Manufacturing capacity relocation cost analysis

By Staff

Top line cost analysis of impact for assembly and component companies relocating their Asian supply chain capacity depends on, among other factors, percentage of capacity moved, program type, and whether relocation moves to an existing manufacturing hub.

This will result in increased dispersion of manufacturing, globally, and possibly leading to extending OEM company build and product launch cycles, and turns in inventory (inventory swings) for some OEM enterprises depending on EMS/ODM partner footprints, and EMS/ODM history of supplier and vendor management.

EMS/ODM providers have varying degrees of preferred supplier arrangements and covenant clauses with key suppliers. OEMs are not immune to passing on increased costs to end market customers. (Request key information on EMS/ODM companies here)

Measuring EMS WIP (as % raw materials)
Vanity metrics in EMS/ODM supply chains
EMS/ODM management of OEM program costs

Looking at China, specifically, OEMs directing their EMS/ODM partners to relocate factory production to alternative sites will likely hit top line earnings near-term, despite some lower manufacturing labor costs available elsewhere. (Read more on manufacturing labor costs in China v alternate locations in Asia here)

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Duplicating capacity, at least temporarily, combined with supply chain set up and ramping costs will be key and can lead to impact on earnings, further emphasizing the importance of selecting capable EMS/ODM providers with strong histories of OEM customer programs management and productivity execution. Vertical integration and less likelihood for EMS and ODM partner sub-contracting your activity programs to other, third-party, providers also plays a role. Below some rough estimates on EMS cost bucket comparisons in vertically integrated providers.

For OEM readers wanting to save time finding quality EMS providers, we can provide you a list of EMS providers matching your program requirements. We provide more information on this free service for your custom EMS list of providers here.

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