Outsourcing Manufacturing: What It Is and What to Know About It

Back in the day, production needs were often met in-house. However, in recent years due to shifting consumer demands and production capacity, organizations need to find new resources to cater to this need. This is where outsourcing comes in.

According to recent data by Statista, the global outsourcing market was valued at $92.5 billion in 2019. Segments of outsourcing include business services, healthcare, energy, retail, media, among others. One of the leading drivers for outsourcing services is to cut costs.

With the move towards globalization, outsourcing is seen as the most viable option for countless organizations on a global scale for several reasons.

What Is Outsourcing Manufacturing

Essentially, outsource manufacturing pertains to the process of hiring third parties, be it an individual or another company, to put together parts of or assemble an entire product. It can be anything from a prototype PCB assembly to one complete and functional laptop.

Cutting labor costs is the main reason why most companies all over the world opt to outsource their manufacturing needs. No doubt, labor takes up a huge chunk of any company’s budget.

Most often, companies who outsource a portion of their production line to a third-party manufacturing company see a considerable decrease in production costs.

Overall, it is more affordable for companies to outsource their production processes rather than produce them internally. With outsourcing, you can utilize assets that are already in place, taking off the burden of investing in fixed costs.

Why You Should Consider Outsourcing In the Manufacturing Industry

#1 Lowers Labor Cost

As mentioned, the number one benefit of manufacturing outsourcing is to reduce labor costs. Labor takes a significant portion when it comes to the expenses of a company.

Although there is broader humanitarian and regulatory compliance with outsourcing, it is the most viable option in the right circumstances.

With the right partnership, labor can be performed at a fraction of a cost. That is why most companies opt to outsource manufacturing to countries where labor is cheaper. Some of the most popular outsourcing country destinations are China, India, the Philippines, and other Southeast Asian countries.

Since companies can truly achieve real savings on production expenses, they can give their attention more to the core of their business.

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#2 Reduces Overhead Expenses

Many U.S. companies opted to outsource most of their manufacturing processes to eliminate the overhead expenses associated with manufacturing operation facilities on the stateside.

Overhead expenses cover utilities, salary, medical and insurance coverage, and maintenance required to operate equipment in the production.

There are also indirect labor costs that companies can eliminate with outsourcing. This includes equipment technicians, quality control personnel, material handlers, and shipping and receiving personnel.

#3 Offers Flexibility

Flexibility is another advantage enjoyed by most manufacturing companies that outsource their production.

Usually, contract manufacturers handle the production being outsourced. These contract manufacturers might be producing goods for two or more companies and even competitors in the industry. Due to the greater production capacities of these contract manufacturers, they can quickly respond to the increased production requirement.

Rather than the original manufacturer spending capital investment in new equipment to boost its production capacity, it shifts the concern of producing more goods to these contract manufacturers.

#4 Gives Focus

Some companies resort to outsourcing manufacturing when they undergo a significant paradigm shift. Once a company realizes its core competency or the thing it does best, it tends to pay more attention.

For example, when a company realizes that it performs much better in the sales and marketing of its product rather than manufacturing them, they tend to outsource the latter to a more equipped company.

With the manufacturing aspect outsourced, the organization can then focus its resources — financially and manpower speaking — on areas that help increase the bottom line.

#5 Caters to Demand

Outsourcing is an excellent solution for addressing the surge of demands for various types of products. There might be instances where companies experience a sudden increase in orders of a certain product and thus need additional resources to keep up with the demand. With lacking production resources, the company is definitely doomed to fail to fulfill the obligation.

But the outsourcing company can supplement these in-house manufacturing concerns, alleviating the stress and making it easier to meet demands.

#6 Promotes Innovation

Outsourcing that fuels innovation in the company.

Not every company has the money, time, and resources that permit it to create new pieces or items. With access to outsourcing manufacturing companies, it is much easier to do production-related functions without allocating the company’s internal resources.

If a business decides to handle all of its production processes internally, it will likely meet inefficiencies along the way. Through outsourcing, though, you are ensured that the manufacturing and production process is handled by experts who will provide you with top-notch results.

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