According to the Harvard Business Review, outsourcing manufacturing means “the delegation of all or part of the functions of the productive systems of a company or organization to another entity.” Basically, it is about outsourcing manufacturing tasks for their execution by a third company. In this way, through outsourcing projects, companies have more resources for their business, while they can better control the cost of managing their systems and accelerate the introduction of new products on the market.
It is to contract and delegate in the long term one or more manufacturing processes to a specialized provider in order to achieve greater effectiveness that allows a company to direct its best efforts to the most critical functions that are linked to the fulfillment of its mission.
Why do companies use the alternative of outsourcing manufacturing?
A recent industry survey has identified the key issues that motivate outsourcing decisions:
- Market introduction speed (time to market).
- Improved service levels.
- Focus on core business competencies.
- Improvement of the quality of manufactured products.
- Flexible access to production experts and resources.
- Alignment of the manufacturing strategy and business objectives.
- Obtaining experience and technical knowledge.
- Implementation of global processes.
- Improved general competitiveness.
- Access to process and sector knowledge.
- Reduction of manufacturing costs and staff.
- Increase in the value of the company before shareholders.
Why consider outsourcing manufacturing?
There are a number of reasons why outsourcing may be a desirable option to pursue. They include considerations such as:
- There is a shortage of qualified manufacturing professionals. This shortage has raised wages.
- The market for a product is growing rapidly and companies must meet expanded demand to outperform their competitors.
- Expenses that are related to changes in manufacturing. The staff has to be trained in new technologies, producing a significant expense for the company.
Have the cost savings that this business model represents for a company been calculated, especially for small and medium-sized manufacturers?
The last Forrester study on this topic revealed that companies opting for outsourcing manufacturing functions can achieve savings between 20% and 80%. The precise figure depends on the type of outsourced manufacturing services that the company accesses. The rate of savings under such an arrangement is also dependent upon the type of company and its size.
How do we benefit from outsourcing manufacturing?
Outsourcing production provides, among others, the following advantages:
- Highly qualified staff who work on your projects without you having to pay huge salaries and benefits.
- You can take on new projects without the fear of overloading your productive capacity or interfering with existing projects.
- You can compete with others as you can provide the same services at a lower cost if required.
- You have no fear of your staff leaving for the competition.
- You do not need to change equipment.
- There are no staff training expenses related to the implementation of new technologies.
- There is an increase in profits.
Why do organizations choose to pursue arrangements that include outsourcing manufacturing?
Outsourcing not only has to do with reducing costs but also allows companies that work with a third-party partner to access a flexible, scalable, and reliable infrastructure that actively contributes to business improvements that are required to be competitive and meet market demands. Today, manufacturing technologies are strategic for most organizations and competitive positions depend largely on the ability to meet customer demand with an timely response. This is achieved by appropriately handling the multiplicity of manufacturing requirements that exist in the organization.
Can outsourcing take care of other business functions?
Beyond manufacturing, outsourcing can be effectively applied to all business processes in an organization. Some of the most frequent functions are call answering services, telemarketing, events, help center, computer services, personnel selection, and payment of salaries and wages.
How are performance and profits measured in an outsourcing manufacturing relationship?
Flexibility and quality of service are the most frequent parameters to measure outsourcing performance. These criteria are measured and compared with the level of service agreed in the business contract with clear and systematic monitoring and identification of the benefits achieved.
What are the keys to success?
Each manufacturing project has its own characteristics, but there are some factors that tend to favor success. For example, creating a strong and rigorous project management structure is essential. Experience in the area proves that an appropriate solution can be developed to manage the outsourcing relationship based on proven processes developed over the years.
Can international outsourcing be carried out?
Absolutely. One of the main competitive advantages of an international outsourcing relationship is the possibility of providing outsourcing services in local, regional and multinational companies. This guarantees a consistent quality of service.
Can an organization “learn from others “? Furthermore, can you “put yourself in the hands of others”?
The answer is yes. Today more than ever, due to the tough market conditions that exist in today’s competitive marketplace, manufacturers need to do so in order to achieve efficiency and competitiveness. It is highly important, however, that companies take the time to make the correct strategic decisions concerning what processes and products to outsource to a third-party outsourced manufacturer.
When analyzing other organizations, an inescapable comparison can be made with our own. In order to succeed it is necessary to adopt a new point of view or a different perspective that makes our organization perceive itself “from the outside.” This situation opens our perspectives and broadens our horizons, signaling for us a range of new possibilities regarding the actions to follow to improve products by outsourcing manufacturing.
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