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Automation contractor benefits from OEM outsourcing trend

Below is an article from the latest edition of Drives & Controls Magazine:

A West Midlands control and automation contractor is reaping the benefits of a trend for OEMs to farm out non-core work out to sub-contractors. PP Electrical Systems, based in Cheslyn Hay, has won £1.5m of new work so far this year and expects to hit a turnover of £20m for 2014. To help achieve this, the company is planning to add 15 people to the nearly 200 it already employs at its 40,000ft2 (3,700m2) site.

PP’s managing director Tony Hague reckons that half of his company’s £3m growth so far this year has come from OEMs looking to replace total vertical integration of their production by sub-contracting out non-core activities to organisations that specialise in those processes.
“The days of companies being fully vertically integrated – where they build every single part of the machine in-house – are, in the majority of cases, long gone,” he explains. “Manufacturing is now global and the supply chain is better placed to integrate itself into the operations of the OEM, identifying where it can add value in order to remain competitive.’’

“Outsourcing – when the right partner is selected – offers many benefits,” he adds. “It can eliminate unnecessary stock and reduction in work in progress, improve cashflow and should improve lead times that can then translate into securing new orders.’’
“Importantly, it can also give you flexibility in capacity and that works equally well when volumes are up or down, reducing the need for costly sub-contract labour as a reaction to increased build requirements and, equally, the issue of managing short working hours or some form of lay-offs in quieter periods.”

PP Electrical has spent more than £1m on new automated testing equipment, cable preparation machinery, IT systems and a training programme that gives each member of staff an average of 200 hours of personal development. According to Hague, the company often has better equipment than its OEM customers and better-trained people needed to undertake specialist processes.

But he warns: “While the benefits of outsourcing can be significant, equally the cost of getting it wrong can be damaging. The biggest danger is selecting either the wrong processes to outsource, or indeed the wrong outsourcing partner.”




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