‘What’, ‘where’ and ‘how’ you can outsource to lower manufacturing costs
When done right, outsourcing will vastly increase your competitiveness and strengthen your business.
This articles was first published on www.sourcingallies.com
American corporations have been outsourcing manufacturing from the US since the 1980s, when companies such as General Electric — a pioneer in outsourcing or offshoring — started moving low-skilled assembly line production jobs to Mexico and Asia. The internet boom of the next decade saw services being outsourced to countries like India.
Over 30 years later, outsourcing is still a hot topic. In today’s market, however, the question is less of “if”to outsource and rather “what”, “where” and “how” to outsource so as to lower costs of manufacturing. These may be small questions but they have a big impact on the businesses of those looking to outsource the manufacturing of their products to low-cost countries.
Outsourcing takes time and effort. The gains of outsourcing product manufacturing must therefore be compared to the risks. Business owners must have a plan and stick to it.
If you are a business owner who is thinking it may be a good idea to outsource some or all of your products from Asia, take your time to identify, analyze and consider the relevant variables before you. There are many pitfalls, and mistakes can be costly. However, when done right, outsourcing will vastly increase your competitiveness and strengthen your business. You can increase production capacity, reduce fixed costs and increase your profit margins to new levels.
Here are a few basics you need to consider:
What to outsource
Take a close look at your full range of products and components. Not everything is suited for manufacturing in a low-cost region across the globe.
You want to make sure that the products you want to move have large enough dollar value and quantity to make a difference on your financial statements. The products need to be mature and have plenty of product life cycle left. Prototyping and innovations rarely fit this description. You want the time and effort you put into outsourcing to be worth your while.
Make sure your product drawings and specifications are up to date. You know your products best and all that knowledge needs to be communicated to whoever is going to make them. If your drawings are full of red felt pen comments, it will be wise to get all of that into new drawing revisions. Keeping drawings and specifications in great shape is mandatory and will pay dividends in the long run.
Make sure that potential issues in manufacturing are identified. Any problems you have now will rarely disappear when being made in a low-cost environment across the globe. Do not get me wrong. There are tons of very capable manufacturers out there, but they need to know what you know and you must highlight potential issues to address them.
Your products do not need to be labor intensive for you to move to a low-cost manufacturing environment, but outsourcing labor intensive products is more likely to have a greater impact on your cost savings. The value-add in your products makes a difference too. For instance, sending an I-beam to China for a few holes to be drilled into it does not make much sense. However, outsourcing the manufacturing of products and components that require extensive machining can provide substantial cost savings.
Where to outsource
There are many low-cost manufacturing regions in the world, all with their own sets of advantages and challenges.
China alone is huge and should be considered as many different regions rather than a single large one. You can probably find manufacturers that fit your needs in several Chinese provinces, but you will be more likely to find more consumer electronics manufacturers in the Guangdong province. Die casting and plastic injection molding manufacturers are found in great numbers in Zhejiang province. A good sourcing agent will be able to identify low-cost regions that are the best fit for you.
Factors like infrastructure, culture, language, and the region’s experience with Western business practices will have great impact on the success of your outsourcing efforts.
You also need to consider lead time and price per unit. When given quotes from different low-cost regions, you are likely to find that the lowest unit cost might have the longest lead time due to longer ocean shipping time. Consider if the price or lead time is most important to you. Maybe both?
How to outsource
Making sure that you know what you want to achieve is a great starting point. Analyze your product range, set goals and create a plan. You will be wise to work with an experienced sourcing agent with experience and people on site, close to the manufacturers. You need to have problem solvers and quality control personnel you can trust who can visit and spend time at the factories as needed. You need to make sure that you visit the factories when you want to, not because you must.
Pay attention to detail and make no assumptions. It is better to over specify rather than leave room for interpretation. It is not a matter of capability. It is more based on mindset and culture.
Work according to a proven process. We, at Sourcing Allies, have developed, refined, and proven our process. You will find it here.
It is important to know that outsourcing takes time and effort. It is not a short, fast run. It is a marathon. With that mindset, you will be well positioned to gain the substantial benefits of outsourcing and strengthen your business.
The key focus of global sourcing agent Sourcing Allies is to ensure that the sourcing process, manufacturing, and delivery of your goods is as efficient as possible. All this with the right price, quality and lead time.
