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Electronics Production | October 15, 2008

Different types of Outsouring strategies

There are three main Outsourcing Models that companies use in their efforts to minimise costs, states iSuppli analyst Daniel Hawtof - VP, Performance Research. But how do they differ?
Fully Outsourced Model
This type of outsourcing strategy is typically used by new entrants or by companies in non-traditional applications – such as Medical, Industrial, Aero, etc. Here the OEM uses “EMS as Supply Chain Expert”, the analyst states. The EMS-provider manages some of negotiations, all purchase orders and inventory – all of which is based on contractual liability clauses. This is the model that is typically favoured by EMS-providers as it provides increased opportunities to profit.



Hybrid Engagement Model
This form of outsourcing is typically used for long-term outsourcing companies. However, EMS-providers usually try to retain control in order to make a profit. Also, the model is characterised by continued wrestling over Procurement, Cost, and Inventory management, the analyst explains. Additional to that, the model also holds information conflicts – Who’s info is right? Is it used at all? Major sources of disagreement are:
- Material Management and PPV are often concerns degrading trust
- Many OEMs are trying to pull back control and reduce costs
- Variety of inventory models including VMI, EMS managed, and OEM owned



Total Control Model
This model is typically – but not always – used for the largest and/or high-volume manufactures. OEM companies, which are focused on cost reduction, fast NPI, inventory turns as well as semiconductor relationship management, tend to choose this outsourcing strategy. These OEMs do not want to relinquish control to EMS-providers. The direct control of information lies with the OEM: Inventory, Price Negotiation, Forecasts, Order Management, Finance, etc. says the analyst. This all means that the OEM has full ownership of inventory liability (not in a VMI) and the partners focus on core competencies in a highly controlled, competitive environment.



Chart Source: iSuppli

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