As an OEM, you embark on an exciting new project. You’ve hired an external engineering design firm to conceptualize your innovative product idea. After being presented with a proposal, you approve it but you decide to oversee the manufacturing directly with a local electronic manufacturing service (EMS) partner. With a predetermined budget in place, you proceed with confidence. However, during the course of the production, a significant hurdle arises. Your EMS partner is no longer able to commit to the original quoted prices due to inaccurate forecasting coupled with surging materials costs and other economic factors.

Your EMS partner has explored other alternative sources as cost-effective substitutes from other component suppliers but, given the same economic conditions, they too raised their prices. Amidst escalating overhead such as labor, and freight expenses, your EMS faces the delicate balance of maintaining profitability while meeting project deadlines and adhering to your project specifications.

Aside from the rising materials costs, a host of other unforeseen factors can impact your project’s feasibility. By selecting the right EMS partner and taking proactive measures, you can mitigate these challenges and ensure a successful outcome.

Managing Unexpected Supply Chain Disruptions Leading to Cost Escalation

Many EMS partners heavily rely on complex global supply chains for sourcing components and raw materials. Any unforeseen disruptions such as natural disasters, geopolitical tensions, unfavorable trade policies, and global health crises can impact supply chain reliability, resulting in delays, missed deadlines, and increased project costs.

For example, protectionist trade policies that impose tariffs on imported goods directly impact product costs. To address such a challenge, a well-connected EMS with alternative sourcing options becomes invaluable. With access to other markets not subject to the same tariffs, EMS partners can reduce their reliance on any one country, therefore minimizing the impact that external disruptions can have on your project costs.

Inaccurate Cost Estimation Impacts Project Costs

Failure to accurately forecast project costs can lead to unforeseen increases, creating unnecessary strain on your budget. While your EMS may offer competitive pricing during the quoting phase, unforeseen delays and price hikes can ultimately affect your overall project budget. Manufacturers often struggle to predict production volumes accurately, causing underutilization or overutilization of manufacturing capacities and straining the relationship between the OEM and EMS.

To mitigate these risks, an EMS offering volume flexibility can minimize the impact of adjustments while adopting a systematic approach to forecasting can help eliminate potential strains on the relationship.

Addressing Improper Supply Chain Management to Control Costs

Managing the supply chain, especially concerning components and materials used in product assembly, is complex, particularly when multiple suppliers are involved. When production and coordination of these components are not synchronized or accurate, project timelines can be delayed. Correcting inaccuracies may require various actions such as new tooling, re-shipment, redesign of projects, or waiting for new components to arrive, consequently escalating project costs.

An EMS with extensive supply chain management capabilities, including inventory management, can effectively mitigate the risk of budget escalation. Furthermore, proactive communication aligning goals and expectations and overcoming language and cultural barriers among suppliers ensures smoother supply chain management and minimizes cost escalation.

Responding to Increased Demands from Adjacent Industries Driving Component Price Increases

Increased demand from adjacent industries that utilize the same components you require for your project can trigger component price hikes. EMS providers with sound forecasting capabilities can help mitigate cost pressures stemming from component shortages. An EMS with a diverse supplier base spanning across various geographic locations can provide alternative options to address supply shortages, thereby minimizing the impact of rising prices.

Adapting to Evolving Regulations and Their Impact on Project Cost

Another challenge that EMS providers face is the evolving government regulations. Regulations may require adjustments in process leading to increased project costs. Collaborating closely with EMS partners to establish updated protocols aligned with newly established standards can help mitigate regulatory compliance costs. Regulatory changes can affect quality assurance and testing procedures, escalating product development costs.

Flexibility is Critical to Cost Containment

Partnering with an agile and adaptable EMS can greatly enhance your competitive edge. Amidst the challenges of talent scarcity, rapid technological advancements, and heightened demands for swift delivery, an EMS with a flexible manufacturing process can alleviate operational pressures. In addition, collaborating with an EMS with global access to skilled talent and an agile approach to product development, is well poised to address complex issues and support cost containment efforts.

Selecting the Right EMS Partner Despite Challenges

Your EMS serves as a crucial partner. Selecting the right EMS partner who can seamlessly collaborate with your team to meet your project goals is vital for project success. An ideal EMS possesses several key capabilities, including accurate forecasting, efficient inventory management, and a diversified supplier network. Proactive communication, flexibility, and adept negotiation skills are also essential attributes.

A forward-thinking EMS attuned to the rapidly evolving market conditions, invests in innovative manufacturing systems, and actively manages risks by reducing dependencies and exposures will ensure your project success. Understanding supplier-side challenges allows you to make more strategic decisions, effectively containing project costs, and ensuring timely delivery.

If you’re looking for a solutions-oriented, agile EMS partner for your next project, contact us.