Shift in CM business models yield higher profit for OEMS

Traditionally, contract manufacturers (CMs) are companies that create products as specified by the OEM. However, their roles have changed remarkably in the recent years to develop advanced technology and manage supply chains for some of the leading global companies.

OEMs are increasingly turning to integrated manufacturing solutions (IMS) partners to design, manufacture, ship and repair virtually all products they market.

There are a number of factors driving this shift. First, because some IMS companies have specialised in the production of certain types of equipment for many years, they have developed substantial design and technology expertise. And second, the global footprints and supply chains of IMS companies are often more extensive than those of OEM's.

In addition, the shift towards end-to-end outsourcing is also enabling OEMs to improve profitability by changing traditional business models. Rather than investing in facilities, capital equipment, core technology development and business processes such as supply chain management, companies collaborate with IMS providers to manage these aspects of their business so they can focus resources on the development of unique products, IP and services that are the core of their business model.

Here are four examples of the business benefits of collaborating with an IMS partner.

Technology development

Years ago, electronics companies developed most of their core technology. This was costly, timing consuming and often resulted in elements of their technology being uncompetitive. Fast-forward to today and OEMs can partner with a number of companies including some IMS providers who can develop, test and manufacture complex technology. For example, a company with innovative software as a service (SAS) intellectual property (IP) engaged Sanmina to design and develop core technology including high speed PCBs, enclosures and backplanes based on Sanmina's experience in providing these same technologies to other communications companies. This allowed the company to focus and invest in their core SAS product development. Leveraging this more or less turnkey design and technology solution eliminated substantial design and development time and investment.

Supply chain management

In an increasingly global economy, companies need to reach new customers in emerging markets and scale up as demand grows. Because of duty and tariff differences in each region and the need for efficient logistics, more manufacturing is becoming regional. However, investing in facilities, capital equipment and related infrastructure requires significant capital investment and dedicated expertise in product localisation and fulfilment.

Products may need to be redesigned to meet the functional, price point and other requirements for a particular country. This process requires a tailored supply chain to meet product specifications and cost realities of each market. An IMS with a global footprint can take over this aspect of the business and significantly reduce total landed costs.

By way of example, Sanmina provided a low cost supply chain for a family of 20 high-speed cash sorters/counters for a global ATM and cash sorting systems OEM. Advanced technology components, supply chain localisation and custom configuration of language packs and currency were developed and deployed for this family of products. By working with a partner who has worldwide manufacturing facilities, local design teams, inventory hubbing, repair and logistics, companies don't have to manage this complicated process, which frees up capital and resources for other strategic initiatives.

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