WHEN OUTSOURCING MAKES SENSE

As manufacturing organizations grow and/or change they need to be able to continually assess the efficiency of their operations.  It’s not unusual that at some point companies of all sizes will be faced with a decision as to whether or not they should invest in a new (or upgraded) operation on site or outsource that function.  Many different functions could be under consideration: mechanical assembly, machining, and PCBA assembly, are all fairly common examples where the opportunity for outsourcing deserves careful consideration.

CORE COMPETENCIES

Many companies have legacy systems that once were a small portion of their operation, but became embedded as the company grew.  Often times there is a triggering event that forces some introspection about those systems.  Most commonly the legacy system needs to be refurbished or upgraded in order to continue being effective.  At some point a decision will need to be made if this represents a core competency that must be held by the company or if it is something that can be more economically outsourced. One example may be that the company has a process of taking in cast aluminum parts and then performing a machining operation to “clean-up” the castings using a lathe. They also pre-drill some attachment points using a drill press. Given today’s modern CNC machining operations and multi-axis equipment with tool changers, it probably makes sense to have an outside contractor perform that task.

If, on the other hand, the company makes a lot of custom orders that require tight tolerancing or  if they also need special fixtures and make thousands of variations on their basic parts, it might make more sense for them to upgrade, install and operate a five-axis machining center in house.  The flexibility to provide customer-made parts on demand might be considered a core competency that they would like to keep in house.

In addition, teaming up with a contract assembly partner enables OEMs to tap into years of know-how and expertise. Contract manufacturers often have decades of experience with various products and industries. At RiverSide Integrated Solutions (RIS) product assembly solutions can include building subassemblies that are ready for installation into higher level assemblies. Other options include building complete products start-to-finish. We often find that our experience allows us to provide insights and recommendations that add value for our customers.

IDENTIFYING CAPABILITIES

While considering the merits of outsourcing, it is important to be clear about the expectations of what value a particular subcontractor can bring to your operation. Each contract manufacturer will be a little bit different, so it is a useful exercise to put together a “Minimum Requirements” document.  This would be an in-house assessment of expectations for the deliverables and capabilities of the contractor so that a fair comparison can be made as to whether they are a suitable candidate.  This document should also allow for the flexibility to consider capabilities or techniques where your company may not have expertise.

Take as an example, printed circuit board assemblies (PCBAs).  These are often outsourced since there is considerable capital investment, hazardous chemicals may be involved, there are often special handling requirements, certifications for various soldering techniques may need to be in place and so on.  As part of the process of assessing a particular contractor’s capabilities to support your requirements, they may suggest some approach that you had not considered, since PCBAs are not a core part of your business. Flexibility would allow alternative approaches for purposes of weighing the merits between competing suppliers for example.

In addition to capabilities, it could be useful to know if this subcontractor works in particular industries.  This may be of value if they are already familiar with the baseline requirements of industries that you currently serve for example.  They may also have insight into other adjacent industries that you would consider as possible market expansion areas.

RIS is an example of an integrated manufacturer. They execute on multiple steps of the supply chain including manufacturing assembly, kitting, distribution, and fulfillment.  Integrated manufacturers offer significant value for OEMs such as streamlining production schedules, improving the consistency and reliability of the final product, and minimizing the number of  vendors.

IT’S NOT ALL ABOUT THE COST

Considering the needs of your business, and knowing where you add value (the core of your business) is a key element to deciding when to outsource a function. Usually there is a cost savings, though not all paybacks are strictly monetary.  Sometimes gaining access to markets or improved technology or even a shorter lead time are desirable outcomes as well.

One last thing to discuss that is gaining in importance are issues of Intellectual Property (IP) and data security.  So much information needs to be exchanged in order to transfer manufacturing from one location to another that this is a growing area of concern. It makes sense to limit access to data that you will be sharing with the contract manufacturer, especially if it contains trade secret information.  One would want to ensure that there was also intellectual property protection for any inventions that may result from collaborative development that comes from your association.  A system for backing-up drives and maybe even a dedicated portion of a server to contain proprietary data are all things to consider.

SUMMARY

Outsourcing part of your business may seem a bit risky at first, but understanding why you should do it and establishing your expectations for doing so will go a long way toward making the transition easy.  To wrap up with a short checklist, here are some of the key things you will be looking for.

Non-core part of business Industry Knowledge
Years of Expertise Value added capability
Supply Chain Management Process Improvement
Scalability to meet your needs Data Security

Contact us today at (507) 523-3220 to see how we can help with your manufacturing project, or click here for a quote.

Summary
The Benefits of Outsourcing
Article Name
The Benefits of Outsourcing
Description
The decision to outsource certain operations, must be thoughtfully considered in order to ensure access to capabilities that help add significant value to the overall operation of your business.