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Now that you have made the decision to outsource, you’ll next want to decide how much control you'd like to retain over your supply chain.
Managing your supply chain can be time consuming and expensive and, more importantly, it can distract you away from other key activities such as sales, marketing and product design. As an OEM, however, it's unlikely that your supply chain is a 'core' activity, i.e. something that adds real value to your customers.
So, what are your options? You could choose to keep control of your supply chain yourself and work with your electronics manufacturing services (EMS) partner on a 'labor only' basis. You could nominate a few preferred suppliers for your EMS provider to continue to purchase certain parts from. Or you could opt to relinquish all of your current supply chain activities.
Your supply chain is a vital link in ensuring the manufacturing stages can be carried out on-time and on budget, so deciding how much control you'd like to keep is not a decision to be taken lightly. In this blog post we explore the options available to you in regard to how much control you might want to hand over.
1) Keep Total Control
‘Free issuing’ material to an EMS provider can offer some benefits:
- You maintain the supplier relationships you have built up over time
- You remain in control of material pricing which typically makes up 70-80% of any product cost
- You retain the same levels of service delivery from your suppliers
- You remain in touch with the component market
Keeping control of these elements can often leave you feeling at ease, in the sense that your supply chain is secure. But it is also important to note that by deciding to retain total control you will be sacrificing some of the added benefits that outsourcing can provide.
If, for example, you decide to free issue material, you will still be responsible for all of the overheads and administration costs associated with material procurement team and the management of your supply chain. How much does all of this cost you per annum?
You would also need to consider how late shipments, inferior products or even damages would be managed as these would disrupt the production schedules your EMS partner has in place, resulting in potential costs and delays to you.
2) Nominate Your Preferred Suppliers
If the hassle of retaining a full procurement team, and all of the associated costs of free issuing your material isn’t particularly attractive, there is another option. You could ask them to buy certain parts from your existing suppliers. We appreciate that you may be buying some high value parts or ones that are integral to the design of your product. Relinquishing control over these parts might feel daunting but by asking your supplier to continue to use the same supply partners you have already established, the variables and potential risk are mitigated.
In this instance, you would nominate your preferred suppliers and your EMS partner would in turn, deal solely with these suppliers when purchasing your material. This means you retain a proportion of control over where your stock comes from, without the headache of day-to-day management.
That said, if you do nominate suppliers and prevent your EMS provider from using their own supply chain, you may find yourself still responsible for top-level supplier relationships and management and financial implications if any supply issues (shortages, late deliveries, quality issues and so on) were to arise.
3) Entrust Your EMS provider with All of Your Supply Chain
We know that entrusting full control of your supply chain to your EMS provider can be overwhelming at first. And there will be many considerations to keep in mind, before jumping straight in.
Firstly, are you willing to step away from your current supplier relationships? If the answer is yes, then it is likely that you won’t be disappointed. Full procurement on your behalf by your EMS provider has the ability to significantly reduce your overheads relating to material purchasing and handling. If you consider that approximately 80% of the value and lead-time of an electronic assembly is typically tied up in materials, fully outsourced procurement has the ability to have a positive impact on your operation. What could you do with those extra resources?
So, What is Right for You?
Ultimately, the best solution for your business will boil down to what you want to achieve through outsourcing. Do you want more time to focus on those core activities that differentiate you from the competition and impact the bottom line? Or do you want to be in control of all aspects of the project? No one can really make that call for you apart from yourselves.
Equally though, it is important to remember that what might feel right for your business on day one could evolve 6 months down the road. So, it's crucial you partner with an EMS provider that can offer you a complete range of supply chain management and assembly solutions both now and in the future.
This article originally appeared on the JJS Manufacturing blog, which can be found here.