How OEMs Consolidate Suppliers to Protect Margins

In today’s manufacturing environment, protecting margins is essential.

OEMs in industrial equipment, power distribution, agriculture, transportation, and technology sectors face ongoing pressure from:

• Labor inflation

• Tariff uncertainty

• Freight volatility

• Longer lead times

• Increased compliance requirements

• Working capital constraints

While procurement teams negotiate piece price, executive leaders are addressing a more fundamental issue:

Supplier fragmentation.

More OEMs are consolidating suppliers — not just to streamline purchasing, but to protect margins, lower operational risk, and improve supply chain performance.

Here’s why.

The Hidden Cost of Supplier Fragmentation

Many OEM supply chains have developed over time.

Stamping at one supplier.
Welding at another.
Coating elsewhere.
Assembly at yet another location.

Each vendor may be individually competitive, but together they create waste.

Fragmented supply chains lead to:

• Inter-facility transportation costs

• Double handling and repackaging

• Excess work-in-progress (WIP) inventory

• Longer cumulative lead times

• Greater quality variation

• More purchase orders and invoice processing

• Higher administrative expenses

These costs may not appear clearly on a single line item, but they accumulate throughout the value stream.

In a tight-margin environment, fragmentation becomes costly. 

Consolidation as a Margin Strategy

Leading OEMs are shifting from transactional sourcing to strategic consolidation.

Instead of juggling multiple vendors for forming, finishing, and assembly, they are partnering with companies that provide integrated manufacturing solutions.

This includes:

• Metal stamping

• Fabrication (laser cutting, turret punching, press braking)

• Welding (MIG, TIG, spot)

• Powder coating and liquid paint

• E-coat

• Assembly, kitting, sequencing, and shipping

When these processes operate under one system, companies gain:

• Shorter cycle times

• Reduced transportation waste

• Lower WIP

• Simplified quality management

• Stronger scheduling control

• Reduced supplier management overhead

The outcome is not just lower cost — it is greater operational control. 

Cycle Time Equals Margin Protection

Supplier consolidation directly impacts cycle time.

When production flows through a single integrated operation instead of multiple companies, the results are measurable.

Shorter cycle times reduce:

• Safety stock requirements

• Storage costs

• Expediting fees

• Forecast error exposure

They also improve:

• Cash flow

• On-time delivery performance

• Customer satisfaction

Velocity protects margins.

OEMs that control production flow protect working capital. 

Dual-Country Manufacturing as a Consolidation Tool

Supplier consolidation does not mean geographic limitation.

Forward-thinking OEMs are leveraging dual-country manufacturing strategies — using both the United States and Mexico — to optimize cost and flexibility.

An integrated partner offering:

• U.S.-based contract manufacturing

• Mexico-based shelter manufacturing (IMMEX structure)

• Hybrid combinations

allows OEMs to:

• Keep tariff-sensitive processes in the U.S.

• Move labor-intensive processes to Mexico

• Balance cost and risk

• Expand capacity without capital investment

This strategy reduces supplier count while increasing geographic flexibility.

It simplifies the supply chain and strengthens resilience.

Administrative and Financial Efficiency

Supplier consolidation also reduces indirect costs.

Fewer suppliers mean:

• Fewer purchase orders

• Fewer invoices

• Fewer payment terms to manage

• Simplified logistics coordination

• Reduced compliance monitoring

In Mexico shelter structures, companies can further reduce overhead by sharing administrative functions such as:

• HR

• Payroll

• Accounting

• Customs compliance

• Import/export documentation

Margin protection is not only about production cost — it also requires administrative efficiency.

From Piece Price to Total Landed Cost Thinking

Procurement often asks:

“What is your unit price?”

Strategic supply chain leaders ask:

• What is my total landed cost?

• What is my supplier management burden?

• How much working capital is tied up in WIP?

• What risk is embedded in my current structure?

Consolidation improves total landed cost through:

• Integrated operations

• Labor optimization

• Reduced logistics complexity

• Shorter lead times

• Lower overhead

OEMs that treat manufacturing as a system — rather than a collection of transactions — consistently outperform competitors. 

The Bottom Line: Control Protects Margin

In 2026 and beyond, OEMs that safeguard margins will do so by:

• Minimizing supplier fragmentation

• Integrating forming, finishing, and assembly

• Leveraging dual-country manufacturing

• Optimizing labor location

• Improving value stream velocity

Supplier consolidation is not about dependency.

It is about control.

Companies that simplify their supply chains are the ones that stabilize margins.

Considering Supplier Consolidation?

If your organization is evaluating:

• Reducing supplier count

• Shortening lead time

• Lowering total landed cost

• Integrating stamping, welding, coating, and assembly

• Establishing U.S.–Mexico production flexibility

A strategic manufacturing review may uncover significant opportunities.

Explore Further

• Integrated Contract Manufacturing Services
• Custom Cost Model Consultation
• Explore Shelter Manufacturing under IMMEX
• Try our Mexico savings calculator

Or contact our business development team at: +1 803-918-5599