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What is the value of value added?

Standard off-the shelf electronic enclosures are rarely purchased without requests for alterations or additions to meet customer specific requirements.

This is referred to as ‘value added’; a product whose value has been increased by additional manufacturing and/or processing, and in the enclosures market, this service can be extended to encompass a full box build assembly.

A supplier introduces value added capabilities once the standard enclosure has been selected and this can often bring significant benefits to the customer if they know what to look out for. A competitive edge may be gained by purchasing a value added product directly from one source, compared to a company that purchases a standard product then uses other suppliers to provide additional manufacturing processes.

However, it should be checked that any supplier offering value added services has the facility to manufacture a large percentage of the component value in-house, whilst sourcing remaining components at a competitive price.

Steve Clarke, Business Development Manager at Deltron Enclosures, explains more on this subject.

What do we mean by a value added box build assembly?

The main components within a box assembly may consist of an enclosure, printed circuit boards, cable assemblies, connectors and electromechanical components such as switches and displays. There is always the need to ensure the supplier can demonstrate that they are able to assemble and test the final assembly with competence.

Is there a limit to what can be value added?

One limitation can be the manufacturing expertise of the supplier, as the level of complexity is far reaching when offering value added services. One supplier of the enclosure may only offer machining and painting to the customers’ requirements, whereas a supplier who is able to offer a more complex value added service will also be able to offer the enclosure fully assembled with all components.

Industries with strict regulations may also be a limiting factor. Box build assemblies for use in ATEX zones, for example, require demanding quality approvals that not every supplier may be able to support and provide.

How does the customer benefit?

Inventory Management relating to the Bill of Materials (BoM) is now being passed to the supplier of the box build. A typical BoM could list around 30 items ranging from key components such as the enclosure, electronics hardware and connectors down to nuts, bolts, washers and labels.

Price - Some items on the BoM may not be common parts usually purchased by the customer, but for the supplier these could be mainstream parts, therefore benefits on material prices starts to emerge.

Quality - Well-established suppliers should have a quality system that is proven and tested for their core competencies to cover the supply of box build assemblies. Their supply chain for bought in items should also be well established with regard to supply and quality.

Sustainability - Choosing a supplier that has the potential to become a strategic partner may add security to the customers’ supply chain. The main credentials to consider are financial security, credit worthiness, locality and potential for expansion.

Added together, these key benefits generate more advantages including reduced lead times to market and an improvement in profitability, providing the competitive edge the customer needs to succeed.

What are the cost differentials?

Reductions in carriage, administration and time expenditures cannot be overlooked here, but the main cost differentials are highlighted below.

Purchasing Costs -The cost of raising a purchase order can vary significantly, depending on the customers’ internal processes. However, when several suppliers are involved then the cost to raise a purchase order is multiplied accordingly. If you compare this cost to raising just one purchase order using the “one stop shop” supplier it is clear that savings can be made.

Operational Costs - Evaluating the allocated labour time against the actual time taken is not to be overlooked in the decision. We often hear that it is “cheaper to produce in-house” but is this really always the case? For example, what skillset is being allocated to building the assembly in-house? On one hand, the operator may be over-skilled for the box build, but on the other hand, other operatives may need multiple skill matrices to cover all of the required operations. A good supplier will have qualified and experienced operatives, which will cover a multitude of processes.

What other factors should be considered?

Quality - The suppliers’ Accreditation and Quality Procedures will focus on ensuring consistency and quality throughout their manufacturing processes. A cable assembly on its own will pass through various quality checks, starting with the pull off test criteria for the crimp, through to the final continuity and insulation resistance test.

Capacity – Whether demand is increasing or decreasing the supplier will need to manage the labour capacity accordingly and possibly offer stock agreements, which will improve cash flow for the customer.

Engineering Support – By utilising their knowledge and experience, the supplier may be able to offer reverse engineering solutions to enable the customer to maintain their competitive edge in the market.

Competitive Pricing – Even if the outsourcing is a fundamental part of the customers’ production process, price is usually first or second in the decision process. The supplier should be able to utilise its supply chain to obtain competitive component pricing and in conjunction with its production process, offer and maintain its own competitive edge.

Locality – In today’s world of communications is location a deciding factor? When sending emails or drawings and managing stock online, location is not a limiting factor, but if occasional face-to-face meetings are preferable then location can be critical.

In summary, product longevity in the market is reducing as technology races forward replacing the current product with the latest technical version. Therefore, being able to adapt and remain a front-runner is critical. A majority of OEMs invest in engineering, design, marketing and logistics to maintain their market position, but choosing the right supplier to manage the changes and demands in production should be just as important to their operation.

Article first published : 17|2|2016