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Creating value and managing risk are the driving forces behind a new global desire to ‘outsource’ according to the MD of one of the UK’s largest providers of control and automation solutions.
PP Electrical Systems’ Tony Hague believes 50% of its £3m growth so far this year has come from Original Equipment Manufacturers (OEMs) looking to replace 100% vertical integration of production by sub-contracting out non-core competencies to organisations that specialise in those processes.
He believes companies can have the ‘best of both worlds’ now as this approach reduces operating costs and associated overheads, whilst gaining greater flexibility and minimising risk within their own manufacturing plants.
His company have currently completed four contracts in 2014 for customers involved in scientific equipment, machine tools and high speed printing, with a further five orders currently in the pipeline.
This has already secured £1.5m of new work for PP Electrical Systems and driven the need for 10 new people at its impressive 40,000 sq ft site in Walsall.
“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,” explained Tony.
“Manufacturing is now global and the supply chain is better placed to integrate itself into the operations of the OEM, identifying where it can added value in order to remain competitive.”
He continued: “Outsourcing – when the right partner is selected – offers many benefits. It can eliminate unnecessary stock and reduction in work in progress, improves cash flow 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, which employs nearly 200 people at its state-of-the-art facility, works with twelve of the world’s largest machinery manufacturers providing a comprehensive range of control and automation solutions.
It has invested more than £1m on new automated testing equipment, specialist cable preparation machinery, IT systems and a training programme that involves each member of staff – on average – receiving 200 hours of personal development.
This approach has given it the capacity and capability to talk to existing and new clients about outsourcing their non-core manufacturing operations.
“In the majority of cases we have better equipment and better trained people to undertake specialist processes, including electrical, pneumatic, electro-mechanical and electronic assembly,” continued Tony.
“We also have a track record of successful project management and delivering on time and at the required levels of quality…this isn’t just for UK companies, this is happening for firms all over the world.
“Whilst 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.”
He concluded: “OEMs need to consider what they want from a partner and whether they are the right size, in the right location, do they have the right skill-set and have they done it before. Naturally the financial health of the company and its ability to work with you long-term is also key.”
PP Electrical Systems, which is a member of the Midlands Assembly Network, is aiming to grow turnover to £20m this year and this will require an additional 15 members of staff.
It is also finalising details of its hugely successful UL seminar programme that addresses all of the requirements of an accreditation that is needed to supply machines to both North America and the US.