Importance of Outsourcing to provide flexibility to Hi-Tech Manufacturers
Today’s global environment has placed increased pressure on Hi-Tech manufacturers to become more competitive and profitable. Global outsourcing activities have increased in importance and have increasingly emerged as a key strategic tool in achieving cost reduction, quality and delivery improvement, cycle time reduction, and improved responsiveness to customer, competitive, and financial market demands. It is estimated that a well planned and executed global outsourcing strategy can result in a cost savings differential of 15 to 25 percent when compared to manufacturing inhouse.
Using external suppliers to design, manufacture, ship and service products or components - has been a growing trend in recent years as Hi-Tech manufacturers have sought, among other things, to divest themselves of production capacity (and the inherent risks associated with owning capital equipment), lower their labor costs and maintain greater flexibility in the face of ever-shrinking product lifecycles.
Relationships between Hi-Tech manufacturers and their outsourcing partners typically run deeper than the "arm's-length" relationships that companies traditionally have had with their suppliers. The Hi-Tech manufacturer-outsourcing partner relationship normally involves long-term relationships to manufacture a family of parts or products; close working relationships on design, production engineering and quality; [and] collaborative inventory planning at multiple tiers of the supply network, with visibility into and influence over the supplier's supply chain operations.
Following key points need to be considered before deciding on outsourcing:
Core Vs Non-Core
It is very critical for the Hi-Tech Manufacturer to determine which products, components or services are non-core and thereby should be outsourced. The decision on the outsourcing would be case-by case and generally depend on the performance of outsourcing, compared with the in-sourcing one. Outsourcing provides low-cost but flexibility services, but in-sourcing keep the core-competencies in-house and provides the sense of belonging and self-control. Hence these should be proper analysis and deliberation before finalising the product, component or service to be outsourced.
Focus on the Relationship
Of course, technical requirements, capabilities and skills sets are, ultimately, something that either your own company or your outsourcing partner can acquire. So while these attributes are not unimportant in selecting among potential partners, the synergy between an Hi-Tech manufacturer and its outsourced partner should be the top priority.
Importance of Communication
As with any good relationship, the key to a healthy Hi-Tech manufacturer-outsourcing partner alliance is communication. It is very important to have an open and honest dialog.Both have strengths and weaknesses, and everybody knows what they are.There is a need to leverage the strengths and work around the weaknesses.
Put in the Right Collaboration Tools in Place Early
With communication a top priority and a precondition for maintaining the kind of healthy relationship that is sought with the company's supply base, it is important to recognize early on that both parties would need to put in place the necessary tools that would enable the required level of interaction between the Hi-Tech manufactuer and its outsourcing partners. Both parties may also want to ensure that it had the technology in place to protect its intellectual property even as it worked collaboratively with its partners to develop and produce products, components or serivces.
Be Flexible
The uncertainties in market conditions, the complex dynamics of relationships with outsourcing partners and the many other "unknowables" in an outsourcing exercise place a premium on an Hi-Tech manufacturer's ability to bend with the wind, when necessary, to keep the process moving forward rather than stopping to try to fix every glitch that comes up along the way.The bottom line is that, while a Hi-Tech manufacturer can outsource many separate functions, it cannot outsource management responsibility for a project, and the Hi-Tech manufacturer must be prepared to apply the same degree of executive-level involvement in an outsourced project - or an even greater degree of involvement - than would be the case for an internally manufactured product.
Comments
Nice blog. Yes I agree that providing flexibility to hi-tech manufacturers is very important. This is very relevant for the growth of both the outsourcing partner and the manufacturing company.
Posted by: Outsourcing Guru | January 23, 2009 5:48 AM
Very well said. Nice post.
Posted by: Nacho | May 7, 2009 8:54 AM