The Right Software Can Minimize the Risks of Outsourced Manufacturing

Outsourcing is the common practice of contracting out business functions and processes to third-party providers. The advantages of outsourcing are often substantial – from cost savings and efficiency gains to a more significant competitive advantage. Both well-established companies and startups reveal that outsourcing is useful for them.

On the opposite hand, loss of control over the seller is usually a possible business risk associated with outsourcing. You ought to carefully consider the benefits and drawbacks of outsourcing before deciding whether to contract out any activities or business operations.

Selecting the incorrect Contract Manufacturer (CM)

Working with the incorrect CM is at the basis of the many problems that we observe in outsourcing. An O.E.M selects a couple of contract manufacturers or worse yet, one CM and starts discussing business without having a clear understanding of the acceptable selection criteria.

Key inputs like geographic location, technical capabilities, materials management capabilities, internal control, strategic fit, and financial health are overlooked or discussed too late within the evaluation process, as cost or schedule overrides all other concerns.

Cutting corners like this is often justified during a sort of ways: by pointing to an existing operational problem; out of frustration with the present CM; in time for a replacement product launch; in response to immediate margin pressures; or a mixture of those factors.

While these are relevant issues to think about, a severe undertaking like establishing your CM relationship must be supported by a strong strategic foundation. Before starting any sourcing project, fully envision your idea of a successful contract manufacturing relationship.

Critical sourcing projects are usually spearheaded by the operations/manufacturing organization. But take care to not exclude major stakeholders like engineering, product management, internal control, and finance.

Outsourcing your manufacturing isn’t a standard buy/sell arrangement, and it must be managed during a strategic manner. Your CM is an extension of your business and has personnel that have got to interact cross-functionally together with your company.

Determine what role such factors as size, technical expertise, financial strength, and name reputation play in your selection criteria. For instance, a tier-one CM may generally not be an appropriate match for a startup or small OEM merely supported size.

The mindshare related to an annual spend within the many low dollars is minimal for an outsized CM in comparison to the many millions or billions spent on outsourcing by larger OEMs.

However, some startups or small companies are in unique niche markets where an outsized CM is investing to become the contract manufacturer of choice. The potential revenue that the CM can realize as a result of this partnership may, therefore, overshadow the immediate revenue at hand. Therein case, it’s going to be worth pursuing a tier-one solution.

Finally, get references from similar-sized customers within an identical technology market. Confine mind that each situation is different and requires thoughtful consideration of multiple factors.

Before making any decisions, spend time to develop a clear set of selection criteria, understand your short-term and long-term requirements, and cast a high net to gauge multiple options.

Develop a clear plan and follow a systematic process until you’ve got narrowed down your choices to a minimum of two finalists. Refrain from awarding business until you’ve got, at a minimum, finalized your crucial contract terms and agreed to how your products are going to be priced — now and within the future.

Albeit you’re not planning on embarking on any new relationships, validate your existing solution from time to time to make sure ongoing alignment with the direction of your business or product roadmap. This may reduce the likelihood of a quick selection process when the necessity arises.

Quality Assurance

Yes, you’ll economize outsourcing manufacturing and fabrication, but are you able to deliver an equivalent quality compared to keeping everything in-house? As mentioned within the first risk, you would like to try to your due diligence. Not only can a decrease in quality ruin a brand, but it can disrupt operations, taking months to resolve.

This is often a genuine risk that you got to mitigate, if not remove entirely, from your business standards. Once you plan to investigate, you’ll spend a couple of days to a couple of weeks observing the manufacturing process to make sure quality. This is often much less costly than discovering a whole production haul must be recalled thanks to quality assurance issues.

Quality Control

The second issue is internal control. In-house manufacturing allows you full control over the standard of your products. As soon as you contract a 3rd party to supply equipment or consumables on your behalf, you lose that control. In industries that process food or pharmaceuticals, internal control may be a massive issue, meaning you’ll want to form sure your contract manufacturer has stringent internal control practices in situ.

Hire a contract manufacturer who has solid internal control practices in situ. Mainly, it’s often best to settle on a manufacturer who has experience in your industry. They’ll already be conversant in the standards and regulations you would like to satisfy, allowing them to have already got the required procedures in situ.

Lacking Knowledge of Production Techniques

When you produce items in-house, you recognize what processes and techniques are involved in their production. A third-party contract manufacturer won’t necessarily have all the needed skill sets and knowledge in situ. This contract manufacturing issue means you would possibly either need to spend over time, ensuring they get your product right, or just having to affect a subpar result.

Selecting someone who focuses on your industry is vital. A specialist contract manufacturer will have the required training, knowledge, and equipment in situ to satisfy your exact requirements. Communicating your processes may additionally help in cases where you’re handling a corporation that gives full contract manufacturing services.

Using a Quote-and-Go Approach

The first formal exchange between an O.E.M. and CM is usually the submission of an invitation for quotation (RFQ). Product specifications are provided via electronic or paper means, C.M.s undergo their quotation process, and therefore the output may be a product price that’s sent back to the O.E.M. to form a choice.