To produce your sub-assemblies in house or purchase them from an outside vendor. That is a question that OEM Manufacfturers ask themselves constantly. Is there a clear answer? Not really, read on..
The topic of this post states “It’s your choice. As part of the decision making process have you considered all of the factors in your decision? Each company and situation is different but the factors used to make a decision are fairly common. So let’s uncover them.
Buying Sub-Assemblies: The Advantages
Buying from an outside vendor does have it’s advantages.
- No Capital investment.
- Application specific expertise from Vendor
- No raw material inventory to maintain.
- No direct labor required.
Making Sub-Assemblies: The Advantages
Making your own sub-assemblies also has clear advantages
- Production Flexibility
- Not waiting for Vendor lead time.
- Preserve raw material in a non-processed state and producing lower quantities as needed.
- Not paying overhead cost and profit margins as part of the Vendor price.
Simplicity vs Complexity, a sliding scale.
Most decisions are made based on a number of factors. In general our observation is there is a sliding scale of complexity which when all factors are combined, provides a clearer decision making process.
Processing steps: Simple one or two step assembly to complex multi step assembly. For example, measure, cut and strip being one or two steps and terminal crimping being another to form a single wire lead. More complex assemblies include terminal block loading, heat shrink or convoluted tube covering over multiple wires. Producing a complete wire harness.
Capital Investment: Single (cut, strip or crimp) or two stage (cut and strip) processing tools are fairly low cost. Adding additional processing steps like the above mentioned block load, heat shrinking adds additional capital cost. Leasing processing tools through lease to purchasing programs can spread the cost of the capital investment over time.
Volume: Low volume assemblies are easier to make in house as they do not take up a lot of resources, high volume is easier to move to an outside vendor to preserve resources.
Floor space: A few small bench top machines do not take up a lot of space. But consider space for raw materials (wire, terminals, tubing etc..). As the processing steps and volumes increase, additional space may be required.
Labour: Do you have sufficient labour resources to set up, operate and maintain equipment required? Also do you have or can you acquire the assembly knowledge to produce quality assemblies. Are your labour costs higher (or lower) than an outside vendor?
Longevity: What is the life span of the product? Is it sustained long enough to recover the capital equipment costs? Can the equipment be used in a next generation project?
All of these factors can be placed on a sliding scale. For example Capital Investment on assembly processing equipment may be low in relationship to the volume. Floor space may be at a premium as well as labour shortage or required processing knowledge may not be available. If the longevity of the product is high then it may make sense to bring the assembly in house. Conversely if the Capital cost is high in relation to the product life span, it would be better to utilize the existing Capital of an outside supplier.
As said in the beginning, there is no easy answer to this question. But if you consider all of the above factors and place them on a scale from simple to complex, then an objective decision can be made.