|A US manufacturer approached Knight with a problem: how to reduce the cost of this subassembly by 10 percent.
OEMs in the United Sates are in need of their own stimulus plan because of an increasing number of challenges that have impacted their profitability and competitiveness. Offshore competition, higher local labor costs, increasing material costs and/or shortages, inadequate bank financing to fund new developments, overseas entities pirating intellectual property, higher freight costs and fewer resources are some of the challenges in today's manufacturing marketplace. OEMs, particularly Tier 2 and Tier 3 companies, do not have the resources to overcome these challenges alone, prompting them to look for better strategies and programs that will help them remain competitive, maintain jobs in the U.S. and continue to innovate and improve their profitability.
Outsourcing programs often allow Tier 2 and 3 companies the opportunity to achieve optimal profitability. However, government regulations have recently been enacted that have negatively impacted the ability of some companies to cost-effectively outsource manufacturing. In addition to RoHS and REACH environmental requirements, the recent "10+2" rule and the LACY Act are regulations that have made it extremely difficult for smaller companies to fulfill the logistics requirements involved in managing their own outsourcing programs. As resources and personnel diminish, manufacturing companies don't always have the expertise or travel budget to guarantee the success of their outsourcing.
The complexities of government rules and regulations prevent small- to mid-size OEMs from maintaining profitability and competitiveness in their outsourcing programs. The small-to mid-size companies that try to manage these programs internally often underestimate the experience required to effectively execute them. Without a certain level of knowledge and expertise of documentation requirements, they run a risk of certain sanctions that, if violated, can carry a hefty fine for just one minor typo. The 10+2 Act is one of those requirements. It was initially imposed for national security, but it has become a headache for OEMs that use ocean freight. The act calls for 12 data points on all cargo to be provided 24 hours before cargo is laden on board. If that cargo is late, or if a small detail in documentation is inaccurate, a fine of $5,000 can be imposed for each violation.
A United States-based contract manufacturer with offshore capabilities — Knight Electronics Inc., — its own facilities, inspectors and engineers overseas to address these challenges. These overseas resources can directly oversee manufacturing and quality assurance procedures, ensuring that a small- or mid-size company in the U.S. will not have to struggle to maintain profitability. They are also able to provide the necessary feedback to customers and properly monitor design, manufacturing and inspection, as well as make sure products are delivered on time. Through over 3 decades of doing business overseas, Knight Electronics has developed the experience and knowledge of the rules and regulations that can save customers thousands of dollars. Contract manufacturers can provide a global reach to a U.S.-based company to manufacture larger subassemblies or turnkey projects that have the most potential to be profitably outsourced. In addition, an experienced contract manufacturer can procure components at a reduced cost, thus lowering overall Bill of Materials (BOM) costs. This can reduce overall manufactured product cost by 35 percent to 50 percent or more, depending on the product.
Keeping Domestic Jobs
However, outsourcing subassemblies or turnkey projects to overseas locations does not necessarily mean layoffs here in the Unites States. More often than not, the profits gained from outsourcing can be used to fund next generation product designs and/or provide a manufacturer with the ability to enter new markets with existing products because of improved competitiveness.
Although this may cause some employees to shift job functions, it may actually result in more domestic jobs, not fewer. With more opportunities, better design innovations and different markets served, there can be more demand for the final assembly or packaging of products domestically, thereby requiring more U.S. workers to complete the products that have been made possible by the outsourcing program. A better-managed outsourcing program will tend to create a more profitable and competitive manufacturer.
One high-end camera equipment manufacturer saw a significant increase in competitiveness and profitability through outsourcing. The manufacturer initially contacted Knight Electronics regarding a recurring field failure in its top-of-the-line model broadcasting camera. After diagnosing, redesigning, and replacing the existing fan component that was the initial source of the problem, Knight Electronics concluded after further analysis that they could more economically source an additional 158 components on a subassembly bill of materials, as well as assemble, test, and package the product for international shipment.
Cutting Lead Times
Using its original suppliers, the camera OEM was experiencing lead times of 6 to 9 weeks for the majority of the components on the bill of materials, resulting in a 12- to 16-week lead time for the finished product. Knight Electronics engineers reviewed drawings and prints to implement the most efficient processes, ensuring the quickest and easiest assembly. In order to meet a deadline for new product introduction, Knight Electronics was able to tool, manufacture, assemble, test, and ship product in just 6 weeks. Once Knight Electronics completed sourcing of the bill of materials, lead-time for the finished product was reduced to one week, along with an 87 percent reduction in manufacturing cost. The Knight Electronics assembly program also included inventory of accessories and cases to maintain the one-week lead-time.
Due to the significant reduction in manufacturing cost, the camera OEM can now participate in more price-sensitive markets with a superior product. If small- to mid-size companies plan to survive in the current market, they must seek out providers who understand the need for efficient logistics and the massive proliferation of new government rules and regulations. Manufacturing services that offer this king of experience and specialized knowledge, such as Knight Electronics, can provide a complete solution for outsourced manufacturing services. From the initial design to the store shelf, contract manufacturers provide small- to mid-size OEMs with a recovery plan that is superior to any government stimulus program available today.
Contact: Knight Electronics, Inc., 10557 Metric Drive, Dallas, TX 75243 800-323-2439 or 214-340-0265 fax: 214-340-5870 E-mail: firstname.lastname@example.org Web: http://www.knightonline.com