Outsourcing Manufacturing and Why it Can be a Game Changer for Your Business

By Brandon Burke posted 07-08-2020 13:26


Deciding to outsource your manufacturing is a leap of faith, more businesses than ever are electing to take. By hiring another company to make parts, assemble products, or make them from scratch, a company can save a lot of money and have more products on hand to sell.

The benefits of outsourcing your organisation’s manufacturing

The primary reason business owners seek to outsource production is cost-cutting. It helps the company convert fixed costs, such as labour, into variable costs, thereby reducing spending. Additionally, outsourcing can lead to more efficient production processes, meaning that the company’s product output increases, making more stock available for marketing teams to sell.

The next reason for the outsourcing of manufacturing is the strategic benefits it offers. Senior managers can focus on the core business of the company and allocate employees accordingly. With the burden of supervising production off their shoulders, they can work on growing the company.

The risks of outsourcing manufacturing

Turning the task of production over to another company can be a risky move. Suddenly, supply chain management, production quality, and logistics are placed in the hands of someone else. It can be hard to let go and trust someone else to maintain the company and product’s reputations.

Additionally, most outsourcing occurs in faraway places, like Asia and Latin America, especially for companies wanting to take advantage of lower labour costs. It’s impossible for the business owner to physically supervise the manufacturing to see that everything is on track.

The best way to protect the business is to set up watertight contracts that ensure all manufacturing requirements are met. At Net Lawman, you can browse an extensive library of legal documents, including manufacturing contracts to find the right one for your company’s context. The documents are editable, making customising them convenient. The company also has a legal team that can scrutinise the final contract to ensure its legal veracity.

Tips for outsourcing manufacturing

When you start looking, you’ll likely find dozens of manufacturers that want your business. However, since you’re entrusting them with such a valuable business function, you need to check each one thoroughly.

You need to have a sound understanding of the manufacturer’s facilities to ensure that they are large enough, well cared for, and meet your technical specifications. Next, find out whether the manufacturer has the necessary certifications and authorisations to produce your product. 

Examine the production and quality standards the company adheres to, to see if they conform with yours. Will the contract manufacturing organisation (CMO) adjust its systems, processes, and procedures to meet your requirements? Finally, evaluate the costs to see the true nature of the savings to factor into your decision.

Create an invitation for proposals

Once you’ve narrowed down the list of potential CMOs to those you feel can meet your needs, invite them to create a proposal for the company to evaluate when choosing which company to work with. To find out if this business is a fit with yours, start by providing the necessary information.

This includes an introduction and background information about your company as well as the exact manufacturing requirements you want the CMO to meet. Detail what the selection criteria you intend to use in choosing a CMO are and provide the bidders with timelines for production and delivery.

The CMO will use your instruction to draft a proposal that will meet with your approval. Beware of companies that will tell you what you want to hear when they cannot deliver what you need. Before committing to a CMO, an on-site visit is advised.