How outsourcing to a contract electronics manufacturer has evolved

Editor's note: This blog was originally written and published in March 2015 but has since been updated for accuracy and relevance.

Bringing a Contract Electronics Manufacturer (CEM) on board has always been an expedient approach for Original Equipment Manufacturers (OEMs) with operational issues. More space, better equipment, additional people; it's a proven tactic used to overcome their physical resource constraints.

Yet since contract manufacturing started in the 1990s things have changed.

Today, in 2020, OEMs and their CEMs are becoming more intertwined, for one to complement and enhance the effectiveness of the other. There are a number of reasons for this; here's a closer look at how things have evolved in the past few decades and why:

Outsourcing has become part of manufacturing strategy

Forward planning and flexibility have become increasingly important for OEMs, as they strive to meet a more changeable, more testing and more competitive business world. As a result, manufacturers are looking to strategise their way to success.

These days, OEMs are working with their contract manufacturing providers on a more aligned basis. The most successful strategies come from integrated partnerships, where the two parties can work in synergy with one another. This not only helps the OEM in achieving their goals, but with an agreeable partnership both parties can challenge each other to improve and grow together, creating the best manufacturing strategy.

Also, the OEM will be better prepared to meet the challenges presented by the broader global economy.

OEMs want to know more about potential supplier's business plans and objectives as well as the internal culture of the company. The desire is not so much for a short-term fix to an internal problem, but for a longer-term solution that will see both entities working in unison towards an aligned strategic plan.

Doing away with the distance

This greater engagement has proved a real step up for the outsourcing industry - and one that has strengthened the sector as a result. That's because the habits of the past may have been practical, but they had their drawbacks.

For instance, agreements previously tended to be set up on a contract-by-contract basis and the CEM was often kept at 'arm's length'. This meant that communication between the two parties could often be compromised. There was often a lack of knowledge-sharing and trust. As a result, opportunities for the outsource partner to understand its client and add value across their business in a broader sense could often be missed.

This distance just doesn't stand up in today's environment.

Upstream involvement from providers

The shift to a more aligned approach in recent times has meant that good CEMs are more prepared to engage in discussions far earlier in the tendering process. They are eager to be more involved in an OEM's business planning and forecasting than ever before. And their understanding and expertise is called upon not just in a practical sense, but in a broader business context.

Synchronising supply chains

Today’s outsourcing partnerships are more likely to synchronise supply chains so that the agreement will meet the business objectives of the OEM. A report called 'Manufacturing the Future', by The Mckinsey Global Institute, states: "Risk-sharing with suppliers is becoming more common, and outsourcing is increasingly driven by the need for flexibility, not for competency or cost reasons."

To meet this need for flexibility and responsiveness, contract manufacturing providers now offer a range of value-added services, which help build longer-term, collaborative relationships with their clients. These offerings include build/configure to order services, product testing, direct order fulfilment and returns and repairs processes. OEMs are today taking advantage of these added-value services not only to save money, but to benefit from reduced supply chain complexity and risk.

Increased trust

A bi-product of this increased integration is a boost in confidence. If the OEM is confident in their supplier, trust is earned. From this trust comes greater responsibility and dependency, built on a confidence in the CEM's performance, agility, expertise and ongoing advice.  As things progress in this manner, the bond is further reaffirmed.

So where we are, thirty years on? As OEMs strive to compete, they are looking for more from their outsource providers by way of integration, alignment and involvement than they were thirty years ago. Relationships are strengthening as a result.

These developments in outsourcing have meant a transition from the old 'client and supplier' arrangement into a more blended and aligned partnership. As a result, both parties - along with the broader manufacturing industry - are set to benefit from the combined power this evolution in outsourcing provides.

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Written by John Mayes

John is a business consultant with an extensive career spanning over 30 years. During this time Chris has set up, led, and acquired highly successful component distribution and EMS companies including Paragon Electronics and JJS Manufacturing.