Pitfalls to Avoid When Outsourcing Your Electronics Manufacturing

The decision to outsource your electronics manufacturing is not a one-time transaction, typical of commerce. It is an extension of your business strategy and must involve all relevant stakeholders such as engineers, quality control experts, product managers, marketing and finance executives, as well as client liaisons. Each stakeholder will have a unique perspective and will raise factors critical to their area. They will be able to help make informed decisions regarding the selection criteria such as the build complexity to be handled, technical expertise required, production capacity, financial stability, reputation, and flexibility.

It is important to have a clear idea of what you expect a successful relationship with your Contract Electronics Manufacturer (CEM) to look like. In this blog post, we share some common issues to avoid.

The Cheapest Option

As experience in any business will validate, the cheapest option is not always the best, ensure you validate what is being offered. As an OEM you’re asking an outside party to be a trusted advisor in your business. The level of quality, reputation and reliability of your end product is at stake. A pragmatic approach is to look at the full lifecycle; including sustainable practices and a partner that can grow with you. Cost must be only one of your selection criteria. You want a CEM that offers the best overall value for you and your clients.

You must also consider the overall cost (PCB, parts, assembly and testing) and risks for any option. A lower quote for assembly might come with a higher hidden risk of defects. Correcting defects can be costly in terms of time and effort. There is also the possibility of the entire assembly needing to be discarded. Ultimately you want to know who your partners are partnered with and understand their ability to authenticate and validate supply options.

Consistent Replicability

Consistency in the end-product across batches is critical to ensure regulatory compliance. Certifications – which are often expensive to maintain — are valid only as long as the product and its quality assurance requirements do not change. It’s important to ask your CEM that they hold the applicable certifications relevant to the manufacturing and assembly of your product. A CEM partner will ensure their certifications are up-to-date and be able to offer you reasonable assurance through their quality management system.

Inadequate Communication

Clear and open lines of communication with your CEM partner are vital for understanding technical specifications, standards, timelines, environmental and legal compliance, and project expectations. Based on dynamic client demands, OEMs often have to make changes to product manufacturing requirements. If these are not shared in a timely manner with their CEM partners, it can create issues for all parties involved. It is a good idea to set up periodic meetings (either virtual or face-to-face) with your CEM partner to touch base on changes and updates to manufacturing requirements.

We cannot stress enough the importance of transparent and regular communication with your CEM partner for New Product Introductions (NPIs). These are complex affairs comprised of various interlinked business processes, assemblies and sub-assemblies — with multiple functions serving each process. They have to be carefully coordinated and managed. As one example, if the Bill of Materials (BOMs) is not accurate and complete, it leads to guesswork and confusion about how your CEM will handle the missing information. Changes to the product or process must be communicated promptly to your CEM partner.

The Trouble with RFQs

Many OEMs rely heavily on the response to a Request for Quotation (RFQ) to evaluate the price efficiency of potential CEM partners. There are several problems with taking this type of an approach such as:

Guiding Assumptions

It is possible that both parties do not clearly comprehend the assumptions behind the quote pricing. The OEM and sometimes even the CEM does not clearly understand what assumptions are built into the quotes’ pricing – volumes, purchase price variances, number and nature of component suppliers, minimum order quantities, etc. Furthermore, validating a comparison from a prototype quote may not consider several elements in the build process. Ensure you take the time to carefully assess each quote for which stage of production you are at.

Product Pricing Structure

Many CEMs do not offer an accurate and detailed cost breakup. In the absence of such transparency, it is difficult to identify areas where cost-efficiencies and timelines may be improved. This results in a lose-lose situation for you and your CEM – something that must be avoided.

Clarifying your Supply Chain

The CEM quote can vary quite a bit based on your supply chain model and management. Your CEM’s inventory management, change order management and purchase order processes must align with your model. As this can affect your end-product price.

Frequently Overlooked Issues

The right structuring of your agreement with your CEM partner is significant. The warranty scope and coverage period, how repairs outside the warranty will be handled, location where inventory for repairs is stored, transportation, duties, taxes, costs of prototyping, engineering change orders and engineering services, as well as Return Material Authorization are some of the things that are often overlooked by OEMs.

Settling on a fair and reasonable price is a two-way street, where you work collaboratively with your CEM to answer questions, address concerns, and develop mutually-accepted assumptions to guide the price.

Project Management

Using the right tools will reduce the volume of emails and the difficulty of finding the most recent information. Decide on the tools that will work best for you and your CEM partner.

If you’ve developed a build agreement or contract then you’ve engaged a level of trust with your manufacturing partner. They are now vested partners in your success. Trust that they execute a project management program that keeps you engaged but allows them the trust and confidence to build the most efficient way.

IP Rights

You have to protect your intellectual property and that of your clients at all times. Intellectual property risks are heightened when using a CEM. It is necessary that you verify whether your CEM partner offers physical, electronic and legal protection for intellectual property. Ensure your expectations are met and clearly map out your IP strategy.

The August Partnership

At August, outsourcing your electronics manufacturing should be considered a long-term relationship. When considering the evaluation process, we urge you to take a full lifecycle view of the costs and risks involved.

If you would like to discuss some of these points or to learn more about the process of outsourcing your electronics manufacturing, we’re happy to help you. Please contact us today.