Outsourcing strenghtening position of sub-contractors says Hague

CREATING value and managing risk are the driving forces behind a new global desire to ‘outsource’ production, a West Midlands industrialist has said.

Tony Hague, managing director of Cheslyn Hay-based PP Electrical Systems, said a major part of his firm’s revenue so far this year had come from original equipment manufacturers (OEMs) looking to sub-contract work to specialists.

Hague said the arrangement was a boon to all concerned as it reduced operating costs and associated overheads, while giving firms greater flexibility and minimal risk within their own manufacturing plants.

PP Electrical, also part of the 10-strong Midlands Assembly Network (MAN), has 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 the company and created jobs for 10 new people at its 40,000 sq ft site.

“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,” said Hague.

“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. 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.”

PP Electrical, which employs nearly 200 people, works with 12 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.

“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,” added Hague.

“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 said OEMs needed to consider what they wanted from a partner and whether they were the right size, in the right location, did they have the right skill-set and had they done it before.

“Naturally the financial health of the company and its ability to work with you long-term is also key,” he added.

PP Electrical Systems is aiming to grow turnover to £20m this year and this will require an additional 15 members of staff.