Put the old-fashioned idea of being a “one-stop-shop” out of your mind once and for all. Doing everything under one roof, from initial design to finished product, is no longer the best strategy for creating growth and profits. To not just compete, but survive, in the current economic climate, you need to think way outside the box. You need to think “outsource,” and here are just a few of the ways outsourcing your manufacturing can significantly impact your bottom line, increase the likelihood of your company’s long-term survival, and pass on substantial savings to your customers. But before moving further, let us first learn “what is outsourcing manufacturing?”
What is Outsourcing Manufacturing?
Outsourcing refers to a business practice of hiring a party outside the company to deliver services and produce products that have earlier been done in-house by its own employees. Outsourcing was first accepted as a business practice in 1989 and became an essential part of the business economy of the 1990s.
Several factors have contributed to the globalization of business processes in the past 25 years: political factors such as the fall of the Berlin Wall, the breakup of the former Soviet Union, and the abolishment of apartheid in South Africa. Economic influences include NAFTA, the adoption of the euro, and the considerable wealth gains derived from the tech boom. Exponential increases in global computer connectivity, data capture, processing, and storage led to leaps in progress in business processes. The world was wide open and ready to do business. Increased transparency helped to mitigate the widespread graft and corruption in markets once considered risky, and companies small and large put their toes in the new global business waters and ventured into new territories for new business opportunities and endeavors.
With countries outside the U.S. now possessing better logistics, equipment, and expertise, outsourcing certain departments soon became the norm. Call centers in India now handled customer service issues, Filipino accountants maintained the books. Most notably, manufacturing demands on traditional players China and Mexico became so great that THEY themselves started outsourcing to nearby Vietnam, Thailand, Honduras, and Guatemala to keep up with the demand. Formerly perpetually depressed economies in Ireland and Poland now offered themselves up as manufacturing epicentres of Europe and Great Britain. The world, according to Thomas Friedman’s runaway bestseller, had become flat.
Pros of Outsourcing Manufacturing
1. Save Money
Outsourcing your manufacturing can save your firm at least 15% in costs, and that is a conservative figure. However, taking the decision to outsource any part of your business can carry a stigma, and result in some bad publicity and backlash against your company. Outsourcing and its kissing cousin, offshoring, are often lumped together in the media as being threats to our national livelihood and even our way of life. However, if you are willing to weather the potential storm of initial outrage against your firm, there are several outsourcing manufacturing upsides. Outsourcing your manufacturing processes can help you realize significant long-term cost reductions, savings to you and your customers, and, ultimately, the survival of your company.
Initial savings from outsourcing your manufacturing can be seen because it lets you reduce, minimize, or outright eliminate the need for a production plant or factory. Along with this comes the savings in real estate maintenance overhead costs: property taxes, insurance, utilities and other overhead.
For some firms, the savings from outsourcing production can represent such a savings that a reduction in labor costs is unnecessary.
2. Lower Labor Costs
Imagine doing business where you provide jobs to a ready and willing populace, without any undue and unwelcome interference from meddling, rapacious unions, or outdated government regulations. Imagine being able to offer your workforce the flexibility to work various shifts to suit their culture and lifestyle, while still putting food on the table, and paying for children’s education. This is the reality available when you outsource your manufacturing to other parts of the world. The threat of a union strike, lockout, or shut out, the inability to terminate poorly performing employees, the prolonged and sometimes futile contract negotiations that leave everyone disgruntled and unhappy- this does not have to happen if you choose the right market and put the right managers in charge.
Without union or government interference, you can control production schedules and even offer longer shifts to willing workers, with minimal overtime regulations and costs. You will also see the benefits in not having to deal with domestic, sometimes byzantine human resources, payroll issues, overtime, and benefits.
In addition, negotiating directly with your managers and labor force means you can negotiate deliverables and terms, such as purchasing manufactured items by the piece, which can result into significant cost savings.
3. Focus on Core Areas
The savings from outsourcing manufacturing can increase revenues to invest in other business areas. These business areas include marketing, research and development, salaries at HQ, and debt retirement or debt restructuring, all contributing to a much more robust bottom line. With outsourced manufacturing, the product price will likely fall. This will lead to increased sales, enlarged market share, and higher margins.
4. Enhanced Efficiency
Outsourcing your business needs from an outsource partner can help you deliver complex projects timely, as they bring years of expertise in business practices. Hence, with their experience and comprehension of the domain, they can do the job better. This results in an increase in productivity and efficiency in the process, thereby contributing to your company’s bottom line.
5. Access to Advanced Facilities
Most companies do not have the equipment or capacity to produce their own specialized components, which makes outsourcing necessary. Outsourcing your production would allow access to all the latest tools, without having to spend excessive amounts to buy it yourself.
The choice to outsource your manufacturing may be one of the best strategic business alternatives to help you focus on your core competencies, cut costs, increase margins, and stick around for a long time.
With over 35 years of experience in manufacturing world-class products for major OEMs and high-tech start-ups, WORLD Electronics does it right the first time, every time.
WORLD electronics offers a complete line of electronic circuit board manufacturing and assembly services for the communications, networking, medical, defense, and control industries. Our commitment to quality and service is second to no supplier.