Part 1: Are You Considering Outsourcing Your Electronics Manufacturing

This is the first blog post in a series that will guide you through the process of outsourcing your electronics manufacturing and electronics contract manufacturing. Starting with the question of “should you outsource your manufacturing?” and stepping through the final qualification of products associated with your decision.

This is the first blog post in a series that will guide you through the process of outsourcing your electronics manufacturing and electronics contract manufacturing. Starting with the question of “should you outsource your manufacturing?” and stepping through the final qualification of products associated with your decision.

Here are some definitions of sourcing your electronics manufacturing:

•  Insourced (doing it inhouse),
•  Outsourced (hire a 3^rd party),
•  Offshoring (outside of North America),
•  Nearshoring (USA, Canada, Mexico), or moving from Outsourced back to Insourced

Let us begin with the several reasons to consider outsourcing your electronics manufacturing:

Cost Effectiveness/Improvement: Cost may not be the reason why you are considering outsourcing, but if it is, here are a few cost areas that might be improved:

Lower direct labor cost (less need for internal new hires, reallocate current resources).

Reduce overhead rates (both internally and possibly with lower overhead rates at a 3^rd party).

Leveraging supplier materials spend (as appropriate – keep in mind that the size of the company(s) that you are considering may not contribute improvements to component costs. Additionally, many of the materials costs may be “negotiated” between you and the manufacturers, and in many cases, your new partner may not be able to improve on them).

Resilience: Your electronics manufacturing services partner specializes in this area and should have robust processes and supply chains established that will provide you a much-needed resilience in your own business.

Logistics: For many years, there has been a need to move manufacturing closer to your customers by manufacturing in region.  This reduces transportation costs, should improve lead-times (transportation), and possibly on-time-delivery performance.

Technology: Many times, this could be the main or even the sole reason to find a partner, specifically if you do not have the resources or expertise that you need internally and/or the investment is too great.

Knowledge: Allows you to gain access to knowledge & expertise, you may not have expertise or the skill set, in engineering, manufacturing, supply-chain, or other areas such as Marketing, Payroll, HR, and others.

Scalability: As companies grow, having the ability to quickly scale production to meet demand can be a distraction, cause delays, be a drain on your current work force, and require expensive talent.

Resource Constraints: Internal talent utilization & focus, creates flexibility with resources.

Investment: Cannot fund internal factory improvements, additional space, technology development, talent development.

Risk Controls: Provides business continuity / risk management by allowing the use of additional resources, facilities, data, and personnel in other regions, both local and internationally.

Core Competencies: Outsourcing will allow the company to stay focused on their core competencies (such as innovation, branding and marketing, and sales), and not become distracted by trying to do too many things at one time.  This is especially important and critical during a start-up and/or expansion phase.

Time to Revenue: Improves “Time to Revenue” by not having to wait for new resources to be identified, onboarded, and trained, acquiring, and installing new equipment, tooling, processes, technology, and systems.

As with any business decision, there can be potential disadvantages:

• Loss of Control of Quality: A recommended best practice is for you to have mechanisms in place with your electronics manufacturing partner that will allow you to monitor various critical phases, inspections, and/or tests during your process.
• Hidden Costs: There are hidden costs that you should consider – material liability, services for a fee (know what is not included), travel, additional freight, duty, or tariffs.
• Contract and Commitments: There may be detailed contractual agreements & commitments to work through. This is a critical process and helps to set the type of relationship you will have.   Trust but verify.
• Moral Dilemma: Perceived or actual loss of local jobs, impact to local community, backlash from customers and investors, etc.
•   Delegating: Handing off your supply-chain and associated personal relationships to others. This can be difficult to work through.  You will be handing off a critical and strategic piece of your ownership.  Yes, you will still have relationships with your manufacturers and suppliers, but that relationship will change.
•   Security: You must protect your IP, privacy, special processes, risk of your products being copied, etc.  This must be built into your vetting, diligence, and selection process.
• Lost in Translation: Working across time zones, language, and culture can lead to loss of time, money, and more.

Next, we will discuss understanding your current costs for what you might consider outsourcing or insourcing. Know your costs and elements for Activity Based Costing:

• Material.
• Labor.
• Overhead.
• Processes (Testing, Assembly, etc.)
• Capital needs.
• Freight / Logistics (raw material, finished product.)
• Travel.
• Supply-chain transfer (localization, new tooling, qualification, etc.)
• USA vs. lower cost region cost trends.
• Risks (supply-chain continuity, geopolitical, nature, acquisition, etc.)