Bottom Line and Beyond: A Recession is the Right Time to Take Advantage of Contract Manufacturers
| DOI | https://doi.org/10.1108/EUM0000000001441 |
| Pages | 12-13 |
| Published date | 01 July 1991 |
| Date | 01 July 1991 |
| Author | David Johnson,Norman Johnson |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Bottom Line
and Beyond:
A Recession is the Right
Time to Take Advantage
of Contract Manufacturers
David Johnson and Norman Johnson
12 INDUSTRIAL MANAGEMENT & DATA SYSTEMS 91,7
Industrial Management & Data Systems. Vol. 91 No. 7. 1991, pp.
12-13,
© MCB University Press Limited. 0263-5577
C
ontract manufacturing will become
increasingly utilised to effect savings in
time and reductions of costs.
The 1990s will see contract manufacturing come of age.
Specialist companies now operate in this market
—
worth
billions of pounds across Europe — catering for a range
of both general and highly specific requirements for
mechanical, electronic and electrical manufacturing skills.
They offer a flexible approach; differing degrees of labour
and technological intensiveness and the ability to perform
some or all of a company's manufacturing needs reliably,
on time and to quality standards such as BS 5750.
Many of the cost- and risk-reducing recommendations made
in the counter-recessionary guidance issued by the large
accountancy and management consultancy practices can be
implemented by contracting out. Using these services can
separate businesses which fail from those which survive.
Contract manufacturing should, in any circumstances, be
considered at the outset of business planning. In appraising
the start-up of
a
company or a new project the involvement
of contract manufacturing can make the difference between
"Go"
or "No go". An initial question to be asked is:
Can I raise the necessary funds to invest in new production
facilities in the first place?
If the answer is "No" this barrier may be overcome by
introducing the "buy in" as opposed to "make" option
and seeking out a suitable contractor. Even if the answer
if "Yes", the contracting out of some or all of the work
could well be more profitable.
The decision to buy in typically results from factors such
as:
(1) Capital investment shortfall in a recession: it is just
not possible to acquire sufficient funds to meet the
necessary plant, setting-up and ongoing costs for
labour, training and management time. In the
electronics field, a leading manufacturer has
published an estimate that current investment is
around £1 million per surface-mounted circuit
assembly line, with an associated learning curve
of 8-15 months!
(2) Market uncertainty: volatile markets, such as those
resulting from economic instability during a
recession.
(3) Labour limitations: lack of additional skills when the
workload demands them, perhaps during recruit-
ment bans; plus costs for training and retraining
and the costs of making staff redundant or paying
them to be idle.
(4) Space limitations: for
staff,
production plant and
inventory.
These factors affect companies of all sizes. International
players in the automobile market, on occasions, prove to
be wary of the considerable degree of "critical mass"
necessary to make a manufacturing commitment in their
industry. This has led to a number of cases where even
major items such as engines have been sourced externally
using other manufacturers in a contract role. Likewise,
many international companies depend on contract
manufacturers in the "trendy" worlds of consumer and
business electronics.
Given the risk factor resulting from the volatility of markets
it is necessary to ask regularly:
Can I move faster than the market?
The shrinking "windows of opportunity" available for the
marketing of any particular new
TV,
power drill or personal
computer, for example, favour the most responsive
manufacturers.
The question essentially relates to the rapid increase in
technological innovation. This is driving the trend towards
shorter life cycles for
all
manner of consumer and industrial
goods. Excepting commodities, the increasing degree of
diversity which marketers use to segment the market
results in a requirement for manufacturers to come up
with variations on products and, as a consequence, smaller
quantities of each variant.
The flexibility and speed implied in this ability to serve
the market, particularly via small and medium-sized batch
production, are mainstream capabilities of experienced
contract manufacturers.
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