What to Consider When Choosing an Outsourced Manufacturing Partner
The resurgence of manufacturing in the US is creating many challenges for manufacturers: increasing capacity, hiring enough qualified resources and managing the supply chain are but a few. One solution that manufacturers are looking to is outsourcing some or all of their manufacturing for a short or extended period of time (Flexible Outsourced Manufacturing). Making the decision to outsource something as critical as your products is a serious one that may be precipitated by additional factors like an unexpected spike in orders or some physical constraint that can’t be overcome in short order. Regardless of how you get there, looking for an outsource manufacturing partner is challenging.
There are several factors to consider when looking for a partner: do they have the right process capabilities, do they have enough capacity and resources, and will they deliver appropriate quality? Let’s not forget one key factor: can they deliver at a price point that will allow us to be profitable? How can it even be possible for someone else to manufacture your goods, add on their own profit, allow you to make a profit, and still allow your product to be competitive in the market place. To understand the answer to that question (and to help you make a good make/buy decision), you need to look at the all-in costs of the products you are currently producing.
Look at this simplified breakdown of the elements that make up your unit price:
Each of these cost elements go into making up your selling price. And, each of these cost elements can be improved by you or by your outsourced partner. Perhaps your partner is in a location where the prevailing wage is lower, perhaps they do more volume with a particular vendor and can reduce material costs, and perhaps they process more shared volume through their facility and have much lower overhead rates. A good outsource partner will be able to carve out sufficient savings from your costs to allow for their profits without affecting your price to your customer. There is even the possibility that the right outsourcing partner can help you lower your costs and increase your profits. Instrumental to finding the right partner for you is knowing your own true costs and being willing to work collaboratively and openly with your partner on the margins of each cost element.
If you want to find out how the RG Group may be able to help with your outsourcing need, give me a call to discuss your options.