Everything about Outsourcing in the Manufacturing Industry - Global Trade Magazine
  October 11th, 2020 | Written by

Everything about Outsourcing in the Manufacturing Industry

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  • Outsourcing frees up time that can be then channeled towards innovation.
  • If you want to keep your manufacturing process secret, you should not outsource.
  • The quality of the output depends to a great extent on the third-party company you choose.

Gone are the days when a manufacturer goes through the process of production from start to finish alone. Nowadays, companies are increasingly looking for ways to cut costs, increase efficiency, and output. One of the ways of doing so is through outsourcing some parts of the manufacturing process.

Outsource manufacturing involves employing outside sources to handle all or some aspects of the production process. The extent of the intervention of the third-party company varies and depends on the needs of the manufacturing company. There are many reasons to outsource. However, when done prematurely or wrongly, it could backfire.

Benefits of Outsourcing

There are several benefits associated with outsourcing. You will find a few of them below.

Reduced Labor Cost

The cost of labor is the highest cost for any manufacturing company. Companies have to pay employees (well), and also provide other incentives, such as subsidized insurance plans, hazard allowance, etc. This is true for even non-manufacturing companies like csgo betting, involved in esports and internet gabling. Outsourcing reduces this burden for the company.

When some part of the manufacturing process is outsourced, there will be no need to employ persons to fill roles related to manufacturing. Furthermore, outsourcing could mean making use of temporary workers from employment agencies. These workers typically charge less than the average employee. Also, their employment terminates at the end of the job.

Increased Innovation

Outsourcing frees up time that can be then channeled towards innovation. This is especially important if the company is dedicated to developing ideas for the product instead of manufacturing them. Hence, increased innovation would translate to more products and greater output for the company,

Eliminating Overhead Costs

Outsourcing can also eliminate the overhead costs associated with running a manufacturing facility. Overhead costs could include utilities, maintenance of equipment, and manufacturing processes, as well as the cost of indirect labor.

Improved Efficiency

No doubt, one key expectation from outsourcing is efficiency. Delegating some of the production processes to entities better equipped to handle them should ordinarily increase efficiency.

Additionally, the manufacturing company itself may be functionally inefficient. An example could be a situation where the company lacks certain key machinery to make topnotch products available. In this case, outsourcing is the route to go through.

Tips for Effective Outsourcing

The first tip would be prioritizing competence. The quality of the output depends to a great extent on the third-party company you choose. The company you outsource to should be able to match the quality of your output. If not, there would be a mismatch that would impact the consumers negatively.

Furthermore, not only should the company be able to perform the task (better), they should be able to do so at a lower cost. It is counterintuitive to outsource when it would be less expensive for your company to carry out the task.

Some costs may not be immediately visible on the surface of it. For example, shipping costs may be high, and could ultimately be a gamechanger. Furthermore, tariffs and customs charges may also impact the overall cost of outsourcing. Before you outsource, ensure that every possible cost is articulated.

A key consideration to factor in is the company’s ability to scale production as demand increases. Your ideal company should not just be competent but should be reliable and efficient.

Always make sure you do not limit your scope while looking for any such company. Thoroughly vet their competence to make sure that you will be getting your money’s worth. Areas to take note of include the company’s reputation, previous jobs, available machinery and equipment, quality of members of staff, and so on.

Another idea is to consider outsourcing only some part of the manufacturing process. You may be well advised still to retain control over key areas. Keeping some of the processes in-house could cut down on the cost of outsourcing.

Additionally, this might be the best option, especially if you have Intellectual Property-related concerns. When processes get exposed, it could hurt your business, leading to counterfeits and knockoffs. Of course, from the start, you should execute an agreement with the outsourcing company. However, you cannot fully guarantee the compliance level of the company. More so, your crucial data could be lost because of the negligence of persons working with these companies. Hence, if data loss would portend a huge loss for your company, you may have only to outsource some parts of the manufacturing process. It would be a great idea to retain control over the parts of great importance to you.

When Outsourcing Manufacturing is a Bad Idea

We’ve discussed the benefits of outsourcing some parts of the manufacturing process extensively. The question then becomes, are there downsides to taking this route? More so, can there be instances where adopting this strategy would be damaging to the growth of the manufacturing company? The answer is yes on both counts. Below, you will find examples of situations where outsourcing is a bad idea.

1. Protecting the secret of the company

We’ve discussed some aspects of this above. This reiteration is for emphasis. If you want to keep your manufacturing process secret, you should not outsource. For instance, even though the ingredients used in making Coca-cola is not a secret, no one has been able to replicate Coca-Cola’s taste successfully.. That would not have been possible if Coca-cola outsourced its manufacturing process.

2. Lack of an experienced third-party manufacturer

If there isn’t a third-party manufacturer that can excellently manufacture the products, there is no need for outsourcing. The company would be better served if it scaled back operations, taking charge of the entire process from start to finish.

3. The cost outweighs the benefits

The primary reason for outsourcing is to save costs. If, for any reason, the company then gets to lose funds, instead of making profits through the process, then the plug should be pulled on outsourcing. Simply put: if no profit can be achieved, then the idea of outsourcing should be scrapped.

Increased costs from outsourcing usually arise due to a failure to calculate outsourcing costs correctly. Outsourcing typically involves a lot of careful planning. However, when planning is absent or not done correctly, it could lead to an unmitigated disaster. Thus, instead of saving revenue through the process, the company even loses funds.

Conclusion

Outsourcing manufacturing is a trend that has gained traction in recent years. In this article, we show you that truly, there are benefits from that process. However, we also point out key things to bear in mind before outsourcing.

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Karl Murphy is a professional journalist from Des Moines, Iowa. After obtaining his Master’s degree, he’s launched his career and over its course, Karl was contributing to the popular publications for men. He’s passionate about eSports, so now he develops his blog csgo-bettingsites.com.