Who should be responsible for procurement?

Corintech encourages OEMs to carefully weigh the pros and cons when deciding whether to free-issue components or entrust the procurement process to their CEM.

When outsourcing manufacturing, original equipment manufacturers (OEMs) must decide who will be responsible for supplying components. A contract electronics manufacturer (CEM) with an in-house procurement team can manage the process, sourcing components from their own suppliers and distributors. However, an OEM may opt to take on responsibility for purchasing and delivering components, known as free-issuing.

Many OEMs outsource manufacturing to simplify production processes, allowing reallocation of time and resources elsewhere within their business. By free issuing components, an OEM could be adding unnecessary complications they initially intended to simplify. When free issuing components, the OEM is responsible for ensuring the CEM receives sufficient quantities on time and that the components are genuine and high-quality. CEMs with procurement experience can merge supply chain management seamlessly with their assembly line requirements, eliminating manufacturing disruptions and freeing the OEM of unnecessary logistics.

Costs also play a role. Free issuing materials could potentially save OEMs money. For example, purchasing directly from the supplier negates any mark-up so the OEM only pays the CEM to manufacture the product. OEMs may also have existing relationships with suppliers, helping them negotiate lower prices and obtain components which may be experiencing supply issues. However, by maintaining strong, long-lasting relationships with global suppliers and purchasing in high volumes, a well-established CEM can likely source components at a lower cost than an OEM. Furthermore, the hidden logistical costs and challenges arising when free-issuing components may outweigh potential savings. The OEM is also responsible for the costs of storing and delivering components to the CEM, on-time and in-full. Delays or insufficient quantities can impact production and further increase OEM costs. 

OEMs with existing longstanding relationships with trusted suppliers will have confidence in component quality and prefer to continue using these components to maintain consistency. Conversely, OEMs may lack the experience and resources to quality control components in-house. This is where handing procurement responsibilities to a CEM can help. Experienced CEMs, especially those AS9100 or ISO9001 accredited, will have strict processes and criteria in place that govern their procurement, nullifying counterfeit risks.  

Free issuing components offers advantages, especially for experienced OEMs. However, letting their CEM take full control of the procurement process can avoid complications, reduce overall costs and ensure assemblies are delivered on-time, in-full.