One of the most disturbing trends we’ve noticed in the past decade, especially post pandemic, is how many classic machine job shops and contract manufacturers have closed their doors. Industry Week reported that even though economic figures generally seemed positive for manufacturing, the manufacturing industry lost almost 5,000 machine shops between 2002 and 2018. The owner can’t sell the shop, can’t hand it off, and shutters the business at retirement. Craigslist strips the business for tools and part auctions with titles like ‘Made to Print Line Customer Fell Through’ and ‘Established Machine and Tool Shop sale’. Their absence hollows out an American economy that depends on singulation, orientation, and mass production.
The Race to the Bottom in Manufacturing
There’s a race to the bottom in manufacturing. Customers are prioritizing the lowest cost for their products, and machine shops are reacting by seeking those short-term cost driven projects. Customers move from one manufacturer to another the second another shop can manage the minimum quality guarantees while shaving pennies off the margins. This continues ad nauseum, forcing small shops to convert their business plans to short term manufacturing runs on repeat. These short term, thin margin production runs keep the lights on, but they don’t allow a manufacturing business the capital to reinvest. These shops can’t purchase new machines, reinvest in the property, or make room to innovate. They reach a point where they can’t even sell the old machines at auction because they are too outdated, too expensive to maintain, and lack the workforce skill pool necessary to operate those machines.
Putting Customers at Risk
Profit margins run deeper than upfront cost savings with overseas manufacturers. Is the shop using materials of the same quality? Are they not beholden to the same intellectual property requirements that you need to protect your proprietary information? If you aren’t beholden to the factory long term, does the factory have the option to rededicate their line to the next customer willing to pay pennies more the second your last product rolls off the line? How does the lower cost compare to the costs associated with the labor hours managing a less stable supply line, language barriers, incongruent business traditions, travel, and vetting and negotiating agreements with new companies over and over again?
Competition with other machine shops, prototypers, and production lines has shifted a market that thrives on consistency into a theater for gig work and lowest price on a large scale. American shops aren’t just competing with local companies on cost, they are competing with shops in Mexico, China, and other international markets.
What is more likely?
You have found the one manufacturing line that holds secret engineering knowledge capable of making your product better, faster, and dramatically lower cost than all of the other factories in the United States.
Or
This low-cost manufacturer gives up something that costs you in the long run to reach those prices.
Customers and machinists looking for stability, longevity, cost effectiveness, and consistency are turning towards contract manufacturing. At DEVELOP LLC, we agree, and we want to show you why setting up a multiyear manufacturing contract between customer and manufacturer secures your quality, safeguards your production, and still manages to cut costs.
Contract Manufacturing: The Way Professionals Compete
Signing a contract for two to five years with an onshore manufacturer on your primary vertical products is the difference between selling some products and establishing your market share.
Lower costs
With long term contract manufacturing, negotiating lower premiums and volume discounts are a given. You save on the labor hours needed to rededicate a new team of engineers, manufacturers, and company managers to the particulars of your production and your company mission statement. You save on international travel costs, complications from language barriers, and convoluted communication pipelines. You save on the additional risks you take on multiple different companies handling your quality and preserving your intellectual property. Think less about the products, think more about the way you lease a building on a 3, 5, or 10 year contract with terms that are based on quality and timelines.
Longevity
Longterm verticals thrive on consistency and stability. Managing those product lines with multiple shops, multiple supply lines, and multiple teams exposes your main source of income to bottlenecks and ambiguity. By taking your products into a multi-year contract you can better define the expectations of quality, outline what to do if there are market changes, and conserve the energy you would have spent micromanaging cost containment into planning company growth.
Stability
Your contract guarantees the financial security of your manufacturer. What happens if the shop you contract for your manufacturing goes out of business before you can finish your batch run? You must scramble to find a new manufacturer. You must alert customers that their orders won’t meet their deadlines. You might even lose your market share to clients unwilling to wait. Contract manufacturing treats your product line like a scalable investment. If you guarantee the income of your manufacturer for years to come, you become important to that manufacturer. You guarantee that if outside market forces change, your products will still come off the production line. That manufacturer can take that steady revenue and reinvest for quality upgrades, innovation, and process improvements that impact how your products play out.
At DEVELOP LLC our manufacturing experts, project managers, and engineers know exactly how to support your tooling, die, part, PCB, and product production. We can build out a manufacturing contract that supports your project long term, plans the best plan for your growth, and manages the leap from small batch to mass production. Tell us more about your project, schedule a virtual meeting, or call (262)-622-6104 to learn how you can carry your manufacturing to the next level.
Authors:
Sean McKittrick and Matt Moseman