Several places are experiencing a lack of skilled workers to choose from in the talent pool. Even worse, this is an issue that isn’t going away anytime soon. You might be able to handle manufacturing, but to scale you’re going to need to find the extra resources elsewhere to be able to handle the increase in sales and production. This is where outsource manufacturing comes into action!
In this article we will learn:
- What is Outsourced Manufacturing?
- How to Outsource Manufacturing?
- Risk for Manufacturing Companies that Outsource
- Guidelines for Ambitious Manufacturers
What is Outsourced Manufacturing?
Outsource manufacturing is the process of one business hiring a third-party company to perform the services which are traditionally carried out by a company’s employees. The cost of outsourcing manufacturing depends on the company you start a contract with, the political atmosphere, the demand for the manufacturing company, and the cost of transport.
Outsource manufacturing usually occurs in international countries with the main intent of lowering costs, particularly minimizing labour costs and manufacturing overheads. In most cases, it happens to be much cheaper for a business to hire the services of a third-party company.
Although cost reduction is the most common reason for a business to start using outsource manufacturing, you need to unravel what your goals are to outsource manufacturing: Are you looking to reduce costs, reallocate resources or increase production? Implementing this tactic will give you a better perspective regarding outsourcing.
How to Outsource Manufacturing?
Let us have a look at the various factors we must consider when deciding on how to outsource manufacturing:
You need to keep your eye always open and be vigilant over your outsource manufacturing. You should effectively minimize costs; which means not to isolate a certain part of the production as one cost reduction, but keep in mind of a products entire workflow.
Don’t Go All In
Estimate the minimum amount of production that needs to be retained to help you generate enough cash flow for generating future stocks. This will help your production quantity to be secure at the same time ensuring that outsourcing is not affected.
Try to keep some production in-house. More preferably, outsource a little production but take in people with the knowledge, or workers you can shape and train, to make your products so you have the in-house expertise to keep meeting orders should something go wrong.
Check experience and certificates
If a company has just started up and you’re going to be their first contract, be selfish, and move on. Their inexperience could lead to costly errors for you, and not them. You can also do a basic research on their location.
Avoid Emulating Other Companies
You must note that cost-saving techniques that work for other manufacturing companies that outsource may not work for your business. Examine and develop a model that works best for you.
Risk for Manufacturing Companies that Outsource
Manufacturing companies that outsource have some risks that they have to take on when doing business this way, mainly having to take responsibility should your partners cut corners.
The current trends and forecasts for consumer spending habits suggest that people want to know exactly how and where their products are produced, meaning that people are more likely to purchase from companies who manufacture goods in-house.
When you outsource manufacturing, you should make sure to get to know your contractors to avoid being subject to criticism if it’s discovered that those contractors mistreat their staff.
If outsource manufacturing is essential, strive to limit the amount of production that goes to contractors. Greater the production you outsource, more it becomes difficult to perform quality control on your products before selling them.
Then there comes the issue of trust, as in the past, there have been cases of spying, where outsource manufacturing companies have stolen product designs and ideas, to produce them independently.
Guidelines for Ambitious Manufacturers
If you’re a manufacturer struggling to keep up with orders all by yourself, we understand you’d be significantly concerned about outsourcing manufacturing.
Outsource manufacturing is unquestionably a suitable tactic to take, and you can still even have control of production. But that involves teaming up with a manufacturer, purchasing material and arranging the supply chain requirements.
But, to be able to pull off this type of outsource manufacturing you’re going to need to find a tool which can handle supply chain management for makers.
Using a tool, you will be able to not only track your inventory at different manufacturing locations but automatically takes available finished products or raw materials and allocates them to orders.
Finally, if you’re concerned about how much does it cost to outsource manufacturing, you can calculate the manufacturing costs of your products, all based on your BOM’s and production operations defined for specific products.
We hope you found this article on how to outsource manufacturing useful, and if you have any questions, please don’t hesitate to get in touch. If you are interested to read more on similar manufacturing topics, you can check out our other fascinating blogs here.