How much of your production process should you outsource? (Part Two)
Part One of our series on outsourcing production processes discussed the benefits and risks of outsourcing purchasing, assembly and inventory management and provided tips to help you decide whether this outsourcing plan makes sense for your business. Check it out here.
When outsourcing just basic assembly can work for you
If your product comes with a lot of security concerns, you may not want to surrender too much power, product knowledge and control to your CM. (This is especially true if you have a highly complex product mix, or are really concerned about maintaining a certain level of quality and internal competence.)
While bringing more of your production in-house will add ‘supply chain management’ to your plate, there are several advantages to this approach.
By maintaining flexibility and control over purchasing and inventory, you can begin developing those aspects as a core competency. This can be a huge asset to your organization—just look at what Tim Cook did for Apple! You are also more likely to empower internal innovation since you will have everything you need in-house to iterate quickly and react to emerging competitors.
A final reason to bring more of your production in-house is to avoid CM markups and fees. Your CM will never be as motivated as you are to get the very best deal. Even if you get volume pricing through your CM, it is likely they will only pass the savings on to you if your business represents an important revenue stream for them. (Can you really blame them for wanting to keep the margins?)
Tips for making it work
Remember, if you execute well and are true to your internal strengths and weaknesses, there are multiple paths to success.
If you decide to turn over purchasing and inventory management to a vendor, make sure you only work with people you trust. By outsourcing such an important part of your operation, you create a great deal of dependency, which makes you more vulnerable.
Additionally, the more you outsource, the more likely it is that you will outsource what could be your competitive advantage—so think about what your company is trying to do strategically and move forward cautiously. And of course, always be ready to make a change when a change is needed. (For example, if you are a small company and are only outsourcing key processes because you lack the skills in-house, be ready to increase staff and take over as you are able.)
If you decide that your purchasing and inventory should be managed in-house, don’t panic when mistakes are made—mistakes are inevitable and a normal part of business maturity. You will inevitably counter supply chain breakdowns and errors, so create a plan B (and a plan C and a plan D).