Many businesses consider outsourcing product manufacturing to cut down on manufacturing costs. It can be difficult to know whether to outsource manufacturing, so we’re here to break it down for you.
It is a good idea to consider outsource manufacturing if:
Lowered overhead and manufacturing costs will improve your bottom line
In many cases, the lower overhead and manufacturing costs can save you quite a bit of money, which is good for business in the long run.
It’s easier to establish manufacturing abroad
Ease of establishment can be much easier in countries outside of the United States. Furthermore, when outsourcing, there are often special companies that can help guide you through the entire process and set up operations, including considerations like site selection, build-out, and licensing.
You will be closer to resources
In some cases, outsourcing manufacturing can give you closer proximity to resources needed for manufacturing. Of course, this will depend on what you are producing and the resources needed to produce it. But overall, if there is better access to resources in another country, outsourcing could make sense, helping reduce the cost of production by reducing ancillary shipping costs.
It isn’t a good idea to outsource manufacturing when:
Your manufacturing process is unique and you don’t want to leak the secret to competitors
It might sound far-fetched, but in some cases a unique manufacturing process or secret recipe can give companies a competitive advantage. In this case, you will want to keep your secrets close to home. For example, Coca-Cola would likely never outsource its manufacturing process and risk the security of its recipe. After all, if all soft drink companies knew how to manufacture Coca-Cola, Coca-Cola itself would lose its competitive advantage. There would be nothing distinguishing Coca-Cola’s product from that of its competitors.
It’s too costly
Outsourcing is an excellent way to keep manufacturing costs down. But if outsourcing product manufacturing is going to end up costing more, there is really no point in doing it. It’s critical to consider all of the costs associated with outsourcing, including the expenses and risks associated with finding and managing suppliers, obtaining quotes, negotiating, verifying performance, etc. Labor costs and overhead costs might be lower, but that doesn’t mean there aren’t other costs to consider. Before you take the plunge into outsourcing, make sure you’ve analyzed the bottom line.
Pivot International is a product design, development, and manufacturing firm with strengths in software development, electrical engineering, mechanical engineering, and industrial design. If you are interested in engineering a new product or updating an existing product, contact us at 1-877-206-5001 or request your free consultation today.