Five Reasons to Outsource (And None of Them Are Price!)
I know price often has been the key reason and certainly in the early days of outsourcing the business development managers of the contract manufacturers talked of little else. They spoke of reducing cost by lowering labor rates, often by moving to lower cost geographies. They spoke of reducing cost by leveraginge their scale and global spend. They talked about lowering costs by leaning out the business. And they talked about lowering cost by reducing indirect labor. So it’s not surprising that when Wall Street started talking about outsourcing it also talked about lower cost, driving even more companies to think about it in that simplistic way and too look for lower cost geographies in which to manufacture.
And how does this all end? It ends with an industry that has margins thinner than the silicon wafers at the core of most of the electronics they build and with OEMs that view their outsourcing partners as a way to lower costs rather than add value.
So, here are five reasons to outsource that add value to an OEM:
1) You’re a start up
This can often be the most compelling reason to outsource. If you’ve just invented the latest and greatest tech product, found your market through social media and got your seed capital through crowd-funding, why on earth would you want to invest in manufacturing and fulfillment when you can focus all your time on sales and marketing and creating the next version, the next operating system or indeed the next great product. Buddy up with a great outsourcing vendor that suits your needs or get in touch with a supply chain consultant who can support this part of the process. These well known outsourcing partners can also provide extra credibility with your funders, especially as you get to the second or third round of funding.
2) You’re launching into a volatile market
I think outsourcing can be at it’s very best when you’re unsure of the sustainability of your product or the length of the market window. Let me offer an example. Some years ago we all got very excited about solar power and the opportunities in that space. Many entered that market, many grew rapidly and many crashed and burned as the government incentives were withdrawn and the market tumbled. For me the right scenario for markets like this is to partner with a contract manufacturer who can ramp quickly to meet the current demand, then downsize and exit equally nimbly.
3) You’re entering a new geography or going global
Regions vary in many ways, not least in how they regulate themselves through legislation, regulation and taxation. If you’ve got a product that is enjoying success in your home market, growing nicely and in a controlled manner and you want to take that product globally, then get a partner. Why learn from your own mistakes when you can learn from theirs. It is extremely likely that a good global outsourcing partner has fulfilled product in that geography locally or through channels that work, they will have learnt how to deal with local import regulations, duties, taxes and approvals. They’ll also have a developed supply chain in the region that works and is economic. By all means keep manufacturing in your domestic market if that supports your research and development and your product knowledge, but leave the exploration to the contract manufacturers who have the critical mass and horsepower to do it.
With respect to going global, the same argument applies. You don’t need to scale worldwide when someone else who has done it before can do it for you, with your brand, your strong service and delivery promise and with the knowledge of every local market you might wish to enter.
4) You need help beyond pure manufacturing
Often it’s about so much more than just manufacturing. It’s about design, speed to market, the ramp up, the ramp down, direct fulfillment to your customers, repairs and spare parts, recalls, end of life logistics, the list goes on. In these cases the right outsourcing partner can be a font of knowledge and skill. Many support the design cycle bringing products to market faster than you could imagine, and with a supply chain that is ready for the demand as it hits and where it hits, and often with the regulatory approvals needed. If you product needs a recall, why would you scale quickly and deal with the logistical nightmares that surround an in-market failure when your outsourcing partner can take care of it all for you. Modern outsourcing partners, EMS, product fulfillment companies, supply chains solution providers, or whatever they choose to call themselves are very sophisticated operators, with so much experience up and down the value chain, that there isn’t too much they haven’t seen before and that they can’t provide a solution for.
5) You’re suffering from a quality or performance issue
This may seem a strange one but the bottom line is that these outsourcing partners are really good at making stuff. They've been doing it for ages and they have been doing it for the world’s most demanding end user – the consumer. They’ve learnt to make all kinds of things and helped to design and develop processes that ensure great quality, great delivery performance and a great customer experience. If your own manufacturing isn’t rocking and rolling the way you want it to, talk to someone who’s beening doing it for longer, has developed a lean, quality driven system of manufacturing excellence and has seen problems and solved them.
I am not one of those people that think outsourcing is the only way. In fact I could probably write another article entitled ‘five times reasons not to outsource’, but I can actually think of many more reasons to consider it beyond those mentioned here. I spend a lot of my time at the EMS factories and am continually impressed with the level of expertise, the quality, and the scale of what they do, but most impressive is the real desire to constantly improve the experience of their customers and end users.
If you haven’t already done so, take a look at outsourced manufacturing, supply chain or product fulfillment. These guys are really good at making and delivering stuff!