5 Myths about selecting Contract Manufacturing Companies

With much of today’s machines manufacturing outsourced, we wind up spending plenty of time within different contract manufacturing companies.

There are numerous reasons why we expend a lot of time in outsourced manufacturing services.

Here we are discussing the top 10 myths about selecting a contract manufacturing companies.

For an OEM that makes its existing advertising a physical creation, the assortment of a contract manufacturer to make that result is a substantial verdict. Nonetheless there are so many mistaken beliefs and lost concept about what is actually significant in the assortment criteria. The following is a list of some of the most common myths and misconceptions we see held by OEMs about selecting the right contract manufacturer.

1) “If I select the proper CM partner the whole thing will be perfect.” CM is a tricky, viable, low-margin business – and it is one that wants to be energetically organized. OEMs that get the good fallout, and that state the maximum rank of pleasure with their CMs, are ones that make up their personal actions association to efficiently run outsourced manufacturing.

2) “I just want to discover the lowest quote price.” For several products and markets, the X-works per unit manufactured quote price confines just 70% to 80% of the whole deliver chain expenditure I’ve seen many examples where departing with a per unit quote price that was 2 points inferior finished up costing an extra 5 points in other less noticeable costs – both interior and exterior. In addition, numerous CMs have strong and institutionalized business method for recognizing and detain extra costs that were not incorporated in the quote that are then approved on to the OEM in the structure of different fees and charges.

3) “My board will be overwhelmed if I sign on with a “Tier 1” manufacturing service provider.” The common rule of alliance CM’s into a variety of levels, usually from one to four, was urbanized by the financial markets in order to assist elucidate dissimilarities in survey multiples crosswise the industry. If we proxy the words “great big” for the words “tier 1” in the original quote above, the declaration lean to hum a bit more reliable with how childish it really is. The merely time an OEM really wants an immense CM is when they have a huge big piece of business to lay. In mainly cases we sponsor selecting the right size fit, additionally to considerate the fit across other extent counting technology, geography, management style/culture, end market experience and, of course, business model.

4) “I don’t want to be at a CM that is building for my competitor.” Why not? Is it because of the proprietary scenery of the built-up procedures that you are outsourcing to the lowest bidder? Rarely the sight supported in this citation is right, but in common it is mislaid and more times than not precisely mistaken. OEMs should locate the most generally proficient and companionable CMs for their precise business and often times this means structuring with the same company as one of your competitors – which is just not the same as running your product down the same line using the same support staff.

5) “I need a partner that is willing to invest in my business.”  In my knowledge, the statement above usually entails that the OEM is looking for someone to drop money building products for them. Infrequently is there a real benefit to having a key dealer mislay money on your account – and if you resume item number 2 aforementioned, the fact of the matter is that they rarely do. Expecting a CM with a 6% ROA and a 12% WACC to “invest” in your business is a bit like asking Bernie to manage your accounts.