What's the winning business proposition in today's outsourced electronics manufacturing business? Surprisingly, the answer is not cost, leverage, or the aggregation of supply and demand, three attributes often cited as principal virtues by outsourced manufacturing firms. Instead, in our view, the key factor for success in the current business environment for outsourced manufacturing is speed -- delivering reduced time to market.
While still essential, cost-cutting is only one factor at this point. Rather, improving the velocity and responsiveness of the supply chain is the key element of success. For years, cost reduction has been among the top selling points for the outsourced manufacturing industry. However, this raises the issue of which specific costs should be the target of the cuts.
To be sure, outsourced manufacturing companies and their customers have spent years scrubbing and reducing supplier lists in the quest to decrease procurement costs. This trend will continue as nearly every OEM supplier cites cost reduction as a key supply chain improvement factor. Furthermore, over the past decade, outsourced manufacturing companies have engaged in massive production shifts to lower-cost locations such as Asia, Mexico, and Eastern Europe in order to lower manufacturing and overhead expenses. Finally, the outsourced manufacturing industry for many years has engaged in restructuring to further bring down costs.
After years of work, these expenses for procurement, labor, and overhead have been reduced materially. In normal times, cost could still be used as a competitive advantage. However, cost alone can no longer be the sole value proposition for an outsourced electronics manufacturer when it assesses its competitive position.
A second much-discussed value proposition is aggregation, whereby both supply and demand are consolidated, large economies of scale are achieved and costs can be slashed even more. A third benefit often promoted by outsourced manufacturers is leverage -- i.e., the capability to deliver the kind of scale and reach unattainable on their own to customers.
Yet after all is said and done, speed is still perhaps the key value proposition that outsourced manufacturing providers should aim to deliver.
It's not hard to see why. Competition for end customers is more intense than ever. Supply chains have been extended around the world to a larger degree than what's been seen in the past. For their part, customers need outsourced manufacturers that are able to expand their supply chains to a global level matched by accelerated velocity. By doing so, outsourced manufacturing providers can take capital out of customer supply chains -- while at the same time reducing the likelihood of stock-out costs.
Such an approach puts the cost issue into proper perspective, making it one of the many benefits -- rather than being the only advantage -- that outsourced manufacturing providers can offer. For outsourced manufacturing companies, speed might just be the killer attribute that gives them the winning edge to remain competitive.