Why wouldn’t you look into electronics manufacturing outsourcing?

I was recently thinking back to some of the outsourcing projects that I have been involved in that achieved significant benefits for the OEMs across their businesses.  

It is therefore somewhat frustrating that although much has been written about outsourcing, it can sometimes get rather "academic-looking", with lots of charts and impressive-looking infographics and the articles often fail to appeal to CEOs facing real world issues with their businesses.

As a result, the articles are not sufficently 'credible' or convincing enough to encourage them to take that vital first step to looking into the real opportunities that outsourcing some or all of their manufacturing operations could represent to their business. 

OEMs are, of course, quite right to have concerns and to question the viability of this approach. Electronics manufacturing outsourcing is, as I will point out in more detail later in this blog, not a panacea and certainly doesn’t fit every scenario.   

Having said all of that, I felt that it was time for a simple summary based on real outcomes from one of the projects I was personally involved in, to help make the point that electronics manufacturing outsourcing can deliver real benefits. Hopefully, this will claw back some credibility from the PhD thesis looking content that I feel does nothing to help the cause.  

Consider this…

This example refers to a UK based company, who decided to partner with a contract electronics manufacturing services (EMS) company with a track record of transitioning companies to an outsourced manufacturing approach. Their products range from relatively simple "box build" units through more complex assemblies, up to fully integrated cabinets. 

They opted for an end-to-end outsourced solution encompassing supply chain, PCB assembly, product manufacturing, test and outbound logistics (i.e. delivering finished products direct to the ultimate end user). The project achieved and in some cases exceeded the OEMs objectives by delivering:

  • increased capacity of over 3 times
  • improved OTIF (on-time in full delivery) performance from under 50 per cent to 100 per cent
  • reduced inventory from around £500K to zero                                                                            

So why wouldn’t you?

While this is all based on a real example and the benefits achieved are proven facts, there are clearly some products that are more suitable to this approach than others. These are determined by a number of factors, such as their volume and complexity. Also, this doesn’t happen overnight and it requires an array of data to be available and a partnership approach.  

It’s clearly not uncommon for decision makers within OEMs to hold strong opinions about why they wouldn’t look seriously into electronics manufacturing outsourcing. These can range from simple scepticism to a variety of deeply held fears and concerns. In some cases, OEMs are quite right to question the viability of an outsourced approach for their product mix and can help to prevent inappropriate outsourcing going ahead.

The key areas of concern often centre on a perceived loss of control, loss of in-house skills and responsiveness. Indeed, I recall the CEO of the company whose key outcomes I listed earlier voicing one of his concerns prior to making the decision to outsource his manufacturing by asking: "When I need to change our production priorities my production team respond immediately; how do I know you would be as responsive?"  

Some companies worry about a loss of control of their material supply chain while others fear losing detailed assembly knowledge, particularly if they know that their formal build instructions have not kept pace with actual working practices and "undocumented processes" are routine.  

Clearly, it’s all about putting your trust into somebody else and a leap of faith is often required. The confidence to take that leap can be established by voicing all of your concerns to your prospective EMS partner. They will be happy to work with you to explain how they have successfully transitioned businesses like yours from in-house to outsourced manufacturing and, in doing so, are very likely to have addressed the same issues, fears and areas of concern.

So why would you?

A lot of these concerns can be alleviated by the EMS company demonstrating the level of planning and set-up that goes into ensuring a successful outsourcing transition and how the types of outcome that I mentioned earlier in terms of inventory, lead-times, on-time delivery and capacity can be achieved. The old, and let’s face it now slightly irritating, saying - failing to plan is planning to fail - is actually pertinent here.

Understanding exactly what the OEM requires and building in the right levels of flexibility into their manufacturing planning systems enables the EMS company to establish an end-to-end solution where they leave nothing to chance. This would include priming the correct materials supply pipeline and creating an appropriate inventory profile, working alongside the OEM’s production staff to audit the actual build processes, building trial units, verifying all test procedures and so on.    

To successfully transition your manufacturing to an EMS company demands time, resources and a commitment from you. There will always be concerns but these can be alleviated by partnering with an EMS company with demonstrable experience in helping other OEMs achieve similar goals to those of your own. But it’s now a well proven approach and outsourcing could have a major positive impact on your business, enabling it to concentrate on the core areas that drive growth and profitability.

As I said at the start, much has been written on this, including a number of eBooks written by us, which hopefully you will find some time to look into - none of which read like a PhD thesis.   

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.