How much of your production process should you outsource? (Part One)
When outsourcing your purchasing, assembly and inventory management can work for you
There is something really complicated about bringing a prototype to production, and while it’s an exciting time, there is a certain amount of pain and stress that you just can’t avoid.
One of the biggest decisions you face while ramping to production is how much you want to outsource. This is an extremely important decision because whether you pay to do everything in-house, pay for a great CM or pay because your products fail in the field, there is a cost involved with bringing a product to market. It’s all about deciding up front where you want to take the hit (or risk paying the price unexpectedly later!)
During our years of working with hundreds of manufacturers, we’ve seen companies outsource purchasing, assembly and inventory management, and we’ve seen others that just outsource basic assembly.
While both paths can lead to success, you should make a decision based on your internal priorities, values, competencies and deficiencies. We’ve outlined some things to consider in the sidebar below.
- How important is IP protection to your business?
- What are your organizational core competencies?
- What is the cost of purchasing errors and rework?
- What are the capabilities of your BOM and change management system?
- How efficient are your existing operations?
- What are the required business systems you’ll need?
- Do you have any budget restraints?
The benefits of outsourcing your purchasing, inventory and assembly
In general, you may want to consider outsourcing your purchasing, inventory and assembly if you manufacture a simple product with a stable design, if you have limited in-house expertise, limited in-house resources and manpower, and if you really trust your supply chain partners.
Under these circumstances, outsourcing will enable you to focus more on your core competencies, and give your in-house team more time to focus on design and engineering.
There are other benefits to outsourcing purchasing and inventory too. For one thing, you can mitigate sourcing and shortage issues if you work with a more specialized contract manufacturing team that is plugged into the supply chain with multiple sourcing options. Additionally, a bigger CM is typically better at getting volume-pricing deals.
In Part 2 of our series on outsourcing production processes, I’ll discuss when outsourcing just your basic assembly can work for you and provide tips on making it work—stay tuned!