The fashion for moving high-tech manufacturing offshore to low labour-cost countries quickly created a backlash, as companies learned the true costs of making the strategy work. Some products, we now know, are simply not well suited to offshore production.
However, the majority of OEMs would still prefer to combine the benefits of a local partnership with the cost advantages of building offshore. A variation on the concept of toll manufacturing provides a solution.
Toll manufacturing is widely used in the chemical and process industries, where a secondary company carries out a subset of the production processes.
In contract electronic manufacturing, a CEM may outsource a part of the assembly to another manufacturer. Ideally, this is transparent to the end customer, who continues to interface with one primary contact at their primary CEM partner.
Clearly there are some management challenges here, and toll manufacturing must be implemented astutely if it is to deliver cost and time-to-market advantages for the end customer.
As an example, JJS Electronics, a CEM based in Lutterworth manages toll manufacturing using a wholly owned facility in Chomutov in the Czech Republic. The Lutterworth site is the sole customer of the Czech business and the Chomutov facility is able to make the most of the cost advantages that many former Soviet-bloc countries currently enjoy. At the same time, being part of the EU eases aspects such as movement of goods and provision of services.
So how does this differ from the established offshore model? According to Stephen Greaves, Commercial Director of JJS, the important tasks determining quality, project completion and delivery are all managed and performed locally to the end customer.
The team in the UK, for instance, is responsible for managing critical-path activities including engineering work, new product introduction (NPI) and project transitions. This eliminates issues including time differences, logistics, language and cultural differences, plus the additional cost and inconvenience for OEMs of managing a relationship with an offshore supplier, which can quickly erode any anticipated cost savings.
"Customers’ peace of mind hinges on being able to get answers from their main point of contact, at any time," says Greaves. "This cannot be maintained if key elements of responsibility are transferred along with assembly processes."
For electronic toll manufacturing to operate transparently to the end customer, a CEM needs to be both clear and flexible in identifying which tasks should be performed locally, and those that are beneficial to carry out at lower labour rates and then manage the two threads very closely.
JJS, for example, maintains complete assembly competencies within the UK. The capabilities based at Chomutov mirror closely those in Lutterworth such that a customer’s entire product can be built in either facility if and when required. "Drawing on the strong skills base available in the Czech Republic, our Chomutov facility consistently produces high-quality, complex assemblies," says Greaves.
According to Greaves, toll manufacturing can combine the best of both worlds. "We have found it works well for high-value, complex products, taking advantage of the high level of skills available at a lower cost within a European time zone. There are valuable advantages for customers, but the strategy has to be actively and intelligently managed by the primary CEM."