Electronic manufacturing moving back to North America…?
Posted by Jenny Miller on Thu, Oct 21, 2010 @ 08:46 AM
The Resurgence/reorganization of electronic manufacturing to North America
Outsourcing was thought to be the panacea that was going to reduce costs and provide uncountable rainbows painted across the blue sky of gross profit, but it’s being increasingly seen that this is not the case over time. It became the a phenomenal bandwagon to jump aboard, and in fact works well in many industries, but in electronic component manufacturing specifically multiple factors can quickly erase the upside.
As said by Charlie Barnhart & Associates in the blog “Can the EMS Industry Get Healthy in 2010,” by Eric Miscoll on January 5, 2010, the electronics industry is realizing that
“The outsourcing dividend has been spent…A change in the OEM practice of outsourcing provides the most promise for the EMS industry. OEMs need to focus more on a proper Total Cost of Ownership (TCO) analysis than on just finding the lowest available labor rate. CBA has been advocating this approach for many years, and thankfully people are starting to heed this call, but more need to do so. Most OEMs spend far too much internally overseeing their outsourced manufacturing and very few are taking the steps necessary to do something about it.”
In other words: there are no shortcuts. What started as a means to save money (most highly prioritized) and time has become something that is sucking both away from OEMs. This happens in a variety of ways, which is almost more dangerous since it appears that these smallish factors add to much larger losses over time.
Within the article “Hidden Costs Can Sabotage Gains of Outsourcing for Manufacturers,” by Jean V. Murphy, Global Logistics & Supply Chain Strategies on June 13, 2008, the mid-1990s “stampede” to outsourcing has bought some unexpected results.
Outsourcing “‘complexities can produce costs that are implicit and not taken into consideration during the initial outsourcing analysis,’ says Richard Ligus, president of Rockford Consulting Group, Rockford, Ill., which specializes in helping companies develop and implement manufacturing and supply chain strategies. Most outsourcing analyses look at total landed costs, ‘but leave out the implicit costs such as exchange rate variances, cash tied up in floating inventory on the high seas, expediting efforts, engineering changes, travel, and loss of a customer order because of late deliveries or deliveries of wrong or defective products.’ Ligus estimates these hidden costs can add as much as 40 percent to a product’s total cost. “Hidden costs are deceptive but need to be included in the total cost analysis of offshoring,’ he says.”
With these factors weighing heavily in the minds of OEMs, it seems safe to start wondering if outsourcing, at least for the electronic manufacturing market, is headed towards a natural end.
From what we’re reading it looks like bringing electronic manufacturing back on to U.S. soil could be an overall benefit. What are your thoughts?
