Also known as contract manufacturing, outsourced manufacturing is a business practice in which an organization contracts a third party to produce components, goods or products on their behalf. The hiring company leverages the contract manufacturer’s resources and expertise instead of establishing a new manufacturing operation. This concept is attractive for many companies, but is it viable for you?
Outsourced manufacturing can translate into various industries, including electronics, consumer goods, automotive and pharmaceuticals. The decision to outsource is strategic, and its success relies on open communication, collaboration and continuous evaluation. Here’s a guide to help determine if outsourcing manufacturing is the best use of your time and money.
Table of Contents
- When Should You Outsource Manufacturing?
- Benefits of Outsourcing Your Manufacturing
- Invest in Reliable Outsourcing at PBZ Manufacturing
When Should You Outsource Manufacturing?
Deciding whether to outsource your production depends on several variables related to your current operations. These include a cost analysis, your production requirements and how much seasonal demand impacts your current capabilities. Outsourcing may be valuable for your company if you answer “yes” to the following three questions.
1. Can an Outsourced Company Provide the Product at a Lower Cost?
As always, the most critical question in doing business relates to your bottom line. Will outsourcing provide you with better financial outcomes to offset its expenses?
In most cases, outsourcing your manufacturing means reducing company labor costs. Outsourcing enables you to be efficient with your production labor. Outsourcing also cuts down on the many overhead costs of manufacturing operations, such as gas, utilities, water, electricity and maintenance.
Manufacturing equipment is a significant purchase for any company and may or may not offer a positive return on investment. Outsourcing manufacturing minimizes capital expenditures by eliminating the need to invest in large machinery for your facility. In turn, you can use the freed-up capital in other areas of your business.
2. Can a Manufacturing Partner Meet Your Quality and Production Standards?
Even if outsourcing is cheaper for your company, your manufacturing partner must meet or exceed your product quality and production expectations. If you are wondering how to outsource manufacturing, clearly define your production and quality standards, documenting specific requirements, lead times and quality benchmarks. It is also wise to vet the company’s compliance and certifications, like ISO 9001:2015 for quality management systems and other best practices. Additionally, determine how this company will protect your intellectual property, enabling you to continue delivering high-quality goods to your customers.
Before hiring a contract manufacturer, verify that the company maintains the following values.
- Quality control processes: You must understand how they test and inspect products to ensure they adhere to your quality standards. When you inquire about this, ask about documentation and reporting as part of the process.
- Technology and equipment: It is a good sign when your manufacturing partner employs up-to-date and well-maintained equipment to support efficient production processes and consistent quality.
- Communication and transparency: Your manufacturing partner should be responsive and open to your queries. It bodes well if they share progress information, challenges they encounter and real-time data with you.
- Turnaround time: Assess their production capacity and scalability options to ensure they can handle your production volumes, even those based on seasonal demand, without compromising on timelines or quality.
3. Are You Dealing With Large Product Volumes?
It’s helpful to consider your product volume needs before outsourcing your manufacturing. If your company produces small volumes, you likely have the personnel and resources necessary to maintain production. As demand grows, you might require additional resources to keep up with higher order volumes.
If your current manufacturing strategy can’t handle larger volumes, you should consider outsourcing to supplement your resources and better meet rising demands.
Benefits of Outsourcing Your Manufacturing
When you outsource to a manufacturing partner, your company will experience all the following advantages.
- Lower overheads: You can expect to cut back on equipment, general overheads and labor costs, as outsourcing is more cost-effective than in-house manufacturing.
- Reduced capital investment: Outsourcing eliminates the need for capital investment in your organization’s manufacturing equipment and infrastructure.
- Greater scalability: Working with contract manufacturers allows you to scale production up or down to meet changing consumer demands.
- Risk diversification: By diversifying the amount and location of manufacturers, you gain more resources and less downtime if the supply chain meets any challenges that lead to a shutdown.
- Focus on your company’s mission: Outsourcing lets your organization focus on core competencies like marketing, product design and sales.
- Access to industry knowledge: As new stakeholders in your supply chain, your contract manufacturers will have specialized knowledge and expertise in their field. This insight can result in higher process efficiency and product quality.
Invest in Reliable Outsourcing at PBZ Manufacturing
Outsourcing offers various benefits, including cost savings, flexible production schedules and access to specialized expertise. To determine if this business model fits your organization, you should thoroughly evaluate the manufacturing partner’s capabilities, reputation and certifications. In doing so, you can align your business decisions with your long-term goals and ensure a successful partnership with a production facility.
If you’re looking to lower production costs and increase efficiency for your company, consider outsourcing with PBZ Manufacturing. Our team of certified welders has the knowledge and skills to take any manufacturing project from conception to completion. Our full-service metal manufacturing company has a wide range of capabilities, including engineering, finishing, assembling and shipping, making us your one-stop shop for outsourced manufacturing. Contact us today to learn more about our services!
Updated November 28, 2023