You can ramp up your production volume tenfold without seeing a corresponding increase in profit. That’s normal, as many businesses work hard to produce economies of scale over time. Manufacturers of complex devices fight an uphill battle because they need to scale so many different processes.
Custom cable is just one part of your manufacturing process and product. But if you can’t scale it efficiently, you limit your entire process. Economies of scale are the benefits you’re looking for as you grow. They allow you to cut your costs while maintaining prices to boost your profit margin. Some examples:
Most companies assemble their own custom cable at the outset of a project. An engineer often builds the cable with simple hand-tools as needed. This method makes sense for simple cables made at small volumes but doesn’t scale profitably.
But even manufacturers who outsource cable assembly can struggle with achieving economies of scale. It’s not as simple as offloading the work to a facility with more advanced tooling.
In this article, we’ll break down:
Why economy of scale of custom cable assembly is important
What challenges stand in the way of achieving economy of scale
How to overcome them and increase your total profitability
The upshot: There are several worthwhile steps you can take now to build more profit into your custom cable process.
Say your team is building 15 wire harnesses by hand every week to keep up with production demands. Figuring cost can seem simple: You’re paying Kim, an engineer, $25/hr, and she spends around 15 hours per week building these wire harnesses. So, it costs you $25 per harness, plus the cost for the materials…
Not quite.
There are several other costs you should consider, starting with your own operating expenses:
Read about a customer who found economies of scale by partnering with the right wire harness manufacturer.
If you’re using a third party for cable manufacturing, you’re well aware of the benefits of increasing your order volume. You might’ve already discussed per unit cost at various order volumes with your supplier.
If you’re eyeing a production increase, ask your supplier how their per-unit cost would look at a higher volume. As you continue to increase volume, you’ll see that cost drop and eventually bottom out. At some point, it would take a huge process overhaul to cut costs any further.
There are more economies of scale than just cheaper per-unit part costs. Production ramp-ups often come with more consistent output. If instead of building 10 or 20 parts here or there, you can count on producing 50 parts per week, you’ll build a simpler, stronger relationship with suppliers.
Develop a steady supply and distribution engine that’s strong enough to withstand supply chain shocks. A consistent cadence with your custom cable supplier will strengthen your supply chain.
Understanding the benefits of scale is the easy part. Realizing them on your balance sheet requires navigating barriers to supply chain growth and avoiding threats to product quality.
If you want to keep custom cable assembly in-house, the challenge to scaling up efficiently is simple to articulate but near impossible to overcome: It’s expensive.
To achieve economy of scale with your own in-house custom cable assembly, you need to significantly upgrade your tooling, which involves dedicating more of your facility’s space to cable assembly and more internal time to maintenance of equipment. That’s in addition to the cost of the equipment itself, which is probably prohibitive on its own (Cut-strip-terminate machines start around $150k).
It’s not economical for most manufacturers to set up a small cable assembly line in their facility.
Depending on your supplier’s capabilities and your relationship with them, scaling up involves its own challenges and can invite diseconomies of scale.
Quality control is the most serious consideration you should have when scaling production.
Some suppliers can scale quality control effectively. Others, not so much. Consider the cost of part failure on your end when outsourcing custom cable assembly or looking for a new supplier.
Too many suppliers entice customers with attractive top-line cost but saddle engineering teams with problem after problem, threatening production and costing their customers a fortune.
Avoiding this obstacle requires diligence in selecting a supplier. Unless part failure is VERY low stakes at your facility, don’t work with anyone that can’t prove consistent performance and shows no interest in the cable’s application. The top-line gains you see from working with suppliers who skimp on quality control are offset and then some by additional costs in dealing with problems after-the-fact.
Component sourcing produces a number of challenges for scaling manufacturers and cable suppliers alike. Two main considerations address these obstacles up front. The first is your supplier’s ability and willingness to hold inventory. The second is component availability.
Outsourcing cable production can allow you to take advantage of volume component pricing without needing to order high volumes. But that’s only achievable when your custom cable is designed with common components that your supplier can carry in large inventories.
Say you order 80 wire harnesses per month and your design specifies a standard UL Listed wire with common terminations. Your supplier should be able to source the components in bulk — since they are likely using those components in other projects — and pass those savings on to you.
But if your cable specifies a rare Teflon wire rated for extreme heat, they’ll be less likely to order 10k feet of wire to keep in inventory just for you. This is especially true when it comes to expensive components, because your supplier has to take on financial risk.
Hard-to-acquire components can make custom cable assembly tough to scale even if order size and inventory capacity are aligned.
Say you change from ordering 80 wire harness a month to 250. Instead of needing 160 feet of wire and 240 terminals, you now need over three times that.
If you’re specifying common components, that shouldn’t present any issues.
But your supplier may not be able to guarantee quick turnaround on orders if you’re specifying components that are tough to find. They may not be able to develop a consistent source and need to purchase wire as it becomes available.
Unique components add lift to purchasing teams and limit their ability to buy in bulk, which reduces your savings.
Smart decision-making and the right cable partner can skip past these obstacles to scale efficiently no matter the volume.
If you’re looking toward a higher-volume existence, there are tactics you can apply to make scaling a simpler, more profitable process. Even if you’re already operating at scale, there may be changes you could make to your custom cable process to reach greater economy of scale.
We’ve seen more overengineered cable designs than we can count.
People spec components because they’re familiar with them from a previous job, or they spec top-of-the-line materials to prioritize performance. And then design becomes prototype and prototype becomes product without second thought being given to some of the cable component choices.
If you need a cable that withstands high temperatures, it’s worth knowing how high those temperatures are. Will the cable be used in machinery that reaches 150 degrees Fahrenheit, or 275 degrees Fahrenheit? If you over specify the components, you may end up handicapping your supply chain and increasing costs for no reason.
Evaluate your current design for component availability (your supplier can help). There may be changes worth making to drive down costs without sacrificing performance.
One of the most common diseconomies of scale is a slowed problem-solving process. Responding to market demands or customer feedback may involve drawn out back-and-forth with a supplier unskilled in troubleshooting.
But it doesn’t have to be that way.
When a custom cable supplier purchases a cut-strip-terminate machine and sets themselves up to produce in volume, they don’t take a vow to provide lackluster customer service moving forward. Find a supplier who will act as an engaged partner, and communication won’t hold you back.
We’ve seen countless mistakes made by outsourcing complex custom assemblies to facilities without robust quality control procedures and high performance standards. Many of our best customers came to us following bad experiences with cheaper suppliers.
This is a simple pitfall to avoid.
Your custom cable partner should be able to explain their quality control process to you and prove the efficacy of this process with their work.
Partner with a supplier you can trust to produce quality parts consistently. You’ll be able to scale without adding internal lift or putting your product at risk.
If you have a service-oriented supplier, they may have some tricks to help you drive per-unit costs down.
Multi-Tek has found creative ways to reduce customers’ per-unit cost without ballooning their production.
If your design uses common components, ask your supplier about ordering parts in bulk and keeping them in storage.
If you’ve built a strong relationship with your supplier, you may want to ask them about producing a few months-worth of your cables and shipping them to you gradually. This minimizes equipment setup time for your supplier and should drive down labor costs.
However, this amounts to them extending you a line of credit (in parts and labor hours). Building trust with your suppliers makes a good first step here.
Scaling efficiently uncovers tons of growth potential for your business. The destination is well worth the journey, and traveling with a partner makes the navigation simpler.
At Multi-Tek, we know that every one of our customers has a unique product and unique business goals. If we know where you’re at and where you want to go, we can help you get there. We’ve helped customers achieve economies of scale through:
We know the real treasure is in meeting your goals, but we’d love to be the friend you make along the way. It’s what we’re built for.
If you have any questions, please reach out. We’d love to talk shop and specs.
We’ll provide you with a fast quote (standard time is three days, can be as quick as same-day) and recommend manufacturability improvements.
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