Single-Margin vs. Broker

A few weeks ago, we briefly touched on the idea of a single-margin, one-stop-shop manufacturer compared with a broker. This week, we wanted to dive deeper into this concept and talk about the benefits that a single-margin sourcing partner can provide to the bottom line.

Building a House.

Before we begin discussing the advantages of a single-margin manufacturer over a broker, we need to understand the difference between the two.

When a sourcing partner utilizes multiple vendors to create and deliver a product, they are considered a broker. To illustrate, think of a general housing contractor. The general contractor never physically picks up a hammer to frame a wall, never ties two electrical wires together, and never actually installs a sink. Rather, the general contractor utilizes multiple outside entities, referred to as sub-contractors, to perform the work. The general contractor’s job is to bring all of the processes together in a seamless manner—reducing the worry and workload of the homeowner. The general contractor adds value in that the homeowner doesn’t have to find sub-contractors or learn how to perform the activities necessary to construct the house. In this scenario, the homeowner is paying for the costs and margins of the sub-contractors as well as the costs and margin of the general contractor.

Vendor Broker

A sourcing partner that has the capabilities to create and deliver a product without using an outside vendor is considered a single-margin manufacturer. Often referred to as cradle-to-grave suppliers, single-margin manufacturers are typically vertically integrated and have the knowledge, expertise, and proficiency to develop and manufacture a product entirely in-house. Following the construction analogy, a single-margin contractor would internally employ people to perform the various construction activities. The contractor would hire a framer for the framing of the house, an electrician for the wiring of the house, and a plumber for the installation of the sink. Note that the critical processes and activities are not performed by entities outside of the contractor’s company who have individual goals, methodologies, time tables, and financial requirements. In this scenario, the contractor controls every aspect of the supply chain, adding and removing resources as needed, which improves the flow and efficiency of the work. This lowers costs and, ultimately, improves the contractor’s ability to meet the homeowner’s requirements. By eliminating sub-contractors and performing all of the necessary activities with internal staff, the contractor removes the unknown markups of individual processes to provide the homeowner with a single, unambiguous margin.

Vertically Integrated Manufacturer

Alignment.

A broker often faces the problem of aligning its vendors with its customers’ needs. Due to the nature of their business, a broker must use vendors that operate with individual timelines and constraints. This can make planning and forecasting extremely difficult, because the broker cannot adjust resources to alleviate bottlenecks and workflow holdups—depending on the value stream of the product, a disturbance with one vendor can lead to problems with another vendor, which can escalate into an uncontrollable disruption throughout the supply chain. To illustrate this point, consider a car that has four independently operating tires. When the tires on the car are aligned, the car will continue to move forward in a straight line. If one of the tires is bumped or manipulated in any way, the car will go out of alignment and begin pulling to one side or stop completely. If the alignment of the tire is not corrected in a timely manner, the problem can become worse and the car can become unusable. The car owner must take the car to a mechanic, or purchase the tools and develop the skills to fix it themselves. When a problem arises with a vendor, a broker has a limited ability to realign the vendor with the rest of the supply chain, which can cause the supply chain to shift and it can cause flow to become inefficient. To fix the problem, the broker must work closely with the problematic vendor; however, in doing so it can lose its grip on the other vendors which can pull the entire supply chain out of alignment.

A single-margin manufacturer, on the other hand, has the in-house ability to align all processes and activities with customer needs and requirements. Because the downstream and upstream manufacturing actions are performed by the single-margin entity, there is a tighter level of supply chain control. When problems arise, resources can be added, flow can be diverted, and timelines can be updated in a more efficient manner than they would otherwise be if multiple vendors were used. A single-margin manufacturer is similar to a car in which all four tires are connected and the suspension system is self-correcting. In this situation, all four tires operate in a synchronized fashion, pointing and moving in the same direction at the same time. When there is a disruption or problem with one tire, the suspension automatically adjusts itself, distributing weight to the other tires or adding power to the problem tire until the alignment is restored. This helps ensure that the car will continue to move in the right direction with minimal disruption or slowing.

Alignment is key to ensuring a product is manufactured in a repeatable, efficient manner. Using a single-margin manufacturer helps ensure that proper documentation is generated by the design engineering group, verified by the quality engineering team, and maintained by the manufacturing department. This creates an alignment and flow that results in high quality products that meet customer expectations.

Vendor Alignment

Request a Tour.

When you’re unsure of whether you’re working with a single-margin sourcing partner or a broker, request a tour. A true single-margin sourcing partner will have you visit one of their facilities—they will not have you visit a strategic partner, a mold shop down the street, or their cousin’s assembly facility. Single-margin manufacturers will display and share the many capabilities that they offer. Although this may seem trivial, it is crucial to understand that within a single-margin manufacturer’s facility each process is operating under the same quality requirements and system—which means there is no variation in customer expectations between departments. This means that when it comes time to develop and manufacture your product, the single-margin manufacturer will have the experience, capabilities, and knowledge to do so in-house and in compliance with regulatory standards. Request a tour, see the manufacturer for yourself, perform an audit of their quality system, and learn which questions you should ask when choosing a sourcing partner.

Conclusion.

A single-margin manufacturer charges one markup for the assortment of activities and processes that are performed. This allows you to avoid the potential compounding of margins that would result from a broker that utilizes outside vendors.

At Biomerics we are a true, vertically integrated, single-margin manufacturer. Our wide range of in-house capabilities and offerings mean we can efficiently align processes and manufacturing resources to meet your specific needs. Our unique ability to provide cradle-to-grave production within a single company is what makes us a choice sourcing partner for the medical device industry’s leading organizations. From design and development, to full scale production and fulfillment, we offer everything needed to turn a concept into a fully functioning device.

To learn more, send us an email (csr@biomerics.com), give us a call (801-355-2705), or visit the About Us section of our website.

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