The supply chain management crisis and chip shortage are not news to anyone. It may be some of the most repetitive news over the past year. Some analysts are projecting that the supply chain bottlenecks will continue into 2023 and possibly later.
Engineers have been hit hard by the weakened supply chain like many other roles and industries. So what now moving forward? Offshoring, onshoring, and friendshoring all have their benefits. Here are some reasons why certain engineering groups are choosing to source their CMs differently.
Why some are onshoring
For hardware components and CB manufacturing, some overseas contract manufacturers are being replaced by local manufacturers. This is even more so the case with prototype manufacturing.
Because prototyping requires multiple iterations, is prone to errors, and does not rely on economies of scale, domestically sourcing this manufacturing greatly reduces the distance and turnaround time the hardware needs to be shipped. The thought is that no boards will be held up in customs before they are on their way through the final leg of their journey.
Having control and visibility into the manufacturing process is crucial. Smaller teams may not have the bandwidth to deal with a large vendor overseas and the volume of communication required to ensure that the prototype is correctly being manufactured to its exact specifications. To complicate things even further, sometimes there is a language barrier where granular details may get lost in translation or result in a misunderstanding of those specs.
Onshoring can sometimes help companies ensure compliance with their country’s regulations. If the end product is going to be sold in the American consumer electronics market, for example, manufacturing the prototypes in America might guarantee that regulations are being met depending on the CM, as well as compatibility with other locally standardized factors, such as voltage or safety features.
Why some are offshoring
Some economists have claimed to debunk the increase of onshoring for lacking data. Onshoring is a widely used practice for manufacturing components and prototypes.
One of the greatest benefits of offshoring is the total cost. Because the cost savings are so substantial for raw materials, labor, and overhead, this can completely offset any of the shipping costs that come with manufacturing overseas.
High quantity runs can result in further cost savings. The impressive bandwidth that CMs have can help get your designs or needed components on the production line quickly, regardless of volume. Although the amount of shipping time has to be taken into account, offshoring can still be quicker than onshoring or friendshoring if your orders are not bottlenecked in the CM’s manufacturing queue.
Offshoring can also be helpful when your target market for the end product is within the region of the CM. The CM may already be well versed in the regional requirements for the designs, and if they have the bandwidth your organization may be able to leverage the existing relationship of prototype manufacturing for when it is time to manufacturer the end product at full scale for that target market.
Why some are friendshoring
Politics aren’t just creating bottlenecks in the supply chain; on the other side of things, they are also being leveraged to make it more efficient. To avoid these negative factors, manufacturing is not just moving back domestically. Some are embracing offshoring more strategically.
“Friend-shoring” is also becoming a growing trend. Engineers and procurement departments pick countries whose tariffs are low and where customs are more efficient. This allows them to offset costs while not sacrificing security, speed, or quality. While these companies may reap the benefits abroad compared to domestic manufacturing, they only can so long as they are able to diligently navigate the complications of having to globally procure components.
Offshoring can also be helpful when your target market for the end product is within the region of the CM. The CM may already be well versed in the regional requirements for the designs. If they have the bandwidth, your organization may be able to leverage the existing relationship of the prototype manufacturer for when it is time to manufacture the end product at full scale in that target market.
This can also suddenly cause a dramatic increase in the cost of components used in manufacturing. International relations has been shifting the production of semiconductors, and causing countries to question the reliability of their CMs for both the short and long term.
The benefits of choosing any of the three:
Lowering your E&O
Just in time manufacturing opens up access to production without being bogged down by quantity limits and lead times. This flexibility drives a behavior amongst teams to place small orders, as opposed to bulk orders to ‘play it safe’ or avoid future waiting times if something is needed for a different project.
These smaller orders, delivered much faster, also decrease the amount of obsolescence as your project progresses or innovations occur in the components that your hardware consists of. What’s sitting in your inventory between projects or iterations will keep up with continuous innovation instead of becoming obsolete waste.
The challenges of all three:
Contract manufacturers may use components that differ in quality from their competitors. This may be problematic if always awarding your prototype manufacturing to the lowest bidder when more of your designs need to be created. Vendor A’s reliability may be great; in another iteration where more components have been added from vendor B to the existing prototype, it may not function properly, causing unnecessary troubleshooting. Consolidating vendors decreases room for faulty components. Additionally, manufacturers in regions with larger black markets may utilize counterfeit components in the creation of prototypes; both domestically and abroad.
Protecting your IP
Intellectual property theft is low-hanging fruit; especially for contract manufacturers who may be working with multiple companies that are competitors. Contract manufacturers may favor larger manufacturers over startups or enterprises that are solely using the manufacturer for small runs, such as prototype and prototype component manufacturing.
Your organization’s IP is being put at risk from either unethical manufacturers who may try to fly under the radar of enforced proprietary laws, or they may be more susceptible to hackers if a CM’s cyber security is not living up to industry standards.
Which one works best for your team? Is your choice a company-wide decision, or does it vary from project to project? Do you use one method or a combination of the above?
Let us know what has worked best in your experience, and feel free to send any future article suggestions at email@example.com