Contract manufacturers to buy more connectors
By Staff -- Purchasing, 2/10/2000
The outsourcing of manufacturing by original equipment manufacturers is resulting in contract manufacturers (CM) having more component purchasing clout. Case in point: Connectors.Connector industry researcher Ron Bishop says that in 1993 contract manufacturers purchased 6% of all connector manufacturers; OEMs bought 69% and distributors purchased 25%. In 1999, CMs bought 15% of all connectors while OEMs purchased 57% and distributors bought 28%. By 2003, CMs will buy 33%, OEMs 37% and distributors 30%.
A relatively small number of CMs are responsible for the bulk of connector purchases. The top 10 CMs account for 43% of all sales to the CM industry. The top 20 buy 51.4% and the top 40 account for 60%.
Bishop says the percentage of components being purchased by CMs is growing because the amount of manufacturing being outsourced to CMs continues to grow 20% annually. "The outsourcing trend will continue for a number of years because OEMs receive some compelling benefits," says Bishop. "It allows them to concentrate on engineering, marketing and sales." Outsourcing also allows OEMs to lower manufacturing costs, capital equipment expenses and labor costs.
The shift in connector buying to CMs could have an impact on prices and revenue for connector manufacturers. CMs operate on narrow margins. Average net income is only 2.2%. CM buyers offer connector suppliers high volumes, but push for price concessions to lower material costs. Also, long-term loyalty in business relationships seems to be diminishing and is being replaced with the continuous drive to lower prices.
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