All manufacturing companies can appreciate the need to meet the bottom line, but assembly manufacturers often feel this pressure more than others. Compared to others, assembly manufacturers tend to operate on particularly narrow profit margins. In fact, according to data from Sageworks, semiconductor and electronics assembly manufacturing is among the least profitable industries in the US.
Between the nature of working with a high volume of small parts and recent instability in the market, assembly manufacturing is up against several unique financial challenges. Follow along with us as we dive into the reasons behind the industry’s traditionally narrow margins, and a potential new avenue to add incremental yet valuable improvements.
High Fixed Costs
Because assembly manufacturing involves producing multiple small, detailed parts that make up larger products, each plant must be equipped with the necessary equipment for each part and each step of its production process. If the plant is going to produce multiple products, the initial investment can quickly become extremely costly, requiring millions in capital upfront. Though the investment is a fixed cost that won’t continue over time, it can cut into margins in the first few years as the plant gets up and running.
In addition to upfront capital, assembly companies also have to invest in research & development to ensure they’re producing the best products in the most effective manner. Without a commitment to R&D, the company risks falling behind competitors and losing out on market share as a result. However, developing improvements for every individual assembly part can make it an even more time-consuming and expensive process than it is for other manufacturing sectors.
Fluctuating Demand & Price Competition
Prior to 2020, demand for assembly components had been declining, which had already led to excessive inventory and tough price competition. As we discussed earlier, assembly manufacturing can be costly, and each individual part doesn’t generate a large profit on its own. Instead, manufacturers rely on selling a large volume to turn a profit. When the company is forced to sit on inventory it can’t sell or cut the already-low price of each part, it can substantially impact already-tight margins.
Now, as we continue to battle the COVID-19 pandemic, manufacturers have been dealing with capacity restrictions and understaffing. Those obstacles, combined with frequent shipping delays, have often resulted in global shortages of many products. At the same time, consumers have been rushing to purchase the goods they need to adjust to their ever-changing conditions. Suddenly, these manufacturers can’t keep up with the increased demand or get enough product on store shelves. These constant fluctuations in demand have made it particularly difficult to accurately plan production.
When up against such narrow margins and challenging circumstances, even incremental improvements to assembly processes make a significant impact and produce remarkable benefits over time. VirtECS can help assembly manufacturers optimize their production schedule to get the most out of each second of time used and every dollar spent. Those benefits will only compound with every finished product in the months and years to come. If you’re interested in learning more, one of our experts would love to talk to you about how VirtECS can specifically produce results for your assembly manufacturing plant.
