Is outsourcing the right decision for your company? Which countries should you outsource from India, China or Vietnam? How do you manage a relationship with an overseas supplier?
It is wise to consider the entire supply chain including the manufacturing requirements before deciding where to do the manufacturing—internally or externally, and consequential impact upon your organization shall also be seriously evaluated in the following aspects.
To make a competitive inhouse manufacturing, you need to consider:
√ Are your employees also up-to-date and trained on all the manufacturing processes that could add value to your products?
√ Which products or which manufacturing process is your core competence?
√ Has your production team chosen the most suitable production process?
√ Is automation of production fully explored?
√ Has the lack of skilled workers affected your business growth? In the U.S, before the COVID-19 pandemic struck, U.S. unemployment rates were holding
at historic level, as manufacturers faced some of the toughest hiring challenges ever before.
√ Have you ever experienced unmanufacturable design on which your team spent a long time, only find out that your design was not manufacturable?
√ The costs of employee benefits and wages as well as acquiring new employees continue to increase, and the salary is the biggest cost of your
organization's expense.
√ Hiring and firing is an ongoing challenge due to business fluctuations.
√ Is your capacity affecting business growth? Could your production team handles a large influx of new order?
√ Do you have the physical space to accommodate a sudden increase of a big order?
√ Cashflow associated with business change which has an enormous impact upon your business. Are you planning to focus more on your core competency
like RD and marketing, thus you need to free up some cash flow to grow your business?
While outsourcing sounds easy but it has lots of tricks, and it is vital for you to seriously consider following aspects before jumping into a conclusion to go for outsourcing.
√ Do you have a process in place to evaluate potential suppliers?
√ Do you plan to use multiple suppliers to perform different services, such as machining, metal welding, metal forming, metal surface treatment and
packaging? Is it possible for you to manage all these suppliers all by yourself?Having multiple suppliers working together to produce your components may
offer a lower total piece-part price than one supplier who offers multiple services, however, it actually means more work on your end like managing multiple
suppliers, timelines, purchase orders and invoicing. The benefit of saving cost might be totally offset by myriad of challenges that arise when you work with
multiple suppliers.
√ Does your product has unique design which needs strict protection?
√ Can you achieve reasonable cost saving by outsourcing?
√ Does your supplier have a strict quality control process in place?
√ When you consider outsourcing, you need to consider supplier's capability to expand with you both in volume and their technical capability.
√ Outsourcing full cost vs full cost by in-house manufacturing analysis. Are you looking for a way to decrease expenses to free up capital for growth? It can be
tough to decide between labor costs or outsourcing costs. On one hand, you can control and manage the labor, and on the other hand, you have to trust the
outsourced supplier who can really take care of quality.
√ Cultural differences may be an issue, and people's perception of your world and their values might differ from one country to the other. This, lingual and
other barriers can become an issue when hiring an agency or a freelancer from a different part of the world.
√ Longer supplier chain means greater possibility for errors
√ Safety stock, and you certainly need to have a safety stock for servicing your local customers.
In reality, when your business is small and less complex, outsourcing does have very obvious financial advantages. Yet, when your business gets big and more complex, the outsourcing complexity also scales up. On the other hand, manufacturing in-house is a significant investment and a strategic decision, and it's really wise to turn to experts for accurate budgeting covering facility costs (to rent vs buy), human resources (new laborers and supervisors on staff), equipment, legal costs, and finally, financial reporting (segmenting out the manufacturing department to monitor the true cost). Full analysis on outsourcing and in-house manufacturing will provide you with long-term flexibility, cost savings, and lower risk.
There are also other big factors which you might have to consider like pandemic impact upon global supply chain, unexpected government sanctions and geopolitical tensions.
After thinking through all these preconditions, let's take a look at benefits and disadvantages for inhouse manufacturing and outsourcing.
The Advantages of Subcontracting or Offshoring to China
√ Reduce substantial overhead costs such as shipping and receiving, personnel, material handlers, equipment engineers, and quality assurance personnel.
Plus, there is very low or no infrastructure costs (no fixed capital expenses including the original cost of equipment), zero equipment maintenance costs,
lower material costs.
√ Makes it possible for you to stay focus on what you do best, and resources are not wasted on trying to learn the manufacturing process or the countless
mistakes that come from learning a new skill.
√ Parts can now be designed in the U.S. or Europe, and manufactured in Vietnam, India, or China, and then sold worldwide.
√ Manufacturers in Asia, specially in China are equipped to handle changes in demand, and plenty of suppliers available to supplement a sudden change.
While this fluctuating situation can be rather costly to an in-house manufacturer.
√ Manufacturing capacity can be scaled quickly by hiring skilled labor and adding workshops, it can almost be done overnight in China.
√ Businesses owners can focus on other aspects of their companies. Business owners who opt to manufacture their products overseas can focus on
marketing, promotions, product development, brokering new deals and various other important aspects of their businesses.
√ Working with overseas manufacturers gives you access to personnel and resources to remain competitive in the marketplace, and it will give smaller
companies the opportunity to partner with production specialists to make premium quality products. Lower labor costs in China. Companies can reduce
costs between 20 percent and 50 percent by outsourcing to China, and the wage runs 600 USD to 1000 USD per month in developed provinces in China.
√ Super infrastructure facility in China as China invests 20 percent of its GDP in infrastructure for many years, and the World Bank ranks China 26th out of 160
countries in its Logistical Performance Index.
√ High quality production equipment, most people are surprised to learn that many Chinese factories use top notch machine from Japanese, German,
Switzerland and Finland.
Advantages of inhouse manufacturing
√ Better communication. As it is easier for the members to maintain strong communication under the same roof.
√ Quality assurance. With an in-house production team, it is easier to control the quality on a consistent base.
√ Strong sense of security. According to the Harvard Business Review, employees like the feeling of stability at work, and the fact that they have health
insurance, paid vacation days, and other perks helps as well.
√ By inhouse manufacturing, you're not only saving money on logistics costs but also saving time in the production process, and your products can reach the
customer quicker.
√ Possible to implement just-in-time delivery strategy to provide better customer service.
√ Creating more jobs for your local community if choosing to inhouse manufacturing your products.
Fabmann has started serving European and N. American clients since early 1990's, and we understand our client's concerns. That's why we've put strict production control as our first priority, and also focus on timeless communication with our clients to make sure that our production activity and product development meets their expectation on consistent level. It's been a tough period ever since the outbreak of Covid19, we have been trying very hard to keep our price with minimum increase though the material price such as steel, aluminum and stainless steel has increased 50 percent to 100 percent since May 2020, and at the same time we are doing our best to deliver on time.
