Wednesday, December 23, 2015

Outsourcing Overseas Your Manufacturing Needs: What Dangers You may Face

Outsourcing manufacturing is no longer just a trend. It is now an established business practice that will be a constant in the foreseeable future. The benefits are manifold and well known – cost reduction, increased efficiencies, and ability to focus on other operational areas and so on. Most of the outsourcing is done overseas as this is where the greatest financial benefits accrue. However, there are a few major downsides to this new business paradigm that are often not seen or if seen, ignored – at a price.

The Risks

  • Loss of intellectual property: This is an underappreciated danger. It is not just a matter of the theft of engineering or technical properties. The loss of the critical ideas and concepts that form the backbone of the success of your products can cause irreparable damage.
  • Communication: Language and cultural differences can lead to misunderstandings that snowball into major product issues, and lead to loss of your market share. Controlling these problems is a known issue, but the firefighting you need to do to contain the damage negates any benefits that may accrue from the outsourcing. This is often not taken into consideration when making outsourcing decisions.
  • Fostering backfiring competition: In the early days of the outsourcing boom, countries like India and China needed a huge amount of support and control to be able to supply quality products for more sophisticated markets. That scenario is changing fast. With the increase in living standards in these and other similar countries, the realization has dawned on outsourcers that the profits of outsource production based on cheap labor costs will not last forever.
  • India and china are today investing heavily in building their own innovation and design capabilities, along with new manufacturing techniques.  Your intellectual property may be carefully guarded; but the fact remains that these countries are in the process of acquiring an edge over you in developing technologies and products that will soon be able to compare and compete with those of your own.
  • The Development-Production Gap: Innovation and Product Development are the cornerstones of sustained product life. If this is done overseas, maintaining the required focus can be difficult. If it is done at home and the technology and systems transferred to an outsourcing supplier, the gap between concept/intension and end product is often too large to bridge effectively. The result, in terms of competitive finished products, can be tragic.

While there is no denying that outsourcing overseas does have its advantages, you must weigh the pros and cons carefully before stepping offshore. This is especially true for new, small and medium enterprises that will not have the resources to protect themselves.

Large corporate players have entire departments devoted to managing overseas suppliers. And even then, as they themselves will be the first to admit, the sailing is never completely smooth.

There are now a new breed of domestic outsource manufacturers that are able to compete effectively with overseas suppliers and offer a complete range services including manufacturing solutions, prototype development, materials management, engineering support, testing and repair and RMA services.

The best of these players offer the highest levels of certification and compliances. With the benefits of outsourcing without the risks and communications issues, these are where the outsourcing process should begin.

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