Untold Hidden Risks and Costs of outsourcing Offshore - Electronics Manufacturing

Untold Hidden Risks and Costs of outsourcing Offshore
Electronics Manufacturing.  By Angela Tahara, CPP
 
 ‘Murphy’s Law’.  Anything that can go wrong, will eventually go wrong. As a certified Strategic Purchaser, CPP, for 15 years in the high tech electronics industry and now the Business Development at Selcom Industries, I have the pleasure of being in this industry and on both sides of the fence to really evaluate best practice scenarios.

As a CPP, one must communicate and serve production, engineers, quality, sales, corporate, financial and the all-important customers.  To make any adjustment, a risk assessment is presented.  Ultimately, the internal stakeholders agree on the course of action and in this instance, this course was to go offshore to save on the bottom line of the product. We added carrier costs and insurance of shipments to the Venders RFQ, and considered how much to bring in at a time with buffer stock should a shipment be held up at customs.  Batch sizes were determined by Engineering and Corporate.  It was deemed a viable course for our stable product.

‘Murphy’ stepped in on the third shipment.  The reputable carrier had lost a large shipment and it was not to be found.  Three months later we were reimbursed the cost of the shipment from the carrier, but that was the least of our problems.

Within a few weeks we were out of stock and this is what transpired:

• could not deliver to our clients = customer dissatisfaction = $$ loss unknown
• rush order from overseas vendor = rush $$ cost added  to product
• a few components were not available and partial shipment had to be made = extra shipping $$
• overtime hours to catch up once the new shipment arrived = internal costs $$
• implement a permanent contingency plan to overstock should this ever happen again
  • this removed corporate and engineering’s ability to be short term reactive should there be engineering changes = risk of dead stock = risk of $$
  • no longer a JIT (just in time) inventory
  • our component vendor pipeline commitment extended much farther = risk of $$
  • to keep this new gross amount of inventory on hand had tied up cash flow, plus company credit limit = $$ hidden internal costs
  • financial statements had gone from healthy to horrendous and severe cuts had to be made elsewhere within company = hidden corporate costs $$
  • had to restructure to smaller shipments = more shipping and insurance fees $$
  
  

What we all know is time is also money, and a factor that I didn’t include above.  You can imagine the time it took to maintain an offshore vendor with this contingency plan.

Ultimately, we returned most projects to a local vendor.    Not all EM’s are alike, but there are some exceptional ones out there that have the right capacity, skilled personnel, turnkey solutions, quality, equipment and will tailor make strategy to get your bottom line where you need it without the unnecessary stress points. A great communicative local vendor will negotiate and come up with your best strategy.

By throwing ‘Murphy’ into your evaluation equation, you can address efficiency and all the needs of your company’s stakeholders, from your Customers, Engineers, Production, Quality and right through to the Corporate Balance Sheets.

 
Angela Tahara, CPP
Business Development
Selcom Industries Inc., Burnaby, BC.
www.selcom.com