The Four Cs of Outsourcing Product Assembly for OEMs

OEMs Struggle

It may be the right time to outsource your product assembly and manufacturing operations. But that doesn’t necessarily mean getting to that conclusion is easy or obvious.

Identifying and weighing the advantages and disadvantages of outsourcing manufacturing and assembly operations can be difficult for many Original Equipment Manufacturers (OEM).

While the idea of outsourcing may be attractive, you may not want to slow down or allocate analysis tools and time to effectively conduct a cost and ROI comparison of outsourcing versus in-house operations. Not all assembly and outsource process vendors are the same, so we have compiled four considerations that will help you decide as you explore potential outsourcing partners.

Costs… Yours & Theirs – The True Cost of Outsourcing Product Assembly

Before outsourcing your product assembly, it’s critical that you understand your actual in-house manufacturing costs. That knowledge will give you a benchmark to use when selecting and comparing different contract manufacturers. Besides having a more holistic understanding and appreciation of all the cost factors involved, you can recognize when an assembly partner is offering a great deal or adding value in ways you may not have recognized without that insight.

Many OEM companies simply compare their direct labor and materials costs against the quoted prices of the contract assembly partner. However, this approach doesn’t accurately reflect your true assembly costs for a particular product line or piece of equipment. You shouldn’t forget about other factors, such as fixed and variable indirect costs or the opportunity cost of your factory floor. Have you thought about:

• Direct and indirect costs of benefits to employees?

• Difficulty training and retaining employees for certain operations?

• Management de-stress when you outsource a difficult or touchy assembly operation in return for a fixed cost per part or assembly?

Many contract assembly partners, such as Big Rock Manufacturing, will help you investigate and quantify these direct and indirect costs. A contract manufacturer should be able to share their production processes, material costs, direct labor costs, overhead costs, and profit margins.

Capabilities & Certification Requirements – Finding the Right Product Assembly Partner

Make sure your contract manufacturing partner is compliant or, better yet, certified in your industry’s quality standards. For example, any product used on any aircraft must adhere to AS9100D, which typically comes with ISO 9001:2005.

When evaluating the range of services offered by an outsourced product assembly partner, consider your business and industry requirements. Look past a slick sales presentation and research whether they focus on your particular services and industry.

Having a partner that understands your industry, what you do, and WHY you do it will increase the likelihood that they remain aligned and value the same things over the life of the relationship.

Capacity… Size Matters When Choosing a Product Assembly Partner

You should match the size of the product assembly partner to your size and scope of operation. For small- to medium-sized OEM companies, relying on a too-large product assembly outsourcer could result in your needs and products not being prioritized and a less-than-flexible relationship.

Larger contract assembly and manufacturing companies can offer great value and efficiency for larger projects but may find it more difficult to service the ever-changing needs of smaller accounts.

While you will need to implement initial training and oversight, your assembly partner should be flexible enough to react to your requests with minimal input from you, whether that’s quickly adding employees or equipment or helping source materials or third party vendors.

Confidentiality & Cybersecurity – Keep Your Intellectual Property and Government Information Safe

Few assets are more important to your company’s success than your intellectual property and the government information you guard. Due diligence on the security of an assembly partner’s data systems and, if applicable, the intellectual property laws in that country or region must be a priority.

A reliable product assembly partner should be able to show you how they secure your physical and digital secrets and IP at all times. A cheaper contract manufacturer might be a temporary bottom-line boost for your business, but if they leak or infringe upon your intellectual property, they will be the most expensive contract manufacturer you hire.

There you have it: Use the 4 Cs to make smart decisions for your OEM business.

Outsourcing product assembly is an important decision, so you must thoroughly research each potential contract manufacturer or assembly partner before making an official agreement. By keeping these four considerations in mind – Costs, Capabilities, Capacity, and Confidentiality – you'll equip yourself to select the best product assembly partner for your OEM business. A great contract manufacturer will be transparent about their production processes, material costs, direct labor costs, overheads, and profit margins.

A true product assembly partner like Big Rock Manufacturing, with proven expertise and a commitment to quality, will help you investigate and quantify the direct and indirect costs of outsourcing.