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Low-volume/High-mix: EMS Jobs in North America
December 31, 1969 |Estimated reading time: 3 minutes
By John Buckley, Zurvahn LLC
OEMs creating mid- to low-volume products and new product introductions (NPI) require flexibility, design skills, and cost-effective manufacturing from their EMS providers. Lower inventory requirements and time-to-market priorities also come into play. Modern high-mix production requires a balance of development in North America and volume production available in low-labor-cost regions, with seamless transitions.
EMS providers serving the low- to mid-volume OEM market must leverage and optimize the procurement and supply chain for the OEM's material. This makes North American manufacturing competitive against low-cost manufacturing areas. Sometimes, an EMS provider's supply chain pricing structure can be reduced through offshore supply chain sites in low-cost regions. This ultimately drives down material pricing on big-ticket custom items, such as printed circuit boards (PCBs), enclosures, cables, plastics, etc. North American low-volume/high-mix (LVHM) manufacturing is therefore more attractive for OEMs, since they are now getting the custom material cost advantages of offshore material supplies, but the local convenience of North American manufacturing. Disadvantages of LVHM Manufacturing in Low-cost Production SitesFlexibility, speed, and focus are what matter to the LVHM OEM. For customer lead times, customer demand change responsiveness, cash cycle, etc., building near the end-customer market enables the responsiveness that is crucial to product introduction success. Offshore is slower to respond to market changes and the demands of key end-customer accounts, leading to lost profits due to delays in introducing new products; higher excess inventory and more frequently upset customers at LVHM volumes. When the OEM's product is in the LVHM stage, financing costs for multiple weeks of inventory on the water or paying for the cargo carrier that is shuttling parts back and forth to meet the time-to-market needs of the end customer must be considered. Commodity materials are generally at worldwide commodity prices. Offshore manufacturing holds little cost advantage on globalized commodity material costs for LVHM. Freight, fuel, and offshore labor costs are continuing to rise in absolute and dollar-denominated terms independent of volumes, adding to the unattractiveness of non-local LVHM manufacturing.
Duties, tariffs, and delays add up to overtime even at the LVHM volumes. The ongoing cost of flying technical staff to resolve technical issues and management to the site is rarely calculated into the actual cost of the product. Reducing lead-time is the ultimate fix to forecast error and its consequences: lost sales, slow turns, and high excess become obsolete and detrimental to the OEM.
Concern over the intellectual property (IP) of OEMs becomes a major factor concerning where to build LVHM products. OEMs do not want their technology, which they have spent thousands and sometimes millions of research and development dollars, to be floating around in countries with lax IP laws and high rates of counterfeiting.
ConclusionOEMs need to weigh the perceived advantages and pressure they receive from their customers to move to Mexico and China manufacturing with the disadvantages mentioned above. LVHM EMS companies need to approach OEMs with an alternative and the best of both worlds by bringing cost and convenience of local North America manufacturing to marketplace, which is bringing the manufacturing jobs back to America.
John Buckley, senior VP of sales, Zurvahn LLC. Contact the company at maryh@zurvahn.com; www.zurvahn.com.
Related Articles:PCB Fab in a Recession: Lean, Web-based OpsPratish Patel, EI, discusses how board fabricators in the U.S. can use modern communications and lean practices to remain competitive with low-cost suppliers.
Producing through the Downturn Irene Sterian, Celestica, looks at three areas high-complexity lead-free, miniaturization, and new markets such as alternative energy where EMS providers can leverage their knowledge.
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