Manufacturers continue adding more processes for soup to nuts production
Contract manufacturers at MD&M East confirmed that consolidation is the key trend in the space.
Scott Mellick of Donatelle Medical describes clients looking to "reduce the supply base," seeking as few manufacturing partners as possible. Donatelle Medical has added capacity in silicone, injection molding, and machining to keep up, he explains.
For OEMs, manufacturing consolidation can mean improved margins, scalability, and more accountability for quality, though it can also carry risks.
Supplier consolidation may lower overall costs for customers because there are fewer relationships and process steps for clients to manage, points out Walter Gacek, vice president, business development, at Tegra Medical. Tegra's original business was all about metals, but it now does much more. Such a diverse contractor may or may not offer lower prices, but the internal management of the process on the client side can be better controlled, boosting overall margins.
There might also be less financial risk. Customers today want a long-term, reliable partnership, Jorg Schneewind, president and CEO of Helix Medical, suggests. Smaller, niche players are likely acquisition targets in the current market, change an OEM might not like mid-cycle. Schneewind considers Helix a "service provider" not a contract manufacturer, because of the company's interest in building long-term partnerships with clients.
Consistent quality is another factor in contract manufacturing selection. If there ever is an audit, having a single vendor means there is "a single point of accountability," Gacek explains. Multiple vendors can lean to finger pointing between vendors offering separate steps in the manufacturing process or just plain different quality control processes for a client to stay on top of.
Tegra's president and CEO, Robert Pietrafesa, adds that only a consolidated builder can quickly scale to help rapidly growing companies, a trend he is seeing more of. He has seen good concepts with strong management go from producing 2000 products a day to 200,000 a day seemingly overnight. A local, small shop that mostly builds prototypes might not be able to keep up. "You can only sell on quality, delivery, and price. You used to have to say 'pick two.' Now we sell on all three," Pietrafesa boasts.
Of course, it can be hard to beat the passion and perfection a smaller player can offer. It was hard to resist the infectious excitement of Jason Doyle, area sales manager for Cicor Microelectronics, as he described the technologies that make the company an expert in electronic miniaturization.
"If you want to do everything for everyone, you will struggle," Schneewind admits, but adds that not every consolidated manufacturer acts that way. “We don't do it all; we have a system of businesses that are focused on certain specialties and provide additional value for customers."
Pamela L. Moore is senior vice president, content and strategy at UBM Connect.