What Is Outsourcing?
While outsourcing sometimes carries a negative connotation, it is simply the use of another firm to perform operations that a company chooses not to perform itself. When activities are outsourced to another country, it is referred to as “offshoring.”
Outsourcing is a natural part of any business and is practiced everywhere. Few companies can actually handle all necessary tasks in-house. Outsourced activities may include IT support, human resources, marketing, or the focus of this article, electronic manufacturing.
A Brief History of Manufacturing Outsourcing
Up until the early 1980s, most of the electronic OEMs (Original Equipment Manufacturers) had all the manufacturing capabilities that they needed-in-house. This was possible because the processes required to build their products were more labor intensive than technology or capital equipment.
These OEMs would occasionally outsource some manufacturing – though usually to address a spike in demand – and often involved only a portion of the product. Work was typically awarded based on the lowest price and could be moved, with relative ease, from one Electronic Manufacturing Services (EMS) provider, or contract manufacturer, to another.
As electronic components technology evolved during the next 20 years, the processes required to assemble them became more sophisticated, capital intensive, and were subject to constant evolution. OEMs had to decide whether manufacturing was to remain a core competency. Many decided to focus increasingly limited resources on activities other than manufacturing requirements. While price was still the predominant decision factor, OEMs now had to ensure that their EMS providers did have the proper capabilities and process controls.
By 2000, many OEMs had shed the majority of their manufacturing capabilities. Some even outsourced all of their manufacturing. Although it would seem that this type of arrangement would drive a high level of partnership between the OEM and the EMS providers, that is often not the case. Some OEMs seem to still be rooted in the “price of everything” model and/or do not take the time to optimize the relationship.
What About Startups?
Startups have a tremendous number of things to deal with – not the least of which is their manufacturing strategy. They need to develop a business plan, attract funding, develop a product and marketing strategy, etc. Rarely, however, is there much emphasis on how the product is actually going to be produced. Due to the high cost of equipment and the need for a skilled workforce to operate it, startups need to consider outsourcing at least some elements of the production.
Developing and implementing a successful outsourcing strategy starts with fully defining the needs of the OEM. Once this is complete, the quest to find an EMS provider that can meet those needs begins. The sooner that this critical partner is identified, the better. The OEM should NOT wait until it has the product designed. The OEM must also consider what resources will be needed to manage New Product Introduction and the ongoing relationship with the EMS provider.
The Need for Optimization
It is clear that EMS providers have become a critical element of the total supply chain of many of today’s high-tech OEMs. Yet, as critical as these relationships have become, few OEMs take the time to make the most of their outsourcing efforts.
Optimizing the joint performance of the OEM and EMS provider benefits both. As with the startups, the process should begin with fully defining the needs of the OEM. This is followed by a full analysis of the relationship with these needs in mind. There will likely be many opportunities for improvements that could reduce product costs or lead times, improve quality or on-time delivery, etc.
Some OEMs may not take on this effort due to a lack of adequate resources – available hours and skill set – to devote to this discovery and improvement effort. But, until these improvements are made, OEMs cannot possibly be maximizing their level of success relative to their outsourced manufacturing.
So, What About Offshoring?
I won’t attempt to address this entire topic in this article. Suffice to say, the now commonplace news stories of product recalls clearly demonstrate that offshoring adds another layer of complications and significant risk to the outsourcing equation. Beyond these obvious quality issues, you have language and time-zone differences to deal with, risk to intellectual property, cash flow challenges, and other “hidden costs” that can quickly offset any unit price savings. A very high level of due diligence and analysis is essential before making the decision to go offshore. Highly skilled domestic resources, many of them here in Florida, should be given strong consideration first.
Whether you already outsource or are just considering doing so, take the time to understand your needs, develop a strategy, and then optimize the results. Contact Anuva to develop a manufacturing outsourcing strategy — and partnership relationship — that works!