There are a variety of reasons why a manufacturer may choose to outsource parts of their operations, from not having the technical expertise to being at capacity and needing immediate relief. Regardless of the reason, the decision to outsource shouldn’t be taken lightly and several important considerations need to be made related to outsourcing, which is why we recommend evaluating the five major factors below when deciding whether to outsource a process and develop a manufacturing partnership.
5 Factors to Consider When Outsourcing Your Manufacturing Operations
Moving manufacturing operations to a new location can cause lots of logistics pain and could create unforeseen nightmares if plans aren’t in place beforehand. And if the operations being outsourced are in the middle of a given manufacturing process, then there must be a plan to deliver the products, as well as a plan to receive the products. Flow rates will change, lead times will increase or decrease, transportation expenses will rise, and the entire supply chain will be more complex. All of these changes affect the value of the supply chain and must be considered before deciding on a manufacturing partner.
If the operations to be outsourced are at the beginning or at the end of the product manufacturing process, then new logistics factors must be considered in addition to those previously mentioned. Raw materials suppliers may have to take new considerations into account; warehouse locations may have to move, and it might make sense to build new distribution centers.
2. Tariffs, Customs, & Other International Issues
Taking operations overseas isn’t nearly as easy as manufacturing domestically. Tariffs can drastically increase the cost of products and cause much disruption in the supply chain. Unfortunately, the tariff landscape can change quickly and both current and future political climates should always be considered.
Customs should also be considered, as they differ from country to country and may cause delays in a supply chain. Consider working with experienced international logistics partners to streamline processes and ensure everything is done properly because every country handles imports and exports differently (check out this list of uncommon customs rules). Consequently, it’s extremely important to do your research on the country where operations may be outsourced to.
3. Work Instructions
To properly outsource an operation, it must be scoped clearly and the new manufacturing partner must know what’s expected of them. Expectations must be laid out in a statement of work, but a that alone isn’t enough. A set of complete work instructions which thoroughly explain how these manufacturing operations are executed needs to be included. These instructions allow the supplier to immediately begin their tasks and seamlessly integrate their operations into the current supply chain, improving both the quality of work performed and communication.
Quality could arguably be the most important factor to consider when deciding to outsource. Quality can be hard enough to control in-house; however, when operations are outsourced, quality control becomes exponentially harder. It’s critical that you assess a potential manufacturing partner’s quality standards and understand how they’ll observe, track, and report on quality.
Quality is more than just a manufacturer’s certifications and standards, and can be observed by doing things like taking plant tours, looking at other projects the manufacturer is working on, and understanding their organizational culture. Quality standards and expectations are different from company to company and each product they produce, so when outsourcing it’s important that there’s agreement on all quality discussions.
While outsourcing demands vigilance and observation, it does provide the unique opportunity for manufacturers to upgrade their quality. For instance, if a manufacturer can’t fabricate a product to the necessary tolerances or if there’s not enough technical knowledge to perform specific tasks, then it could be possible to communicate to the potential manufacturer how making changes will improve their quality standards and would benefit them in the long term and open the door to future business. Quality control is still difficult as the supply chain becomes more complex, but with proper attention and diligence, there are opportunities to improve overall product quality.
It should be assumed that communication is required to outsource, and therefore how this communication happens is vital to a successful partnership. If a potential manufacturing partner is in another time zone, will that affect communication? How big is the time zone difference? If the partner is an international partner, are there language barriers? Are there cultural barriers which could prevent communication? Is the potential partner interested in your project? How natural are the conversations with the potential partner? Do they express competency and knowledge? How frequent are the conversations with the potential partners? Do they respond to emails in a timely manner? As a result, communication habits should be closely monitored. If the potential manufacturing partner is already poor at communicating during their sales process, it’s only bound to get worse once the actual partnership begins.