Uncover the intricacies of outsourcing manufacturing, navigate the potential risks associated with this business strategy, and discover invaluable tools designed to empower expanding manufacturers in maintaining optimal control over their production processes.
The are a number of reasons why you should consider outsourced manufacturing. Some of the most valuable can be found below:
- Resource Redistribution: By entrusting certain tasks to external partners, you can free up valuable time and allocate resources more effectively
- Design Expertise: As a designer, collaborating with a manufacturing partner can bridge the gap between your creative vision and actual product realisation
- Specialised Components: When faced with the challenge of producing intricate components beyond your capabilities, outsourcing becomes a viable option
- External Factors: Certain circumstances may necessitate outsourcing, such as a scarcity of skilled workers in your area or other manufacturing obstacles.
The scarcity of skilled labour is a significant issue in many regions, particularly the UK right now which is seeing job vacancies at almost a two-year low. Furthermore, additional manufacturing challenges may arise, exacerbating the strain on your business such as supply chain issues.
While you might currently manage manufacturing and running your business single-handedly, scaling requires seeking additional resources beyond your capacity to handle increased sales and mass production.
Enter outsourced manufacturing.
This article delves into the concept of outsourced manufacturing, providing insights on how to make it work seamlessly, addressing associated risks and guiding you towards establishing the optimal setup for successful production outsourcing.
What is outsource manufacturing?
Outsource manufacturing, also known as contract manufacturing, involves engaging a third party to produce goods or provide services on behalf of a business. This arrangement can be established either domestically or internationally, offering companies the advantages of saving time, reducing costs, and maintaining competitiveness by focusing on their core goals.
The cost of outsourcing manufacturing varies based on factors such as the chosen contract partner, the political landscape, the demand for manufacturing services, and transportation expenses.
Outsource manufacturing is the practice of a business entrusting a third-party company to undertake tasks traditionally carried out by its own employees. Typically, outsourcing manufacturing operations occur in foreign countries with the primary objective of cost reduction, particularly in terms of labour expenses and manufacturing overheads. Hiring the services of a third-party company often proves more cost-effective than maintaining an in-house workforce.
Beyond cost savings, businesses may opt for outsourcing manufacturing to enhance production capabilities or reallocate resources effectively.
Proponents of outsourcing manufacturing argue that implementing this strategy provides companies with an incentive to allocate resources to their most impactful areas, contributing to the preservation of a robust global free market.
When opting for outsourcing, you can achieve cost savings by leveraging the manufacturer’s ability to produce goods at a lower cost than you could. Additionally, you can eliminate the need to establish and maintain your own manufacturing facility, relieving you of associated burdens.
Moreover, outsourcing allows you to concentrate on your core business while entrusting the manufacturing process to experienced professionals. This not only saves you time but also mitigates the risk of errors or mishaps.
Outsourcing also provides the flexibility to easily scale your production up or down as needed. In the event of increased demand for your product, you can swiftly expand production. Conversely, if demand declines, you can readily reduce output without resorting to layoffs or factory closures.
If you are contemplating this approach, thorough research is essential to identify a manufacturer capable of meeting your specific requirements.
Some argue that outsourcing deprives domestic workers, particularly those in the manufacturing and textile industries, of job opportunities. However, we will delve deeper into this concern when discussing the risks associated with outsourcing manufacturing companies.
How to outsource manufacturing
- Monitor Production
Supervise your outsourced manufacturing processes. The goal is to optimize the manufacturing cost of the entire product. Instead of focusing solely on cost reduction in isolated areas or subassemblies, consider the entire workflow. Strategic outsourcing can be more cost-effective when the complete workflow is taken into account. - Embrace Imperfection
Perfection in outsourcing efficiency may not be attainable. Avoid spending excessive time trying to achieve absolute perfection. - Balance In-house and Outsourced Production
Consider retaining some production in-house while outsourcing specific tasks. Alternatively, outsource production but ensure you have personnel with the necessary expertise or invest in training. This safeguards your ability to continue production and fulfil orders in case of any issues. Avoid scaling down your business to the point of complete dependence on outsourced manufacturing. Maintaining critical skills internally is vital. - Focus on More Than Cost Reduction
While reducing costs can be objective when outsourcing manufacturing, it should not be the sole focus. Evaluate contractors based on their superior facilities that can enhance product quality. - Account for Increased Costs
Be aware that outsourcing manufacturing may lead to longer lead times and additional costs such as transportation. Consider these factors when exploring this option. - Prioritize Precision
Pay close attention to the initial stages of product production as they can significantly impact subsequent tasks and overall efficiency. - Avoid Emulating Others
Recognize that cost-saving techniques employed by other outsourced manufacturers may not be applicable to your business. Develop a customised model that aligns with your unique needs. - Listen and Learn
Be receptive to advice from employees or fellow manufacturers in your market on cost reduction strategies. They possess valuable insights that can enhance your business performance, often surpassing the expertise of external consultants.
You may be wondering, “How do I choose the right manufacturer?”. Selecting the wrong one can have consequences, so thorough research is crucial before initiating outsourcing manufacturing.
As a general guideline, remember to:
- Visit the factory whenever possible: Assess the company’s capabilities, evaluate employee skills, and verify equipment quality firsthand
- Check experience and certifications: Avoid partnering with inexperienced companies that lack a track record, as their errors could prove costly for your business
- Research the location: Outsourcing to different regions, such as China, can yield benefits based on industry tax rates. Tech companies may find it cheaper to outsource to the South, while manufacturing companies may find advantages in the North. Additionally, consider the regulations and tariffs of your home country that could impact your outsourcing decisions.
The risks for manufacturing companies that outsource
Outsourcing manufacturing entails some risks that companies must be prepared to address. One primary risk involves assuming responsibility if your outsourcing partner engages in unethical practices or cuts corners.
Determining the true cost of outsourcing manufacturing extends beyond financial considerations and encompasses the potential impact on your brand’s reputation.
Current manufacturing trends and consumer preferences indicate a growing trend for transparency regarding the production process and sourcing. Customers are more inclined to support companies that manufacture goods in-house. When engaging in outsourcing, it is crucial to familiarise yourself with your contractors to avoid potential backlash if any unethical practices are uncovered within their operations.
Staying informed about global politics is vital. For instance, the tariff war between the United States and China in 2018 had significant ramifications for businesses with operations in both countries.
If outsourcing manufacturing becomes necessary, it is recommended to limit the extent of production entrusted to contractors. As the degree of outsourced production increases, it becomes more challenging to maintain strict adherence to your quality control checklist before releasing products to the market.
Trust also becomes an issue, as instances of espionage have occurred in the past, with outsourcing companies stealing product designs and ideas to produce them independently.
These risks shouldn’t put businesses off outsourcing manufacturing. Processes can be put in place now should they occur.
What about ‘ambitious’ manufacturers?
If you’re a struggling manufacturer overwhelmed by orders and thinking that outsourcing only applies to large corporations, you are mistaken.
Outsourcing manufacturing doesn’t require seeking large-scale outsourcing companies, and it doesn’t have to involve international ventures. The decision to outsource depends on your specific goals and circumstances.
Outsourcing manufacturing can be a suitable approach that allows you to retain control over the production process. However, it would entail collaborating with a manufacturer, procuring materials, and managing the supply chain requirements. To effectively navigate this type of outsourcing, you’ll need a tool or system capable of handling supply chain management for makers.
Remember, outsourcing manufacturing is a viable option for businesses of varying sizes and industries, including smaller-scale operations. The key is to find the right approach and tools that align with your specific needs and objectives.
