5 Things Manufacturers Overlook When Deciding Between In-House Production and Outsourcing
Make or buy? This three-word phrase gives the illusion of a simple question with a simple answer. Any manufacturer who has had to make such a decision knows it’s anything but.However, reaching the best answer is critical to survival and profit. In times of economic and supply chain disruptions that border on chaos, “improving manufacturing performance can be one of the quickest paths to increasing gross margin and releasing cash”1
Unfortunately, outdated assumptions continue to prevent manufacturers from making optimal choices. Rate your “make or buy I.Q.” with the five questions below.
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How did you score? Read on to find out. |
Make or buy is not a single decision, but a series of choices that begin at the highest levels of strategic planning. Already, approximately three out of four companies see use outsourcing to drive business value. PWC’s Strategy& research on the subject warns: “Companies that take the myopic route will find that they’re continually implementing make-or-buy decisions that are reactive, or at best a short-term fix, and adopting operational solutions that exist apart from strategic planning or insight.”
In other words, no time is too soon to start discussing make or buy options. There is only too late.
When it comes to the buy option, your supplier provides a neat breakdown of how much you can expect to pay. Calculating the “make” price is much tougher and nearly always underestimated.
Designing, developing, manufacturing, testing… every step requires technology, facilities, expertise, and coordination. You bear the cost of anything that must be procured, whether it’s hiring people, setting up facilities, storing inventory or buying equipment.
Some manufacturers still forget to add existing resources to the total cost. Machines must be maintained, and salaries must be paid. Assigning work to your team to a new project may mean taking them off another.
Finally, there are the hidden costs which are notoriously difficult to calculate. How much are you really saving if the cheaper option subtracts from operational efficiency, product quality, timely delivery, security, compliance or any other factor that negatively affects sales?
Naturally cost is a primary consideration, but far from the only one. As we have seen, the make or buy decision stretches beyond the operational into the strategic. As such, the list of objectives has evolved to meet broad organizational goals. A recent survey found that in addition to driving business value, driving a digital agenda ranks among the leading reasons companies consider outsourcing.
How well would your company run with a single employee? Even if this individual were to have every set of skills, bank of procedural knowledge and qualifications required for each role in each department, there would not be enough hours in a day to cover everything your team does on a daily basis.
With the right contract manufacturing (CM) partner, outsourcing is little different from extending your in-house team. That gives you more control, not less. Not control over people – they are already able and driven to deliver – but over your options.
Outsourcing to an established and experienced CM gives you access to more ideas, technologies, methods, materials, machinery, and workers. Best of all, all these resources are scalable so you can adjust volume and timelines to meet your demands.
Now that is control.
Or rather, this should never be the case. If it is, you are working with the wrong partner. The right CM has their own reputation to uphold, and that in itself is heavily dependent on how much customers such as yourself trust them to:
In short, with the right CM, outsourcing is no riskier than handing over work to your own team.
So, how did you do? If you got all the answers right: Congratulations! You have the I.Q. of a Make or Buy genius.
If you answered TRUE to any of the questions: Congratulations! You now possess better, more accurate information than you did before taking the test.
Make the most informed decision by truly understanding the value a CM partner brings to the table.
While the right answer will vary from manufacturer to manufacturer and even from product to product, the ‘buy’ option is indisputably popular. In the US, 68% of companies rely on third parties to handle parts of their services.
What is certain is that you can only make the best decision for your company when you have all the information…. And a CM you can trust.
Want to discuss your “buy” options? Contact Providence Enterprise today.
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