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Original Equipment Manufacturers (OEMs) have outsourced their production to Electronics Manufacturing Services (EMS) providers for decades. So, what’s the big attraction? Is it just about cutting costs?
Over the last 40 years many of the world’s most valuable hardware companies have handed over responsibility for manufacturing their products to third party specialists.
In the past, the major reason for this outsourcing shift was to drive down unit cost’ through levering cheap (often overseas) labour and economies of scale in procurement and assembly.
But latterly, it’s been the strategic advantages of using turn-key manufacturing solutions that has become the major commercial draw.
7 strategic benefits of outsourcing manufacturing
1. Freedom to grow
Compared to the costs and restrictions of managing their own production facilities, outsourcing manufacturing can help OEMs scale fast and keep growing. As product cycles accelerate - companies with innovative ideas need to be able to act decisively to secure first mover advantage. They need the capacity to increase production, build the next generation of successful product models and add new lines to keep ahead of the curve. But a focus on manufacturing can lead OEMs to become bogged down by the administration of procurement, supply chain and logistics, not to mention the burden of footing wage bills, escalating power bills and more. Using an EMS provider can turbo-charge strategic growth while mitigating the risk of overstretch.
Read more about how outsourcing can be a powerful springboard for manufacturing growth.
2. Freedom to flex with a changing market
In the world of electronics new markets and opportunities are continually emerging. Leaps in miniaturisation, connectivity, durability and sustainability of technology are meeting surging demand in the automotive, life-sciences and green energy sectors. Ambitious OEMs can see new applications for their existing technology, but they often don’t have the specific expertise and capabilities to support design and NPI in new sectors. For example, if you are already making wearables it may be the obvious next step to bring that experience to the medical device sector. But without the right design and manufacturing partnerships you may never be able to meet complex med-tech, regulatory demands - or move fast enough to lead the market with your innovation.
3. Powering strategic cost savings
Working with third-party manufacturers can bring all the economies of scale that you would expect. But more than this, specialised procurement, supply chain management, and DfX (Design for Excellence) can bring you sustained competitive advantage by continually optimising every part of your specification, manufacturing and logistic process. The right manufacturing partner will value engineer the products you bring to them in ways that bring strategic cost reduction to every part of your process. From suggesting changes in design, components choice, assembly and packaging - to helping you streamline your logistics choices. The right team can help you systematically eliminate waste, while maintaining and improving the quality of your products for end users.
Learn more about the 6 steps of the Value Engineering Process for OEMs
4. Avoiding the labour squeeze
Skills shortages around the world are affecting innovation and productivity levels in many manufacturing companies. It’s taking more time and money than ever to fill vacancies. The average manufacturing role in the US costs $5,159, and the time to appoint a new worker is now over 60 days. Deloitte says there will be 2.1 million unfilled jobs in manufacturing in the US by 2030. In the UK it is estimated unfilled vacancies in the manufacturing sector cost £21 million a day in 2022. But outsourcing manufacturing can plug you into a global network of highly skilled, specialist workers that can side-step regional shortages. The ongoing requirement for hiring and retaining the best talent, as well as planning for future recruitment needs can fall away as you focus on building a growth strategy that works for you.
Want to know more about beating the recruitment crisis? Here’s our guide to navigating the skills shortage through outsourcing your manufacturing process.
5. Targeting investment where it counts
Where does your strategic advantage lie? Is it in the upkeep of your facilities and production lines? Or does your long-term value lie in your R&D expertise and the design innovation you bring? Production line technology is evolving fast; there is increased demand for expensive robotics and the cost of real estate is spiralling. It makes little sense for OEMs to be focused on meeting these challenges when there are specialist EMS providers for whom designing and managing production lines and NPI process is their whole reason for being.
For many OEMS, Capex could be more usefully spent on research, development and breaking new markets, rather than constantly trying to manage supply chains and keep in-house production lines safe from obsolescence.
Unleash Your Potential: Expert Guidance on Electronics Outsourcing
6. Opportunity is global - but delivery can be local
Demand and opportunity for OEMs’ products is global. But globalised supply chains have become fragile and prey to extreme weather and geo-political change. OEMs need access to global design and manufacturing expertise to bring their innovative ideas to life. But they also need to plan for a future for increased localisation of supply chains and production so they can support a more sustainable future. Modern EMS providers have the scale to access design and production talent wherever it may be in the world, plus the resources to invest in regional hubs that can bring production closer to the markets where demand lies.
7. Keeps your focus on the future
OEMs who want to scale fast while mitigating the major risks of rapid expansion are increasingly using EMS providers to bring them their competitive advantage. For this, they are not only looking for partners who are skilled in production and with the right global footprint, but those who can make them more agile and responsive in everything they do.
Future focused OEMs are using EMS partners to bring:
- Ideation and design support for new products
- VA/VE capabilities for new and existing projects
- Access to cutting-edge production line automation and robotics
- Support for creating more sustainable technology
- Faster access to international markets
- Localisation of production and supply chains
- Increased supply chain visibility
- Logistics support for more efficient delivery
- End to end compliance and regulatory support around the world
- Ongoing, customer service, returns and post-market survelliance
It is through access to these services that OEMs are making themselves more competitive and resilient in rapidly changing marketplaces. The continued global dominance of tech brands like Apple and Microsoft all pivot on the agility and quality of their manufacturing partnerships - and yours should, too.
Conclusion
The time of the EMS supplier as ‘dumb pipe’ is past. The sophistication of the electronic products that clients need to make and the challenges of global manufacturing have changed out of all recognition. Outsourced manufacturing needs to be a holistic partnership that delivers value at every level, not just levering cheaper labour and materials.
As OEMs turn their attention to conquering new and lucrative opportunities around the world, they need strong, knowledgeable partners who can help them drive long-term, strategic success.
This post was updated for relevance and accuracy in 2023.
For more information on How does an OEM really benefit from outsourcing manufacturing? talk to ESCATEC Mechatronics Ltd