According to a Wall Street Journal article (paid subscription may be required) Toshiba Corporation will reduce overall material costs for consumer electronics and home appliances by increasing its outsourcing profile.  The article notes a company spokesperson indicating that Toshiba will increase overseas supplies from a current level of 57% to 70% of its procurement costs by March of 2013. This effort is being targeted to reduce costs by one trillion yen ($12 billion) over three years.

Toshiba now joins other prominent Japan based manufacturers such as Hitachi, Panasonic and Sony who have all announced major outsourcing initiatives in order to increase cost competitiveness in emerging and growth-oriented global markets.  Hitachi indicated in June that it had targeted reductions in procurements costs in the range of 30%-40% over the next three years. Supply Chain Matters commented in May on both Panasonic and Sony’s major outsourcing and cost reduction initiatives. Overshadowing all of this activity is industry giant Samsung Electronics Co. whose vertical supply chain integration strategy has made a dramatic presence in global markets, particularly consumer electronics.

Japanese based OEM’s have always taken great pride in both the engineering and overall quality of their products.  That is perhaps why so much manufacturing was sourced internally.  With these major shifts in external sourcing of components and manufacturing, it will be rather important that quality levels remain consistently high.

The other interesting aspects to this new wave of Japan based manufacturing outsourcing will be how it may impact the competitive dynamics of the electronics manufacturing services (EMS) providers.  EMS giant Foxconn Technology Group (Hon Hai Precision) has had its share of recent developments in labor activism and subsequent cost-control pressures.  Apple alone has taken-up a rather larger segment of Foxconn’s capacity, and there are recent indications that Foxconn may shift Apple’s production needs to more interior regions of mainland China. These latest increased outsourcing initiatives by Japan’s consumer electronics giants may expand opportunities for other EMS providers as well as specialized supply chain services providers to gain more business.

Bob Ferrari