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Thinking of Switching Contract Manufacturers to Cut Cost? Think again!

Changes in industry or your business may cause you to reevaluate your current operation, so looking at the pricing of your contract manufacturer (CM) is a logical step. Keep in mind, however, that while jumping to a new CM may seem like it can give you some immediate initial savings, it can also lead to some significant losses if you’re not careful.

There are a number of potential issues that you should be prepared for. Here’s a brief list of items you should consider when scoping out that new CM: 

  • Will your payment terms change?
  • Will you have the same freight/shipment options?
  • What will the fixturing costs/line set up costs be for the new CM (and will these be amortized or not)?
  • What initial quality/startup issues might you uncover?
  • Can your new CM buy from your same supply base?
  • Will there be a loss of tribal knowledge or end of line testing data?
  • What design changes (DFM) might be required?

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So now you may be wondering what steps you can take to help ensure success:

  • Work from a standard quote sheet (to make sure you’re really comparing apples to apples)
  • Understand terms and if fixturing is included or not – this means knowing if your new CM can acquire the existing test systems and who actually owns these: your current CM or you
  • Ensure your new CM can use your critical suppliers, or will new supply contracts need to be made, new components found, etc.
  • Create a bulletproof exit plan/contract with your existing CM to make sure you’re covered
  • Build up stock at your new CM while keeping in mind lead times so you never fall behind

Overwhelmed? We don’t blame you!

Maybe you’re just looking for a cost savings from your current CM. Here are a few tips: 

  • It sounds simple, but...Ask for one! No one will proactively provide a discount if you don’t ask
  • Be sure to approach your CM with a collaborative mindset – you’re looking for a win-win situation, whether that be DFM or alternate suppliers suggestions
  • Simplify and scale where possible – this could mean working on commonizing supply chain and more

Ultimately, you’ll need to decide if it’s in your better interest to switch to a new CM or stay with your current manufacturer. Changing it up will mean a much larger time investment, but, if you prepare properly, it could also mean increased financial savings!

Whichever method you choose, we’d love to put our years of experience to service, ensuring your transition is as smooth as possible. 

 

About Jim Laurin

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In his quest to make sense of the universe, Jim began his journey as an electrical engineer, quickly advancing into electronics and systems sourcing for a major Fortune 250 company. Now, as a sales engineer for Avnet Electronics, Jim pulls on over a decade and a half of experience working with and supporting dozens of Fortune 250-500 companies - giving them new ideas, assisting them with streamlining their sourcing and commodity management, and generally helping engineering and procurement groups ‘hug it out’ and play nice.

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