Your Competitors are Outsourcing Their Manufacturing; Shouldn’t You?

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As an original equipment manufacturer (OEM), you will be focused on increasing sales and maximizing profits. But there’s a catch. You can only sell what you can produce and manufacturing complex industrial electronic products day in, day out can be a headache. As your sales start to climb, you move closer to hitting your internal capacity limits.

And when you start hitting these limits, there’s usually a couple of options left. You can either slow down your sales team in an attempt to catch up, or you need to start explaining to customers they will need to wait a little longer for their product.

Either way, these options don’t sound great, do they? 

But what if there was another way? A way of increasing sales and capacity at the same time? Thankfully, there is a solution and a large number of your competitors are already using electronics manufacturing services (EMS) providers for a number of reasons. Here’s why.

Say Goodbye to Limits

OEMs that decide to outsource are no longer constrained by the four walls surrounding their factory. They don’t have to worry about financing an extension to increase floor space or go through the hassle of trying to find a larger building. Clearly, they need to make sure that they partner with an EMS provider with the square footage to accommodate their needs, both now and in the future, but space (or lack of) is one less thing for them to have to worry about.

And with space removed as a concern, your sales team don’t have to worry about internal capacity limits. Instead they can focus on what they are really good at – supporting your customers through the buying cycle and making sure they address any pain points or concerns they have in moving forward with your solution.

A Virtual Shop Floor

The capital equipment you need to invest in and then maintain within an electronics manufacturing environment can be staggering. But thankfully when you outsource, that’s no longer your problem. You no longer have to convince your financial director or the banks that the latest piece of equipment you need to remain competitive makes good business sense. And you won’t need to renew those annual service contracts or have to start re-prioritizing customer orders if a machine goes down or an operator calls in sick.

Sounds like heaven, doesn’t it?

You’ll still need to satisfy yourself that any EMS provider you move forward with has the technical capabilities and capital equipment you need. But all of the associated costs that go with these will no longer be something you’ll need to worry about.

Addressing the Skills Gap

Attracting new talent into electronics manufacturing remains a challenge and with unemployment rates at a record low, retaining this talent can also be tough. And then there’s the ongoing time and cost of regularly training staff to ensure they remain as effective and flexible as possible so they can adapt to your customers’ ever-changing needs. But when you outsource, this responsibility is transferred over to the EMS provider. You will immediately have access to this ‘pool’ of talent which not only covers production staff, but also engineers, purchasing professionals and customer service representatives.

Depending on how far you go along the outsourcing spectrum, it’s likely you will still need to attract and invest in some talent, but your focus should be much more specific. What skills does your business really need to remain competitive? If you only had to focus on designing new products, marketing, sales and customer service, how would this change your approach to recruitment?

Getting a Grip on Demand

If the market you sell into is volatile or your customers’ delivery expectations continue to increase (thanks Amazon), then chances are you probably have too much stock in the eyes of your FD. Trying to predict customer demand is tough, and quite often, OEMs are forced to hold stock of each variant they sell ‘just in case’ they receive an order. If the lead-times to manufacture are shorter than the standard delivery lead-times offered to customers, then in theory there shouldn’t be an issue. But how long are we prepared to wait for our shiny new products when we order something nowadays? Not very long at all and the shift we have seen in consumer buying behavior is increasingly transitioning over to the B2B industrial electronics world.

Outsourcing allows you to reduce the physical amount of stock you hold which not only frees up precious factory floor space but also cash. And with the right service level agreements (SLA) and stocking policies in place with the EMS provider, outsourcing also allows you to react quickly to new demand as well as ‘controlling the flow’ when things tail off. Of course, you will still have stock liabilities in place with the EMS company, and these will need to be carefully managed through regular forecast meetings. By working closely with the supplier and agreeing the details of an appropriate SLA, you should be able to offer a much more competitive lead-time to your market before the competition swoop in and undercut you.

So, what are you waiting for? It seems like there are a huge amount of benefits to be had by transitioning from an in-house manufacturing operation to an outsourced solution. While this might be true, and a huge amount of OEMs have already made the switch in strategy, it’s not something that can happen overnight. There’s a huge amount of research needed to find the right partner; and before that can happen, you’ll need to ensure that the strategy is clear and agreed upon internally.

Thankfully, there are a number of resources available to help guide you through the entire process. And providing you agree internally on your outsourcing objectives and then find a suitable partner to help deliver them for you, there should be no reason why you can’t be the one increasing market share and keeping the competition up late at night.

This article originally appeared on the JJS Manufacturing blog, which can be found here.


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