The U.S. Bureau of Labor Statistics (BLS) defines outsourcing as “the movement of work that was formerly conducted in-house, by employees paid directly by a company, to a different company.” If that “different company” is located in a country outside the U.S., “outsourcing” becomes “off-shoring.”
Outsourcing production can have some advantages for a new start-up product provided there are existing suppliers qualified to manufacture the items to your specifications. Control over the new product can be documented in contractual agreements. It is always a good idea to have more than one supplier, if possible, to ensure you can meet your product delivery demands.
Outsourcing also means you would not have to invest heavily in developing your own infrastructure. Your market research and your business plan should give you a basic idea of your potential sales volume and selling price, from which you could calculate a break-even point in terms of recouping your initial investment when you switch to outsourcing.
When outsourcing, look for suppliers who are credible in the field and compatible with your needs, remain flexible as needs change, have the skills you need, can save you money and offer the quality of service you need.
Here are some advantages of outsourcing
Financial benefits—Clean up your balance sheet by eliminating assets, and have a more stable cash flow.
Strategic optimization—Think about your company’s core mission and whether it is relevant to continue certain operations.
Better management of the outsourced activity—In theory, you can choose a supplier that is a leader in the field.
Market discipline—You can align your costs with those of suppliers in the field.
Technology—In theory, you gain access to state-of-the-art technologies.
Flexibility—The resources no longer used in one area can be redirected to the company’s core operations.
China has advantages when it comes to manufacturing over other Asian countries. One reason for this is the experience and education the country has in delivering products that adhere to the rigorous standards that are required by both western legislation and consumers. Chinese labor is also significantly cheaper than Indian markets for example, where rapid inflation is making it harder for Indian companies to compete on price alone.
In business we are always told that we should focus on our core competencies. What does that mean? You should consider what your business has that is unique over its competitors. Is it an idea for a product, an ability to offer cost-effective solutions or even an intricate understanding of a certain sector? Whatever it is that your business has core competencies in, it is important that your business highlights them in what it does in-house and out-sources the other aspects to companies that have special skills.
If you are manufacturing in a western economy then you should ask yourself why. Why are you using an in-house workforce that may be 10 times more costly than what a Chinese company may be able to pay? Why are you focusing on manufacturing when time could be better spent on sales, marketing and business development?
To get answers and information about outsourcing production, call Baysource Global at (813) 251-4184.