Outsourcing is an increasingly common practice in many industries, whether it’s getting contract machining done for a few components of your product or turning the entire manufacturing process over to an offshore facility. Most often, businesses outsource to reduce production costs. Is it always the right idea, though? Consider the following when deciding if your business should outsource.
What Outsourcing Can Save You
Cost reduction has always been the primary reason to outsource manufacturing. This comes in a few different forms:
- The overhead costs of owning and operating a manufacturing facility can be mitigated by outsourcing. This means needing less in-house equipment and less downtime for maintaining said equipment. Additionally, you reduce costs associated with utilities.
- Labor costs are also reduced by outsourcing, as you have less full-time employees on your payroll. This applies for both overseas production and turning to temporary agencies.
On top of reducing costs, outsourcing allows a company to focus its efforts and resources on sales, marketing, etc. instead of machinery that may become less relevant as product demands change.
A decentralized production line presents its own challenges, however. For starters, outsourcing introduces new costs and fails to eliminate some other costs. Shipping and distribution may now include moving product components around, and you need to locate suppliers and negotiate contracting costs with them. Overhead costs like insurance premiums aren’t reduced, either. Also, if you need small batches of specialized parts, contracts may cost too much to be worth it.
Outsourcing also means loss of control over aspects of manufacturing, especially when it comes to overseas production. Without this oversight, there’s not much you can do when a production batch goes wrong or the facility experiences downtime, and your R&D can’t provide quick feedback to the manufacturers when it’s necessary.
Ultimately, you need to weigh the costs reduced and the costs incurred by outsourcing—including costs that aren’t purely financial. Transitioning back to in-house production can be difficult if outsourced manufacturing doesn’t work out, so weigh your options before acting.