Posted on 12 Mar, 2015 by Neil Sharp
Despite everything you may have already read, unfortunately it’s true. Outsourcing the production of your printed circuit board assembly (PCBA), or electro-mechanical product to a Contract Electronics Manufacturer (CEM) won’t help you determine your overall business strategy. This is something you must be clear on in advance of looking at potential CEM providers.
Without clarity of your overarching goals, there is a risk that any CEM you decide to partner with will only fulfil short term operational needs, rather than longer term strategic objectives.
So, where is your company heading and how could an Electronics Manufacturing Services (EMS) supplier help support your long term strategy? This blog post explores 2 common business objectives Original Equipment Manufacturers (OEM) seek to achieve and how each could impact your decision-making process when it comes to supplier selection.
1) Explore other markets around you...
Successfully establishing yourself within a new market can help increase revenue, boost brand awareness and lead to product diversification. By carrying out a thorough review of your existing marketing strategy you will be better placed to determine which, if any, elements need modifying for the new market and clients you are now looking to serve. Having a thorough understanding of the size of the market, existing competition, price points and buyer behaviour is essential.
When it comes to selecting appropriate EMS suppliers to help support this strategy, it’s recommended that you consider:
Is the physical location of the manufacturing plant critical to achieving your strategy? If you are looking to enter the global marketplace, then EMS partners that have manufacturing sites within the Americas, EMEA and Asia could be beneficial. However, if your new target market remains closer to home, then a CEM with manufacturing facilities in the UK and Europe should be sufficient to meet your needs. This is particularly true when you aspire to develop and retain close working relationships with your provider at commercial, operational and engineering levels. Site travel times to business review meetings or to support New Product Introductions (NPI) can be an important factor to consider.
Will your new market require additional service levels to those currently provided? For example, you may identify the need to offer an agile repair service, which isn’t something you currently provide. If this is going to be key to successfully delivering your new strategy, it is recommended that those EMS suppliers you assess have demonstrable experience in delivering such a service. Typically, the specific metrics of such agreements - such as scope of supply, agreed lead-times, pricing and component liability to support - can be found within the bespoke service level agreements EMS providers often have with their OEM partners.
Robust supply routes are clearly critical in delivering your products to your new market. If you plan to distribute your products yourself after they have been manufactured, then this is an area that remains under your control. However, you may require the EMS provider to directly ship your products to your end users, on your behalf. There can be significant financial benefits to you in doing so; however, any EMS provider you choose to partner with will need to have an established logistics infrastructure and demonstrate competence in areas, such as finished goods marshalling and direct shipment to end users, across your target market.
2) ...And increase your share within them
An increase in market share helps increase the perception of your goods and services, and providing that perception and experience is positive, can lead to growth in terms of both sales and profitability. The question therefore is how to win further market share from your competition.
You will already know what the market is prepared to pay for your product or service – however, I’m sure you are under continued pressure to reduce this. Whilst quality and benefits play an important part in the buying decision, price is still a tangible object that many remain fixated on. It’s well documented that outsourcing your manufacturing to a suitable CEM provider can help reduce many of your operational costs. However, when it comes to reducing actual unit cost, a number of factors, for example, how much control the EMS company has over the material supply, come into play.
Reputable EMS providers will have systems and procedures in place to constantly monitor raw material pricing and assembly time efficiencies. They should also be able to demonstrate how they work with existing clients to help insulate them from raw material fluctuations; identifying cost savings whilst recommending ongoing process improvements associated with the build.
In order to maintain your increase in market share, you have to be able to deliver your products on-time and in full – which may be challenging if you offer complex products, configured to order, with a somewhat ‘unpredictable’ demand pattern. Quality and delivery service levels will naturally form a significant part of your supplier selection process. If speed to market is essential, and you offer your customers the flexibility to configure their products at the time of order, it’s important that any EMS provider you review currently provides similar service level agreements to their existing client base. In addition, they should be able to demonstrate how their supporting supply chain provides ‘real time’ price and availability information (at raw material level), and how they continually mitigate the threat of obsolescence and counterfeit components from impeding on the delivery of your finished goods.
Making crucial decisions for your company’s future, such as outsourcing your manufacturing operation to a contract electronics manufacturer, comes with a certain degree of risk. Knowing beforehand where your business is heading is a vital part of getting those decisions right - which, in turn, makes selecting the most appropriate CEM provider for your strategy much easier.
Image by Chrystian Guy
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