The economic recession has resulted in original equipment manufacturers (OEMs) seeking to drive down costs by re-examining their manufacturing strategy, with many companies increasing their level of outsourcing, writes Ronnie Darroch, Plexus regional president (EMEA) in Electronics Weekly. He argues that OEMs can be of benefit to electronic manufacturing service (EMS) providers (like Plexus who provide electronics design, manufacturing and after-market services to companies with high complexity products) as OEMs undertake strategic reviews and decide to outsource manufacturing to an EMS provider. Outsourcing all or a portion of their manufacturing allows OEMs to convert internal fixed costs to external variable costs, leaving it more able to deal with changes in end market demand, particularly during periods of economic instability. This can create a win–win for both companies with growth opportunities for the EMS provider and the OEM left to focus on its core competencies.
Questions:
1 How can outsourcing change the cost structure of an organization?
2 What are the major beneits and limitations of outsourcing?