Business Strategy and Outlook| Jason Kondo |
As a “fabless manufacturer,” Keyence outsources its production in a highly effective manner that minimizes risk of potential competition by suppliers. With consistently high gross margins over the long term, even with an outsourcing model, we believe Keyence has some negotiating leverage regarding cost with its network of suppliers. The company buys raw materials in bulk, which are then sent to the suppliers of its products’ components. It then collects the finished components before sending them to the assemblers. This way, the assemblers do not know the component suppliers, and this prevents Keyence’s suppliers from being aware of the entire production process of the end-product, thus preventing them from becoming competitors.