Outsourcing microelectronics assembly or making in-house — what are the trade-offs?

1 September 2021

Jerry Sanham – Business Development Director – Filtronic

You are a well-established electronics manufacturer with considerable production expertise, and you have a new contract for a big defence or telecoms project. The strategy at first glance appears simple—you design and manufacture, expanding your design team and factory to cope with the additional throughput. But is that really the best, or the only, option?

At Filtronic we have the capacity, experience and the expertise to design and manufacture high performance RF products at Microwave and mmWave. We are equally comfortable manufacturing to a customer’s design, as we are designing and manufacturing our own high-performance products. Alternatively, we love working with our clients, fusing their core competencies with ours to optimise their original design.

Designing and manufacturing everything in-house does not come without hidden costs. Increased design capabilities require recruitment or training costs, increasing manufacturing capacity requires significant investment in new capital equipment, as well as recruitment of new personnel and training. This takes time to ramp up to reach its full potential. New processes will need qualification, your IP will need to be protected, and you will need to manage a process of continuous improvement to minimise waste and optimise efficiency. With a substantial Bill of Materials cost combined with high manufacturing throughput, yield will have a direct effect on the bottom line.

Furthermore, there will almost certainly be financial liabilities written into the contract terms and conditions that would mean a penalty if deliveries were disrupted due to circumstances beyond your control. And in the era of COVID-19, does any manager feel entirely in control of their production line?

Then what becomes of the extra capacity when the contract ends? Do you take the difficult decision to lay off staff and dispose of excess capital assets? This could be avoided by outsourcing the manufacturing, which means that you only pay for the capacity when you need it, and at the end of the contract there will be no additional cost related to capacity reduction. Nevertheless, outsourcing the whole job to a contract manufacturer can bring its own problems. There could still be delays, and these can damage reputations however they are caused. So, delegating control for the entire production run may not feel the right option either.

Dual sourcing provides the answer. This strategy gives the advantage of increased flexibility and a reduced risk of disrupted schedules, as well as offering the opportunity to rapidly scale or shrink volumes without either incurring extra personnel and equipment costs or keeping a line running below capacity. The right choice of second sourcing partner can solve a lot of headaches. Working together means that best practice can be shared, and both partners can draw on their experience and the lessons they have learnt from past contracts for similar applications. Collaborating on applied continuous improvement offers real-time benefits in terms of reducing the cost per unit and maximising yields.

Dual sourcing has other well-documented benefits, among them the potential for faster lead times, scalability, and more consistent supply. There can also be advantages if a company with a broad product and technology base can draw on the specialised expertise of a contractor.

Partnering with Filtronic as a second source can help you meet the challenges of ramping up production without compromising on quality. With a recent investment of over £1 million in new assembly and test equipment, Filtronic has recently overseen a significant increase in the capacity of its Sedgefield manufacturing facility to a potential throughput of 10,000 transmit/receive modules (TRM) per month, with an average final yield of 95%.

Customers around the world trust Filtronic with the prototyping and manufacture of their own product designs, due to its first-class reputation for product quality and reliability. Working for a major global OEM, Filtronic has manufactured six different TRM variants amounting to a total of more than 60,000 modules in the last three years and has also received a special commendation from a European defence customer for its outstanding effort and commitment in delivering a volume TRM production run for an AESA radar system.

Filtronic fosters a strong quality culture, supported by Six Sigma, high levels of production automation, strict traceability, and with approvals to military standards. The skilled workforce has a wealth of experience, with the average length of service for assembly operators standing at 14 years.

Filtronic’s production capability provides full hybrid assembly including microwave and mmWave device packaging, including low-void die attach and precision component placement, fully automated wire and ribbon bonding with deep-access multi-level capability, hermetic sealing, and automated test up to 90GHz and above.