Multi-sourcing for electronics manufacturing is becoming increasingly popular as more original equipment manufacturers (OEMs) decide to outsource production to two or more contract manufacturers. Such a supply chain management strategy can give your company a competitive edge, but it also carries significant risks. In this article, you will learn about both the positive and negative sides of multi-sourcing.
How can your company benefit from multi-sourcing?
One of the most significant advantages of multi-sourcing for electronics manufacturing services (EMS) is supply chain management diversification. It works much like financial portfolio diversification, which secures investors against losing all their capital if their single investment option fails.
EMS has its own risks that can affect production, ranging from poor management, which leads to product recalls, delays and other undesirable scenarios, to situations beyond the control of the contract manufacturer. These include a lack of political stability, natural disasters, quarantines and material shortages. Furthermore, ordering goods from multiple EMS providers located in different parts of the world also allows for securing logistics that can be affected by the same factors.
Another substantial benefit that many OEMs enjoy after switching to multi-sourcing is greater savings. Launching production in several places can bring financial benefits. For instance, one EMS provider can offer cheaper labour while another has lower material costs. After switching to multi-sourcing, companies can determine which location offers the best conditions.
Collaboration with several EMS providers also allows you to dynamically adapt production to the changing needs of your business. Assel, based in Poland, is one of the few examples of contract electronics manufacturers that specializes both in high-mix low-volume production as well as low-mix high-volume manufacturing. Unless you work with an EMS provider that offers flexibility to its customers, you will need to engage multiple contract manufacturers to be able to switch smoothly between different types of production.
What are the risks of multi-sourcing for EMS?
Multi-sourcing for EMS also has its disadvantages that companies should consider.
One of the major problems OEMs can face is the complexity of coordination. Managing outsourcing to a single EMS provider can be quite difficult, whereas orchestrating multiple contract manufacturers, especially if they are located in different countries, can be a real challenge. It requires resources and personnel to ensure that all parties meet project requirements and deadlines.
Irregular performance of contract manufacturers which can result in inconsistent quality is one of the most common issues of multi-sourcing. For this reason, such coordination should include enhanced quality control measures as well as regular audits.
Furthermore, supply chain management requires additional control. Although the diversification of supply chain management mentioned above is one of the main benefits of multi-sourcing, it cannot be effective without proper planning and robust supervision.
Another major risk of multi-sourcing relates to cost. Many OEMs choose this business strategy for the potential possibility to save money, but they may eventually spend even more financial resources on the coordination mentioned above. All the tasks associated with management and additional quality control, as well as the risk of inconsistent quality, can generate significant expenses.
Savings can also be affected by the reduced bargaining power of multi-sourcing, as the volume of production ordered from a particular EMS provider is reduced.
Is multi-sourcing a good business strategy for your product?
There is no ideal business approach that fits all companies. Whether multi-sourcing proves beneficial in your particular case depends on several factors.
The scale of your production is critical. The larger your production, the greater the chances that the advantages of multi-sourcing will outweigh its disadvantages.
Logistics also play a major role in your choice of strategy. For example, your end products may be shipped to multiple regions, and working with local EMS suppliers will optimize transportation and associated costs.
Another example is working with an EMS provider that offers competitive pricing and quality but is located in a politically unstable region. You may not be ready to resign from your partnership yet, but you will need other contract manufacturers to have your back.
Reliable EMS provider for single-sourcing and multi-sourcing
Regardless of the option you choose, the success of your project depends on the competency and expertise of your contract electronics manufacturer. Assel can tackle the production of different scales whether you will work only with this EMS provider or share the project with multiple parties. Learn more about working with Assel on asselms.com.