Here’s Why OEMs Tend to Outsource to EMS Providers
Most OEMs outsource the development and creation of electronic components. The actual manufacturing process can be quite problematic for OEMs. While they can’t sell the product until it’s assembled and tested, their expertise lies in coming up with new ideas and products. For OEMs, manufacturing is more of a means to an end.
Here are some reasons OEMs outsource:
To focus on design and marketing
The business model of OEMs is centered around focusing on product innovation and development. OEMs design products and own the rights. Outsourcing services helps them free up time to focus on more important areas of the business like marketing. With the rapid rate at which technology is developing, OEMs are under immense pressure to come up with innovative ideas to stay ahead of the game.
Surprisingly, costs are never the primary factor that determines outsourcing. However, reduced costs are a benefit of outsourcing. OEMs are able to cut down on operating costs. They can implement lean manufacturing more effectively and replace inefficient components with value added alternatives. OEMs can reduce raw material and finished goods inventory, which also helps reduce costs. This gives the company more time and resources for marketing and sales.
To free up capacity and resources
The main goal of OEMs is to expand and get more customers, but there’s risk attached to such success. An OEM may outgrow their current situation, leaving them less factory space to accommodate the increased demand. They then have to make a choice of acquiring new commercial premises, or outsource. Outsourcing is the better option, as it reduces overheads and frees up capacity too.
Increased purchasing power
Despite the fact that OEMs have a limited product line, the EMS provider has significant experience working on various products across a number of industries. They also have access to a wide network of suppliers. EMS providers are able to get the best deals due to the relationships built with suppliers and their economies of scale. An OEM would not be able to achieve the cost effectiveness of an EMS provider.
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