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Each week, a number of importing firms which are on the lookout for a provider attain out to us for assist. Prior to now month, 3 or 4 of them had been on the lookout for a producer for his or her new digital product, and so they had a particular request. They had been on the lookout for a manufacturing facility during which each fabrication and meeting happen. What are the advantages and limitations of this..?
In sensible phrases, it means these manufacturing processes happen below the identical roof:
- PCBA (SMT, reflow oven, optical inspections, and so on.)
- [In some cases] Plastic injection tooling fabrication
- [In some cases] Plastic injection molding of the enclosure and/or customized inside components
- Last meeting & testing
- Packaging
It does include advantages. Nonetheless, it’s not all the time essentially the most appropriate association.
Advantages of retaining fabrication and meeting in the identical facility
I coated this matter in 3 Vertical Integration Advantages: Transparency, Management, Pace.
To summarize it:
- Transparency – avoiding a number of tiers of suppliers makes it simpler to know what is absolutely happening, so long as the ultimate producer (which handles all these processes) cooperates nicely.
- Management – it’s simpler to regulate 1 producer than [1 supplier + 2 sub-suppliers].
- Pace – if many processes are below the identical roof, the handover from one exercise to its downstream exercise is often quicker.
The very best instance might be automotive crops. They’ll go from metal coils (stamped to make physique components) to a completed automobile in about 24 hours.
This slide from the presentation of a Toyota old-timer illustrates this nicely.
Some further advantages of utilizing only one provider for fabrication and meeting are:
- A decreased probability of IP leakage (particularly in relation to the PCBA course of) as fewer events want the data – that is typically extraordinarily essential for {hardware} startups with a brand new product thought
- Higher management over the product’s molds, as it’s simpler to make it possible for they aren’t used for unauthorized productions
When does such vertical integration work greatest?
It works nice when the manufacturing facility all the time makes the identical sort of product.
Within the case of an automotive plant, they are usually comparatively centered. I don’t bear in mind listening to of 1 plant making each compact automobiles and SUVs, for instance. Neglect about vehicles or forklifts – every of these is made in its personal particular plant.
One other instance involves my thoughts: a wheelchair manufacturing facility. They’ll reduce, paint, and drill their metal components, they will reduce and stitch the textile components, they will inject rubber, and so forth, all in the identical facility.
(Notice: the true lean organizations ensure that the processes are linked by kanban and the quantity of labor is levelled, in any other case the bullwhip impact is in full pressure and it creates many inefficiencies.)
Does it make sense for a producer that must make a brand new product for a startup?
Seldom, for a easy cause.
The listing of producers which have many processes in-house is comparatively quick. It tends to be massive firms, who typically don’t care a few startup’s small orders.
In the event you place POs below 100,000 USD, these massive firms could not even reply… Or they could assign a third-rate salesperson to comply with up in your undertaking and see you as their final precedence.
Now, there are exceptions, after all.
In the event you discover an ODM provider that has a product that’s already 80% or 90% of what you want, it might make excellent sense to work with them. And so they may need many processes in-house (that is sensible if they have an inclination to make only one sort of product and so they have optimized their group accordingly).
Nonetheless, be sure you are conscious of the standard pitfalls of working with an ODM provider.
Associated studying on the subject of sourcing suppliers who might deal with fabrication and meeting in-house:
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