The True Costs for OEM’s Trying to Handle Supply Chain Processes In-House
Supply chain operations are a lot like household chores. They clearly need to be done, but by whom depends mainly on the household and its current circumstances. Also, just like how chore responsibilities change over time, there are times when the systems, procedures and structures around supply chain processes must dramatically change.
Of course, the logistics of this are more complex than chores. What remains the same is that these activities can feel burdensome when they zap resources and divert attention from core business values. This is often the case with rapidly growing original equipment manufacturers (OEMs).
If supply chain management (SCM) isn’t in an OEM’s wheelhouse, then that OEM should look into outsourcing that function. There’s where third-party logistics providers (3PLs) or full-service contract manufacturers, like RiverSide Integrated Solutions (RIS) come in.
Keeping supply chain processes may make sense in certain scenarios, but for most the costs incurred by keeping supply chain processes in-house far outweigh the benefits.
The obvious costs
First, let’s discuss the obvious costs. These include capital investments in machinery, maintenance and operational costs of running warehouse facilities and fulfillment centers. And, as rental rates for warehousing continue to rise, OEMs may face the challenge of justifying those costs. Further, warehousing space (especially in or near urban areas) is getting harder to find.
There are also direct and indirect labor costs: wages, benefits, equipment, training and space. It takes money to hire and retain people with the expertise to run a warehouse efficiently. The same can be said for qualifying substitute parts and alternate vendors, running supplier audits, managing inventory and balancing production schedules. Since there is a global shortage of SCM talent, don’t expect any of those costs to drop anytime soon.
Furthermore, contract manufacturers make purchases for several clients at one time. Because of this they have established relationships and more negotiating leverage with supplier than many OEMs. Keeping sourcing and procurement in-house means missing out on the shortened lead times and discounted part costs that contract manufacturers often get.
Hidden costs
Now that we’ve covered the obvious costs, let’s look at the other costs. Those that are hidden or less visible.
Examples of these include:
- loss of focus on core business strengths
- inefficient knowledge transfer and access throughout the OEM due to siloed systems and tribal knowledge
- inter-departmental friction and politics
- the cost of devoting resources to all the above instead of areas that more directly drive revenue
The true costs of keeping supply chain processes in-house are the sum of both these hidden and obvious costs.
And remember, every OEM is dealing with its own unique situation. So while some OEMs will want to outsource everything, others may want to keep a hold of certain pieces. In other words, while some OEMs may only hire someone to mow the lawn, others will need complete grounds maintenance. Working directly with a diversified and capable contract manufacturer like RIS means that we can always fit your needs.
We’re here to deliver cost-effective supply chain solutions that grow your bottom line.
About RiverSide Integrated Solutions
RIS is an advanced contract manufacturer providing robust solutions in circuit board assembly and product assembly. We employ more than 350 people and provide services to OEMs worldwide. We operate two state-of-the-art manufacturing facilities within the US.
With all of the choices in contract manufacturers out there, we know it can be challenging to find someone who understands your business model and has your best intentions in mind. RIS has always proven to be a win-win-focused relationship.
As your one-stop shop, we have the capabilities, capacity, quality assurance standards and resources to support all of your manufacturing needs. We understand that supply chain management is complex and very time-consuming, so we urge our customers to utilize us in the fullest capacity.
Our total-package solutions include:
- Extensive supply-chain network
- Full box-build assembly
- Dedicated Program Team
- Warehousing, kitting and drop-shipping capabilities
- Reverse logistics
- Flexible order fulfillment
- Scalability to meet your needs
Contact us today at (507) 523-3220 to see how we can help with your manufacturing project, or click contact us for a quote.
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