One of the more perplexing aspects of building a business for the consumer electronic market is that many companies make the assumption that they can supply their own hardware, which usually turns out to be costly. For that reason, many of them need to import components.
Electronics suppliers that provide electronics service have the tools and systems to produce in-house. There are three specific issues about bringing in components and supplies:
– Large volume? – Many companies simply assume that everything they need will always be ordered, with a big chunk to spare, for them to simply go buy the parts and supply everything. While it’s true that we’ve seen a growing trend toward the exponential growth of consumer electronics, the truth is that the fastest way to grow in this environment is through volume.
It’s hard to grow in volume without acquiring the bulk of the volume from established companies, but the same technology that made possible large volume manufacturing for contract manufacturers can be used in a retail setting. Retail electronics is simply the equivalent of buying from a contract manufacturer: You don’t know how long you’ll get any one component, so you don’t purchase in large quantities.
– Service providers? – This is a very important point. Service providers not only have the capability to produce parts and systems of their own, but they are also well positioned to understand the current components and systems, and what they’re capable of, and what they’ve not been known to produce.
In most cases, there are two levels of component models in most applications: A workable, functional model that the manufacturer uses to make the decision of what to ship, and a “good enough” version that the customer can modify or use on their own. In the end, the service provider’s goal is the same: To supply a perfectly functional product.
Thereare, some suppliers that simply do not have enough in-house manufacturing capacity to support a supplier’s line. They may choose to acquire those components at high cost, while contributing no value, simply to satisfy a large customer base.
Sometimes, this happens as a result of a desire to change the model, especially if it does not fit the current customers’ needs. The point of doing so is to find a new range of products, or to expand the line. Often, the changes are simply cosmetic, but often times the new range of products that are developed require a new design.
At the supplier’s end, there’s always a solution: Acquire components at a lower cost than the company is asking for in order to reach the lowest price possible. These savings are often in the form of excess stock. Excess stock means that, after the full batch of parts has been produced, additional part inventory sits in the factory and is not utilized for parts for the customer.
Suppliers will try to establish relationships with a customer, and make them feel as though they are a priority, by securing excess stock in bulk quantities. Since the supplier is charged the lowest price, they often times believe that it’s better to try to save money as much as possible, rather than just turn around and have a product sitting in the factory.
Of course, this situation is not unique to suppliers: It also happens with dealers, dealers sometimes acquire parts at higher prices, too. Another issue with acquiring supplies and components is that the value often only exists on paper. This means that the supplier does not have any actual funds and cannot close a sale on the part that they require.
The last point to remember is that companies must continue to grow, not only through consumer products but also the companies that need those products. Organizations continue to grow through acquisition of products and services. Just as a company might be outgrowingan acquisition, other organizations are seeking acquisitions, so it’s important that any organization that is contemplating sourcing electronics think about whether or not it will grow.