, but we also see things that aren't. This allows us to say 'be careful with this' and so on."
An example is helping Paxton with the selection of microcontrollers and even arranging for a leading supplier to give an insight into its road map. Mutter said: "There are a number of companies supplying ARM based microcontrollers. One may offer a cheaper product, but that might not have all the features we're looking for. So we need a cost benefit analysis; we need to know the pricing is right and we need to know the product will be available when we need it."
Groat explained the relationship with Paxton. "We've gone a step further with this strategic relationship. We're trying to link all parts of the supply chain, so when Paxton has an idea for a new product, we can start engaging with manufacturers to feed in their requirements."
Although Future and Paxton have a strategic relationship, it's not exclusive; Paxton still deals with other distributors. Prototyping is one example. Mutter said that, if Paxton's engineers wanted something straight away, 'you can't beat the likes of Digi-Key'.
"We might also go to a supplier like Future in order to get the part as soon as possible. But our relationship is such that we should already be engaged in the process and have ideas about parts and availability – and part of that process is the supply of samples."
Groat reinforced the concept. "The best use of Future is to bring us in as early as possible in the design cycle – and that can be as early as when someone comes up with an idea."
Mutter pointed out that Paxton has a separate research side, where engineers are working on longer term projects. Groat said the relationship between the two companies also played well here. "We can interact on a number of levels – from the 'here and now' all the way to 'blue sky thinking'. That requires different levels of expertise and there has to be connected thinking; Timon helps us to connect."
While design is one element; managing the manufacturing process is another challenge. Instead of calling off boards from a supplier, Paxton is now charged with organising its own requirements. "One of our challenges," Mutter conceded, "is the ability to forecast demand with confidence. Alongside strong growth in demand, we also experience 'spike orders'. This has required Future to make an investment in stock; as we have a lean manufacturing operation, we need to be able to call for components at short notice."
Looking at the relationship from his position as joint managing director, Rawlinson is pleased. "Our engineers now know who to talk to; they didn't before and mistakes were made. Now, we're getting good results."
But he also realises that Paxton is now a somewhat different business. "We have always been a manufacturer, but it was basic assembly. Now, we're an engineering company and we're doing the difficult stuff. Future gives us the ways and means to do it. Good clear communications might sound like a little thing, but we've never had it before."
Mutter underlined the view. "Future has good knowledge and carries a large inventory, but the critical thing for us is that it understands what our engineers are thinking."
Working closely with Future appears to have allowed Paxton to face the future with confidence. Rawlinson concluded: "We have been worrying about cash flow since 2007; using a sub contractor was affecting our time to cash. The relationship with Future has helped us to concentrate on the road ahead. We wanted to go forward with a distributor who would work with us to meet the challenges of growth, but we wanted to do things our way. Even so, we have had to make an effort to make the relationship with our chosen distributor work."
Bringing benefits to smaller companies
Chris McAneny, pictured, director of strategic business development for Future Electronics EMEA, says the UK's industrial landscape looks very different today. "Instead of major electronics companies, there is an abundance of vibrant and creative small and medium OEMs – and most are consumers of electronic components.
"It is very common that a distributor like Future will play an integral part within their customer's business, via such activities as design support – as part of a make or buy decision – and supply chain management.
"Working capital is another pressure point for SMEs. Here, companies like Future can offer significant support by funding the cost of inventory holding and by offering extended credit terms."
McAneny believes a well designed business model that leverages the core competencies of a company and its distributor will have significant advantages. But he points out that 'one size does not fit all'. "Each customer has individual requirements and distributors need to use proven building blocks of competence and experience to develop a solution that delivers tangible benefits to both parties."
Looking to play a greater role in this market, Future has created FAI Electronics to offer a range of services that have generally been available only to larger companies.
FAI is looking to build business relationships and to accelerate customers' time to market. Included are such services as: guaranteed availability of stock; enhanced credit terms; local language telephone technical support; and lower than standard minimum quantities for online orders.