Electronics outsourcing in defense rises

Defense contractors are increasingly outsourcing printed circuit board assembly

By Jim Carbone -- Purchasing, 9/4/2008 12:18:00 PM

The defense industry traditionally has not outsourced manufacturing to electronics manufacturing services providers, but that is changing.

In 2006 the defense, homeland security and aerospace portion of the EMS market was $2.8 billion. That will grow to $4.4 billion by 2011, according to researcher Technology Forecasters in Alameda, Calif.

"Defense contractors are outsourcing more, although they will always keep a lot of manufacturing in house,” says Charles Barnhart, co-founder and president of Charlie Barnhart and Associates, an EMS industry consultancy in Maui, Hawaii. "Their business over the last four years has been robust. They have not expanded their operations. Instead, they have outsourced a lot,” he says.

He says defense contractors are not just outsourcing to the major global players such as Flextronics and Celestica. "Companies with under $200 million per year are doing military work.”

Much of that work is printed circuit board assembly. "Big prime contractors do board assemblies in house, but they have down scaled capacity and increased their outsourcing in that area. That is where the bulk of the money has been contracted,” he says.

A study by Technology Forecasters found that board assembly, box build/system subassembly and cable assembly were the activities that were outsourced the most by defense contractors.

Some prime contractors are outsourcing whole products that go into turnkey networks. "That product is only one in a more complex solution that the prime may be building," he says. “For instance Rockwell Collins might be outsourcing a complete product that goes into one of their communications or navigation suite."

While prime contractors are outsourcing more to EMS providers, it isn’t necessarily part of a long-term strategy. It is project dependent.

A prime contractor may decide to outsource some board assembly on one contract, but when it gets another contract, it may decide to keep board work in house, says Barnhart.

The OEM wants to make sure it maintains the appearance that it has the manufacturing expertise that the government is looking for, he says.

“When the government looks at the OEM and if the OEM appears it doesn’t have ability to actually manufacture, the government won’t view them as a viable supply solution,” says Barnhart.

Also see: Outsourcing: India is not for everyone