Before you decide to set up your own manufacturing capability, review its true costs.
Manufacturers of niche electronics-based products sometimes toy with the idea of bringing their manufacturing in-house. Although vertical integration, generally speaking, has gone the way of the do-do bird, cash-strapped start-ups and product mangers with low-volume product lines may sometimes feel that there aren’t manufacturers out there who will be a good fit for them. But the true costs of manufacturing are often overlooked in discussions about bringing this capability in-house.
The often-overlooked costs of setting up an internal manufacturing capability include:
Real-estate & utilities — Electronics manufacturing requires floor space! Not just for the equipment but for shipping, receiving, inventory, and so-on. This also means that utility costs will increase, particularly when ventilation is required.
Costs of acquisition and maintenance — Spending a quarter or half-million dollars on a piece of manufacturing equipment is just the initial cost – the equipment must be regularly calibrated and maintained, all of which costs money.
Software licenses — Every piece of automated manufacturing equipment comes with software and licenses that must be maintained.
Costs to run the equipment — This includes skilled operating labour as well as programming labour. Unless these skills are needed on a regular and frequent basis, it’s cost-prohibitive to staff these, and may be difficult to find skilled part-time or contract labour when needed.
Perhaps the most significant cost of bringing manufacturing in-house, however, is a loss of focus. I strongly believe that OEMs should focus on the marketing and sale of their products: staying close to customers, understanding what the market needs, and working to innovate, sell, and support products to fit those needs.
Manufacturing is an entirely unique business from the marketing and sales of products. Although it is critical for manufacturers, designers, and product managers to work closely together, niche players will always be most successful when they are able to focus their entire business on innovation, differentiation, and customer service. For them, in-house manufacturing would be a distraction, rather than an asset.
Contract manufacturers such as OCM can have decades of experience focused on niche product lines and low- to mid-volume products. Rather than DIY, find a contract manufacturer flexible enough to provide the right fit for your needs.
—George Henning is president of OCM Manufacturing.