How OEMs Can Solve Their Manufacturing and Distribution Problems

Smaller and younger original equipment manufacturers (OEMs), while bringing a fresh approach to solving old problems, may require a larger workforce. They often allocate specific personnel to documentation, reverse logistics, procurement, or technical support tasks.

Nor do they have large spaces for warehousing supplies, components or finished goods. In addition, these companies often have to learn the product realization process as they proceed. This increases the likelihood of expensive errors that could result in the closure of promising OEMs.

In contrast, larger companies with multiple locations may face challenges in being adaptable. They have numerous information systems that may not be integrated, which slows down response times. This can result in the need for additional investment and time to develop custom programming for various systems.

Large OEMs can also face increased regulatory scrutiny even if they are not in a highly regulated industry.

Publicly owned companies face ongoing pressure to achieve significant growth to meet shareholders’ expectations consistently.

OEMs of all sizes face various challenges. This may include ensuring the scalability of their production throughput and distribution networks.

It may also involve maximizing eCommerce potential or avoiding distractions from core innovation due to logistics and planning. It also extends to managing personnel costs and reducing the expenses of raw materials to protect profit margins.

Manufacturing and distribution pose a complex set of challenges for OEMs. Many consider contract manufacturing as a comprehensive solution to simplify this process.

Contract manufacturers who also provide distribution and logistics services can help their OEM customers meet many of their challenges. They do this in the following ways:

Contract manufacturers have an advantage over independent customers when obtaining parts from suppliers. This is because they usually place bigger orders that cater to all their customers.

Ultimately, this gives them more bargaining power within their vendor base. Thus, contract manufacturers can secure lower costs and shorter lead times for parts. They can alleviate this key pain point for OEMs.

There are other advantages that contract manufacturers offer in procurement. When you outsource buying and planning, it helps to eliminate the hassle involved in identifying and approving alternate parts. This is crucial in preventing or reducing the time required to deal with an internal parts shortage.

By providing climate-controlled warehousing space, buffer stocks of both parts and finished goods can be stored, consumed, or shipped. This can be in addition to, or as a substitute for, the OEM’s own warehousing facilities.

One of the main reasons OEMs choose to outsource distribution logistics is the option to choose either route. This flexibility is highly valued.

Small OEMs can benefit from partnering with contract manufacturers with lower minimum order quantities when launching a new product. On the other hand, larger OEMs often turn to contract manufacturers for speedy turnaround times and competitive production costs.

Both parties benefit significantly from the contract manufacturers’ capacity to quickly increase or decrease production volumes. Companies with fluctuating products from high demand to average sales volume can benefit considerably from on-demand production scalability. This makes them more agile in the market.

Contract manufacturers provide solutions to help manufacturing companies stay competitive and efficient. They can offer services such as smart supply chain management.

They also provide OEM manufacturing capacity augmentation, warehousing and inventory management.

All of these services help alleviate bottlenecks.