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.

How You can Benefit from Outsourcing the Prototype Development Process

The development of a new product is a long, complex and usually frustrating process. It can begin with a brain storming session to assess market needs, or with a sketch on the back of a napkin in a coffee shop. Whatever be the source of the idea, translating it into a product that will succeed and make profits for the manufacturer is a big challenge: it requires a large amount of engineering and management resources. This is not a problem for large corporations with dedicated design and development departments. But for smaller companies, the resource demands can have a negative impact on their ongoing operations and market presence. That is why outsourcing prototype development to specialist companies is gaining of late so much ground.

Wrong conceptions about outsourcing

A major concern of many companies in regard to outsourcing is that of confidentiality issues. Sharing proprietary information can be risky. And there is the danger of the competitors’ getting hold of your plans and entering the market first. However, there is no cause for worry with a professional subcontractor who specializes in prototype development. Such a company is built on its reputation on protecting client interests: any leaks of confidential proprietary information will devastate its business as much as that of a client.

The other equally important issue is that of competence. Many businesses know the basic technology, the prospective market and what type of finished product would match the market demand; they are therefore best placed to do their own prototype development. A professional prototype development company will work closely with a client to utilize his experience and technology, which, when combined with specialized development and materials skills, will produce the best and most cost effective results. Prototype development is a specialized field and the base technology is only part of the process. The skills needed for the development process are equally important, if not more.

The benefits of outsourcing prototype development

• Businesses are often set in their views and ways without really meaning to be so; inevitably, they have tunnel vision when it comes to technology. Outsourcing gives access to new and innovative concepts, systems and processes that can surely improve both the development process and the quality of the end product.
• The wide experience of the outsourced developer can contribute to both engineering refinement and product features and usability.
• More efficient procurement of new raw materials is a positive factor.
• Since no compromise is needed between the demands of ongoing manufacturing and of prototype development, the development work gets done faster. The outsourced developer will also be able to work on a more flexible schedule.
• The outsourced developer will be able to do design for manufacturing (DFM) and design for test and manufacturing (DFTM) analysis.
• Product refinement after customer testing, in general, often takes up more resources than is planned for. With an outsourced developer, this will not affect the manufacturer’s ongoing operations.

If innovation is the key to growth, effective and efficient prototype development has to be a major component of the whole process. Cost-effective operation is crucial to any business, in terms of both finance and management resources. Hence it makes a great deal of sense to outsource the process of prototype development to a specialist company that is reputed for the skills, technology, experience, equipment and execution of the job.

Quality Control Tips for You in Outsourcing Manufacturing Operations

The need to cut costs to meet increasing competition, especially from overseas, is pushing more and more U.S. manufacturers into outsourcing as much of their manufacturing operations as possible. No doubt, outsourcing does have a significant positive impact on production costs and profitability. However, quality issues can arise often, which might affect the reputation of the company and of the product as well, and more importantly the market share of the company.

The Problems

Any materials or products of unacceptable quality entering the supply chain will affect not only the company using it, but also have a domino effect down the line. Rejections due to quality issues can delay shipment by extended periods, often weeks or months. If the rejection occurs at the point of destination, the customer’s ability to complete orders will be drastically affected.

The long back and forth shipment time for returning the materials to the source supplier will increase the delays exponentially. The additional packing and handling costs involved will be unacceptable. Carrying a high inventory to protect against this situation is costly in many ways, and it negates one of the key reasons for outsourcing in the first place.

A Solution

One way of eliminating this problem is to aggressively implement enterprise-class quality control systems at the outsourcing site. However, it involves, at least in the initial stages, collection of data, aggregating and analyzing it, and producing reports upon which action can be taken to resolve issues, and improve both quality concepts and control.  Industry data shows that this effort can reduce the cost of inventory write-off from outsourcing operations by over 5%, and increase revenues by over 2%. However, this effort is not easy and has in itself a huge cost.  The expenses can be so high that the benefits of the outsourcing may be called into question, especially if the process is a long drawn out one.

A Better Option

A more effective option is to start with an outsource manufacturer that has high quality standards and supply potentials to meet customer demands. To find such a supplier, look for the following assets:

Product Compliance:  The Company should be committed to a TQM program and certified to UL, TUV-Rhineland and CSA. The products it manufactures should meet IPC class 2 or 3 standards as desired by the customer.

Defect Reporting Policy: Defect reporting must be done at all levels, and employees should be empowered to provide feedback on the issues they come across. Beyond this, the management must be active in its response to any quality issues that may arise.

Employee Training: Employees should be properly trained to meet IPC Class 2 and 3 workmanship standards. Regular refresher training should be part of the policy.

Quality Certification: The Company should have all the required quality certifications.

Making the decision to outsource can be a difficult process. The idea of giving up control of key operational areas can be frightening, because many things could go wrong. However, it will be of immense help to you to partner with the right outsourcing company endowed with the skills, tools and credentials to inspire confidence in its abilities to meet your quality standards. Then you will never look back, and your business and your profits will always be on an upward curve.

The Benefits of Outsourcing Supply Chain Management

Managing a supply chain can demand a large amount of management resources. That is the reason why several companies tend to outsource their supply chain management (SCM) operations. If you have not yet given serious thought to the matter, here are issues that you should consider and a few reasons why you should.

What to look for from an SCM company

There are important issues that should be kept in mind when deciding on outsourcing SCM. A few important questions need to be asked and answered satisfactorily.

• Is the company able to provide you with a specific SCM plan that meets your needs? If not, you could be faced with unexpected costs and inventory shortages that could nullify the advantages of outsourcing the operation. 
• Is the company able to offer you realistic timelines that suit you? Look at the record of the company and check if it had been able to provide and meet supply chain timelines in the past. 
• Is the company willing to invest the time and resources needed to integrate operations? If there is any hesitation, the integration will suffer and this will affect not only the supply chain but also have a cascading effect on manufacturing and sales. 
• Does the company have the experience and knowledge to ensure material quality? If not, efforts to reduce costs could affect product quality and become very detrimental to your reputation and push down share price.

Freedom to focus on core areas

Although SCM is a critical link in any business chain, it takes up a lot of time and manpower. Efficient SCM will reduce costs but not generate additional profits, which is the core of all business. The resources saved by outsourcing SCM can be utilized for marketing, improving customer relations and developing new business plans and concepts. This is where profits will come from.

Minimizing costs

SCM is a very specialized field and how efficient it is has a huge impact on manufacturing costs. A specialized SCM company will be able to use expertise in the field and its business connections to manage your logistics in the most cost-effective manner. The benefits can include less expensive materials supply, improved inventory management and optimization of transportation expenses.

Ability to meet market demands

Resource crunches can affect the ability of a business to respond to the market fluctuations. Inability to offer more products or upgrade them to meet competition can have a major impact on share price. A professional SCM partner will be able to help in finding supply resources that can reduce the constraints and allow your business to be proactive in difficult times, and stay ahead of the competition.

Increased operational flexibility

An SCM partner will have extensive resources of its own which will be at your disposal. This can add to your business network, and often open up new operational avenues and allow you to improve your overall infrastructure.

Any form of outsourcing, especially that of SCM, is faced with an element of risk. The uncertainty can be resolved by employing a specialist organization that will be able to optimize your operations, reduce costs and ensure that materials are available in the right place at the right time.

The Advantages of Contract Manufacturing

As a factory owner or manager, you would probably have thought about contract manufacturing in the past. You would have probably asked yourself questions like the following: Is it safe? Is it cost effective? How do I ensure quality? and so on. To help you make the right decisions, here are a few of the many benefits of contract manufacturing.

The business model

The process begins with the hiring company approaching the contract manufacturer (CM) with a formula or product/component design. The CM will quote a price including labor, material costs, tooling and processes. Once the price, quality and other parameters are agreed upon, and safeguards put in place, the CM acts like an adjunct to the hiring firm’s factory, producing and, if required, shipping the product on behalf of the hirer.

Who uses contract manufacturing?

The demand for the services of Contract Manufacturers is growing exponentially both in number and types of industries using them. Among the major users are automotive, aerospace, computer, energy, semiconductor, pharmaceutical and defense and personal care industries. 

What types of work does a CM do?

The type of work a CM does is wide ranging, and includes casting, forging, machining, grinding, complex assembly and much more. The key is to find a CM with the capabilities and equipments to carry out what is required.

Cost savings

In an increasingly competitive environment, the cost benefit of contract manufacturing is hugely positive. The hiring company does not have to invest capital in setting up a facility and buying raw material and equipments. There are also savings in terms of wages, employee benefit and training expenses all of which are built into the CM costing.

Advanced skills

A CM usually commands a set of advanced skills and specializations that a hirer may not have and which are expensive and time-consuming to obtain.

Material procurement

A CM has the advantage of well-established business relationships with the materials suppliers required for bulk manufacturing which results in reduced cost of the end product and shorter start-up times.

Quality

A reputed CM follows his own high standards and methods of quality control. These can quickly be modified to meet the demands of the hirer to ensure that the final quality control meets the required standards.

Freedom to focus on core competencies

By outsourcing non-core production to a CM, the hirer will be able to renew focus on his own core competencies. In addition, he can now direct his management resources towards new business opportunities and markets.

Economies of scale

Because CMs have multiple clients for whom they produce, and may use the same raw materials and components, they can offer economies of scale which would not be available to a hirer on his own.

Finding the right CM

The relationship between a hirer and a CM is one of mutual trust and benefit. The hirer expects to get cost and other benefits from outsourcing production. The CM expects to have a long-term client for whom it is worthwhile to devote production and management resources. The key issue for the hirer is to find a CM capable of meeting the demands, which will free the hirer to work on other aspects of his business. A CM with a wide client base, years of experience and a reputation of meeting client requirements is the foundation of a mutually profitable partnership.

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What ‘Design For Manufacturing’ Can Do For Your Business

A customer sees a manufactured final product as a homogenous whole. But the manufacturer knows the vast number of small and big parts that have gone into the making of the whole. Each of these parts adds to the cost of the final product. Design for Manufacturing (DFM) is a method designed to minimize the complexity of the manufacturing operation and thereby reduce the number of parts required and the overall production cost, without compromising on either quality or functionality. In other words, DFM simplifies the manufacturing process and in doing so, reduces the production cost.

DFM provides the best answer to two key manufacturing questions:
 

• What needs to be added to the final product to increase its market?
• What can be removed without affecting market acceptance?

What DFM Does The basic aim of DFM is cost reduction and simplification of the manufacturing process, which is achieved by the following.
  

• Examining design changes and system modifications that will reduce material and labor costs, and overheads
• Finding ways to streamline the product development cycle
• Creating standards and practices that will reduce manufacturing costs

DFM does not produce miracles. It looks at “what is” and “what could be”, and finds ways to bridge the gap between the two. Product development is an ongoing process that continually upgrades what is sent to the market. In this process, modifications and changes are made time after time. The cost, both in terms of production and market acceptability is an important factor. However, it is often examined “on the fly.” Going back to the beginning to examine the cost structure will be too time consuming, which could affect production runs and prove to be costlier in terms of capital investment. DFM takes a holistic view of the manufacturing process at every stage to find cost effective solutions.

How DFM Works  

• DFM looks closely at the product cycle and manufacturing process and finds ways for the following. Standardization of materials and parts used
• Creation of modular assemblies that are economical to fabricate and easy to assemble
• Creation of designs for the maximum joining efficiency
• Minimization of the parts count and inventory
• Reduction of the amount of reorientation required during machining and assembly
• Reduction and simplification of the total number of machining operations in forceFinding and specifying acceptable levels for surface finishes that do not compromise functionality

What DFM Means to a Manufacturer

With DFM your manufacturing unit can expect the following. 

• Reduction of complexity
• Consistent quality in the manufacturing process
• Reliability of systems and processes
• Reduction of costs

DFM is a specialized field and the best way to incorporate it into your production process is to work with a company that has the expertise to give you the results you expect. Look for one that that has a value system that focuses on understanding customer needs and your own objectives. Working with them will provide solutions that have a tangible impact on both the bottom line and the market.