Standing at the crossroads: make or buy?

Author : Steve Marshall, Managing Director at Offshore Electronics

03 September 2018

What factors should you consider if your business is operating at full capacity and you are contemplating outsourcing work to a contract electronics manufacturer (CEM)? This piece offers its answer...

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Financial constraints can make it difficult – if not impossible – to grow a business when, say, you are working flat out and you win a new contract, or an urgent job suddenly comes in. As well as the cost of materials, investments also have to be made in factory space, machinery and extra staff.

However, additional manpower, machinery and production capacity can be prohibitively expensive. This is where a contract electronics manufacturer (CEM) can make all the difference, because working with a CEM allows flexible expansion without major investment. Furthermore, outsourcing manufacturing capacity allows companies to focus on their core business, while having secondary processes taken care of by external experts.

By definition, as companies that make electronic products under contract for other companies, CEMs typically take on manufacturing responsibility for original equipment manufacturers (OEMs), either wholly or partially. Simply put, contract manufacturing involves the OEM outsourcing non-core business tasks that can be managed by an independent entity, making life less expensive and more productive for their business.

However, a good CEM does more than simply follow orders. For example, when presented with printed circuit board layouts that are over-engineered, expensive and difficult to produce, a good CEM will offer a prototyping service that helps designers remove complexity and cost from a project.

CEMs are often seen as the exclusive preserve of global players and multinationals, but this is a false perception. In fact, many companies, including my own, work closely with small and medium enterprises (SMEs) to help them bring their products to market. Indeed, SMEs are often more likely to benefit from the services of a CEM.

Of course, it can be hard to let go of any aspect of a business. Control is important and, for a company that is self-sufficient and has intimate knowledge of its products, the notion of handing all this over to somebody else can be daunting. Yet it makes sense in so many ways. First, there is the use of resources. An electronics start-up will typically have the majority of its expertise in design and the market and/or application niche in which they operate.

The value of the company lies in its skilled staff and the intellectual property, or IP (the intangible elements and ideas that are the result of creativity, such as patents and copyrights), that they have helped to generate.

If anything, a good CEM sub-contractor will enhance a company’s reputation, because it is focused purely on manufacturing: it will have the specialist staff and machinery, manufacturing capacity, buying power and – crucially – expertise in compliance to ensure that the final product is top class.

Of course, with valuable IP there may be the fear of patents being stolen. However, choosing a reputable sub-contracting partner who respects non-disclosure agreements should serve to neutralise this fear.

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