Welcome to our blog post on the strategic benefits of outsourcing electronics manufacturing for OEMs, authored by Jessica Plank from ESCATEC, our partner in mass manufacturing. This collaboration brings a wealth of expertise to the discussion, highlighting how OEMs can leverage external manufacturing partnerships to optimize their production strategies and achieve substantial growth. Let’s dive in.
Original Equipment Manufacturers (OEMs) typically have two choices when it comes to manufacturing the products they sell – build in-house or work with an external manufacturing partner. Quite often this decision is made very early on in the OEMs journey, however, it’s not uncommon for a change in strategy to take place decades later.
OEMs that have been building their products in-house for decades may be comforted by the heightened visibility and control they have over their operations. Being able to walk onto the shop floor at any given moment gives OEMs immediate access to the heartbeat of their operation. They can quickly check build and delivery progress, make changes to production schedules, address quality issues, and keep an eye on staff and productivity levels.
Losing this level of direct access and/or visibility by handing over control to a third-party manufacturer can sometimes be a concern for OEMs. Better to stick to what you know, right? Well, that really depends on what the future looks like for the OEM and what rewards could be realized from outsourcing to an Electronics Manufacturing Services (EMS) provider.
In this blog post, we look at 3 benefits an OEM can expect to gain should they decide to transfer from an in-house to an outsourced manufacturing strategy.
Cutting overheads and improving cashflow
Outsourcing electronics manufacturing can significantly cut an OEMs overhead cost. Running in-house manufacturing means large expenses relating to factory floor space, equipment investment and maintenance, staff wages, staff training, insurance, and utility costs. As production demand scales, so can these overheads. Opting for an EMS partnership eliminates the need for additional fixed costs associated with a manufacturing infrastructure.
One of the most significant (but often hidden benefits) of outsourcing relates to cash flow. Material procurement and inventory levels transfer over to the EMS. Whilst there are likely to be Manufacturing Agreements in place to cover liabilities, the process and costs involved with buying, storing, financing, and utilizing materials become the responsibility of the EMS. The OEM only pays for complete units which can immediately be sold out in the marketplace.
Prepare for expansion and future growth
The key to business success typically lies in growth and the ability to scale up and meet increased customer demand. But what happens when an OEMs existing facility restricts this? Sometimes growth can happen at an alarming rate and if caught off guard, satisfying customer demand could be compromised leading to frustration and a damaged reputation in the marketplace. Increasing output, hiring new staff, investing in capital equipment, expanding production footprint, or even relocating to a new site takes time and considerable investment.
Partnering with a reputable EMS provider with global facilities and a commitment to continued investment removes all of these headaches. They are positioned to support your growth ambitions and it’s in their interest to maintain a strong relationship with you, often going to great lengths to meet and exceed your expectations. Like any solid partnership communication is key. Open and transparent discussions around your future goals will allow the EMS to make strategic investments along the way, including hiring new staff, training existing staff, and investing in new technology or equipment to increase operational efficiencies, quality levels, and output. When an OEM makes the strategic decision to outsource their electronics manufacturing, they are no longer restricted or confined to what they have or know today.
Enhanced focus on what you do best
As workload increases, there can be a risk that OEMs lose focus on their core competencies. Stepping back and understand why a customer buys your product or what your company stands for can get lost. Surely, then, it’s better to invest time in what you do best – be it product design, marketing, sales or customer service rather than juggling shop floor orders or having to seal with equipment maintenance issues?
Without the mental bandwidth or time for innovation, a company’s growth can stagnate. Outsourcing manufacturing to an EMS provider allows for a renewed focus on nurturing core competencies and ensuring your company lives up to its original vision and purpose. Take Apple. One of the most valuable companies in the world outsourced its electronics manufacturing decades ago to what is now the largest EMS provider in the world. By outsourcing their manufacturing, Apple has been able to focus on designing new products, global marketing campaigns, and creating unique customer experiences all of which have led so far to unprecedented growth.
Outsourcing electronics manufacturing to an EMS provider represents a significant strategic decision. It’s certainly not a quick win and finding the right partner can take months, if not years. Like any strategic decision, a review of the risk versus reward needs to take place by the leadership team. Sometimes OEMs struggle to justify to themselves that the leap to an outsourced strategy is worth the time and effort, not to mention the perceived threat of loss of control.
Thankfully, the global EMS market is well established, and many providers have demonstrable experience spanning several decades. Such partners will be able to listen to your concerns and guide you through the next steps. They will take time to understand your growth objectives and propose the right design or manufacturing solution to allow you to grow.
