A new Boston Consulting Group (BCG) study titled “The Shifting Economics of Global Manufacturing: An Analysis of the Changing Cost Competitiveness of the World’s Top 25 Export Economies” ranks Mexico as less expensive than China. Even more significantly, it notes that China’s edge in manufacturing cost compared with the U.S. is now less than 5 percent and will continue to shrink as China's Third Plenum reforms are implemented.
Envisioning a new era for China’s economy, in November 2013 top Chinese leaders held the 3rd Plenary Session of the 18th Committee of the Communist Party of China (the Third Plenum), a four-day meeting to plan China’s future of social and economic reform. The reforms outline sweeping changes that China’s leadership expects to make in the coming decades.
Here are 4 ways you should expect a contract manufacturing partner to be reducing your costs.
Poor Component Selection: A product can function and meet your cost goals, yet be difficult to manufacture. An approved vendor list (AVL) that has a large number of sole-sourced components can be setting you up for material availability issues longer-term. Your contractor’s New Product Introduction (NPI) process should include design for manufacturability/testability recommendations using tools like Valor. The NPI process should also identify any materials availability issues using information from components suppliers and third-party providers like SiliconExpert and IHS.
Is Bigger Always Better in Contract Manufacturing?
Bigger is always better, right? So, from an outsourcing perspective it should always make sense to work with tier one electronic manufacturing service providers. However, that isn’t always the case. Let’s look at three common myths that create vendor selection mistakes
In December of 2013, Xilinx filed a lawsuit against Singapore-based electronics contract manufacturer Flextronics for fraudulently selling Xilinx semiconductor chips to customers at unauthorized prices. Xilinx claims Flextronics purchased these parts at discounted rates by ordering on behalf of Flextronics customer Airvana Network Solutions. Flextronics then sold the same parts to Checkpoint Systems at $4.50 more than what Flextronics had paid Xilinx. Xilinx further claims that Flextronics relabeled parts bought from Xilinx as higher-performance components.
Additionally, the suit charges that Flextronics has dealt in “gray markets and counterfeit,” misrepresenting Xilinx’s devices by purchasing from unauthorized dealers and reselling them to Xilinx customers, as well as making unauthorized sales to “unknown purchasers in Asia” without export licenses, which Xilinx claims not only violates US export laws, but could possibly lead to a threat in national security.
Conducting a should cost analysis can seem daunting but is actually very achievable for most OEM's outsourcing electronic assemblies. Use this quick and easy guide to benchmark your current price for an individual PCB assembly and determine if it is competitive.
If they deserve it, yes. If you buy only on the basis of price, then no.
Ever wonder how electronic contract manufacturers come up with their prices? Simple: they estimate their costs, then add profit. This method is called “cost plus”; cost plus profit.
Here are 5 simple, real-world rules for finding the right-sized electronic contract manufacturer.
