Increased pressures from globalisation, competition, prices and shareholder expectations has forced many companies to consider not only outsourcing but outsourcing in a low cost region like Eastern Europe or China, which naturally leaves them free to concentrate on their core competencies and to develop new products.
There is no denying that outsourcing abroad has proved profitable primarily for routine jobs and high volumes. However for the foreseeable future, most high-value, high technology work is better placed where close interaction among companies can be facilitated by close physical proximity, personal contact, tight collaboration, language and shared cultural experiences.
If requirements are not accurately communicated to outsourced operations, changes become increasing difficult to manage especially when that operation is overseas and in a different time zone. When the EMS supplier is in another country you cannot get in the car and drive to your customers or EMS supplier’s office to thrash the problem out.
Of course, there are risks - for example, the cultural, language and regulatory implications of operating overseas and it can be argued that they can be dealt with. The choices of where to go, with whom, and what to outsource are more complex, especially where business processes are being handed over. The never ending debate over IP will also continue to cause issues for some industries.
Companies who have relocated on a pure cost basis and who have failed to see the added value services offered in the UK will be those in the end who will pay the higher price, as customer and shareholder expectations are not met.
Challenges for OEM’s continue to be cost reduction, supply chain flexibility and the ability to react quickly to market demands and changes. The key will be to find partners that can deliver the best overall total cost of acquisition, not just cheap labour within reasonable distance to your market. The last 30 years has seen a major growth in world trade and for many OEM’s the demand from customers for lower prices has meant that they have had to seek cheaper places, like China to manufacture. However, with such crippling prices we believe that we will start to see reverse globalisation and a move for OEM’s to manufacture in the country that they actually sell. As higher energy costs translate into higher product costs we estimate that roughly for every 10% rise in oil there will be a 4-5% increase in product costs for those goods which carry a high transport cost. Not only that but add on the increase in wage costs in the low cost geographies and we anticipate that the low cost differential will eventually diminish.
There are many conflicting stories circulating about whether manufacturing is in decline or holding steady. What is obvious is that the knock on effect of oil prices will affect all kinds of business’s not just manufacturing. Whilst not every sector will be affected in the same way, it’s a fact of life that our factories and machines need power. There is no doubt that these are challenging times for businesses that manufacture but it is important that we do not talk the industry into a recession.
The credit crunch means that money will be in tight supply, supplier costs will be on the rise, consumer price inflation could prompt wage inflation and exacerbate skills shortage and if they find that they can no longer absorb continuous cost increases companies may ultimately have to raise prices.
There is no doubt this is a challenging time for many companies who are looking for ways to try stay on top of higher energy and raw material costs, organisations will need to start considering a number of things such as the energy efficiency of equipment, processes, transport and location.
Outsourcing is a great example of an effective business strategy which not only frees up resources within the business, it allows companies to utilise the expertise of others and save money.
Involving the manufacturer early on is paramount where if you share common values and culture you will be able to build the trust needed for each of you to share your R&D. The fact is that most of the cost of a product is fixed by the design, and so in many cases the best place to find large cost reductions is through improving a design or getting it right with manufacturing, procurement and test in mind, not in actual manufacturing. By implementing design for excellence methodologies which basically involves the incorporation of several considerations (manufacturability, procurement, test and the environment) into the design (and redesign of products).
The outcome is usually a better designed product with potentially fewer parts, that is functionally efficient, easier to assemble and test, offers significantly reduced component and assembly costs, along with improved quality, reliability with a shorter time to market.
Additionally, by thoroughly understanding past quality issues can help to prevent future problems when designing new and innovative products for the future. Indeed if manufacturing, quality and post production service staff are involved in the early stages any potential problems can be designed out.
Many UK companies are proud to be playing their part in the recovery of the manufacturing industry in the UK and companies like Axiom have no intention of exporting jobs. We are extremely concerned over the UK skills shortage and seek to address this with the work we do in the local community. For Axiom this means starting at grass roots level and collaborating with local schools both on an ongoing basis and specifically for Science Week helping to develop the curriculum and get children ready for industry.
We run regular events which cover aspects of the National Curriculum Attainment Targets for Physical Procedures, Materials and their Properties, which allows the children to take a hands-on approach from a scientific perspective and gives the children a chance to explore and extend their knowledge of science in general. In addition we sponsor modern apprenticeships and work with organisations like Wales manufacturing Forum and the Wales Electronics Forum to seek ways to collaborate with other interested parties to address these important issues.
It is important we communicate regularly with young people as they may well be Axiom’s next generation of employees. As a company we really value our links with the local community and would encourage other companies to get involved with any similar initiatives.
Electronics Weekly
