Three outsourcing challenges you may be facing

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istock mfg boxCompanies making the strategic decision to outsource manufacturing or design services face a variety of challenges—from securing the best pricing, to creating a strategy that works across several different product lines.

In the past, we have shared tips for setting up outsourcing partnerships. But establishing those initial relationships is just the first hurdle—over time, there are a variety of challenges you will face as your strategy adapts to meet changing market conditions.

I’d like to share three outsourcing challenges you may be facing, and some considerations that may help you handle each decision point along the way.

Challenge #1: Mitigating international delivery costs

You’ve expanded your market reach across the globe and need to mitigate the costs of international delivery. Should you do this by manufacturing closer to customers or should you look for other ways to cut costs?

Your options:

Find suppliers close to your customers to avoid international delivery costs

Stick with your supplier and find another way to cut costs

You may want to consider new suppliers closer to your customers if:

  • You have a mature product
  • You have a well-documented and well-managed product
  • You feel comfortable in your ability to deal with and manage risk
  • There are several competing companies that can address your manufacturing needs
  • Manufacturing isn’t your core competency or the core driver of your product’s value

You may want to stick with your current supplier team if:

  • Your product is immature
  • You can’t afford a reduction in quality
  • You are dependent on a competency owned by your current suppliers

Challenge #2 Keeping up with fast followers

Your first-to-market product is being undersold by fast-followers. Should you cut costs by working with your current supply chain, or by finding a cheaper supply chain partner?

Your options:

Reduce costs with your current supplier

Pursue a new outsourcing strategy

You may want to consider working with your current supplier if:

  • You will be introducing new product lines with similar assembly requirements in the future, and can flush out production-related issues for them now
  • You can potentially cut costs in other places by implementing lean initiatives throughout your business and supply chain
  • Your supplier has bandwidth to reduce costs and is willing to work with you
  • A large change is too risky for you at this time
  • You are mid-production and can’t afford any setbacks or delays

You may want to pursue a new outsourcing strategy if:

  • You are well established and have a highly mature product
  • You are at a stable place in your company and product life cycle
  • Your current supplier is unable or unwilling to cut costs any further
  • Your team is up for a challenge and can put additional resources into change management
  • You understand how your product is designed and manufactured well enough to explain it to a new set of vendors
  • There is little opportunity to cut process costs internally by adopting Lean, Six Sigma, 5S, TQM or other strategies
  • You have access to a competitive supplier landscape where sourcing is not prohibitive

Challenge #3: Optimizing for multiple product lines

You’ve developed a new, cutting-edge product and would like to begin manufacturing it alongside your more stable and easy-to-manufacture product lines. Can your current supply chain optimize your part costs for both products, or should you add additional supply chain partners to optimize quality and efficiency for the new product?

Your options:

Stick with your current supply chain to optimize costs

Find the best supply chain for each product line

You may consider having your current supply chain handle the new product if:

  • You have high-volume, low-complexity products that share similar tooling, raw materials or assembly procedures
  • Your organization lacks the resources to manage new supply chain partners
  • Your current supply chain partner can offer diverse solutions and has room to grow
  • You are confident in your ability to source back-ups if something happens to your current partner

You may consider finding the best supply chain for each product line if:

The components and manufacturing processes of your current and new product lines are very different

  • Your management team has the availability to take on additional responsibilities
  • Your customers are very quality-sensitive
  • You’d like to reduce your overall supply chain risk
  • You don’t have strong relationships with your current supply chain partners

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About the Author

Alex Gammelgard
Alex managed social media marketing and communications at Arena from 2011 to 2012. Although coming in fresh to the manufacturing industry, Alex is married to an engineer and is well ... Read More 

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