In manufacturing, prices are always under strong pressure. To maintain your competitive position, it can be a smart move to (partly) change strategy: from making everything yourself to outsourcing. Important here is not to lose sight of the continuity of your business.
In this article, we will discuss considerations regarding outsourcing without jeopardising the continuity of your business. So not so much about the business economics (cost price, quality and delivery time) aspects of it. For this reason, this article applies to various types of contract manufacturing: outsourcing, offshoring, reshoring and so on. After reading this article, you will be in a better position to make an informed choice in the field of outsourcing.
For the sake of your company's continuity, it is important to adopt the right outsourcing, single/multi sourcing strategy. But this requires an analysis of your supply chain first.
Supply chain
Outsourcing made parts requires more know-how than ordering bought parts. After all, the parts are customised to your specifications. It is therefore important to gain an understanding of your supply chain with regard to material, semi-finished products and process.
- Materials
For example: What about the availability of the materials to be used? Or is there only one material from a particular manufacturer that is suitable? This may be an issue if castings made from a special alloy are required. - Semi-finished products
Availability of semi-finished products, dimensions and tolerances. Where production is geographically dispersed, standards may vary. Examples include differing tolerances for sheet material, extruded parts, etc. - Process
Are the manufacturing processes available from multiple suppliers? If specific tools are required for production, the barrier to multi-sourcing can be high.
Forms of outsourcing and its relation to your business security
Single Sourcing
In this situation, you engage with just one supplier. As said, it is about outsourcing work in such a way that the survival of your company is assured.
There can be two situations in single sourcing; 1 balanced and 2 unbalanced.
Balance
In a balanced situation, the relationship is equally important to both parties. This mutual dependence fosters mutual respect. Both parties have a strong interest in a well-functioning relationship and will therefore ‘go the extra mile’ compared to with other customers or suppliers.
The buyer will be able to make better agreements with the supplier on costs, or cost savings, because it is in both their interests that the product is successful in the market. The supplier will be willing to provide more insight into the costs.
TIP 1:
Ensure you have sufficient buffer stock to cope with any disruption to the relationship. Draw up a contingency plan setting out contact details for subcontractors and any moulds.
Imbalance
This is the case when there is no balance in the mutual relationship. For example, you are dealing with a supplier on whom you are entirely dependent for a particular product. These are unique products that only one company can supply. In this situation, you are the weaker party and have to accept the terms set by the supplier.
TIP 2:
Try to adapt the product design in such a way that other suppliers also have a chance of success. In doing so, you are adapting your strategy towards multi-sourcing.
Conversely, the situation may also be such that your supplier is completely or largely dependent on your turnover. So much so that it may run into problems when turnover changes. So if your outsourcings drop sharply due to circumstances, this can have a disastrous impact on your supplier.
TIP 3:
Ensure you have sufficient buffer stock to cope with any disruption to the relationship. Draw up a contingency plan setting out contact details for subcontractors and the tooling.
So in both these cases, there is no balance in the mutual relationship and multiple sourcing is probably wiser. In these, it is strongly advisable to adjust the strategy to balanced single or multi sourcing.
Multi sourcing
One solution to the problems that arise with single sourcing is multi sourcing. Multiple parties are required for the creation of your product with regard to materials, semi-finished products and processing. You have the most certainty with regard to delivery of goods and thus continuity, but on the other hand you do not enjoy the advantages offered by single sourcing.
Conclusion
Single sourcing may be a good strategy for your company despite dependence on your supplier. Should this not be desirable, multi sourcing is the alternative.
In all cases, it is good to get an understanding of your supply chain.
Copyright: Jan van der Donk
Image: Getty Images
