Outsourcing: Offshore Outsourcing

There are many cost advantages of doing so but some products just may not be good fit. There are many factors outside of cost that need to be quantified and understood. Here are some of those factors:

1) This is what I term the ‘stability and repeatability’ factor. If a product has a minimal amount engineering changes (ECOs) made to it, then it is referred to as a stable product. A repeatable product is one where an individual unit will pass a test repeatedly with the same test results. Test results between units will also be in a relatively narrow range. If your product is neither stable and/or repeatable, then it may not be a good candidate for outsourcing offshore. This is also referred to as product maturity.

2) The cost of logistics needs to be factored in to the overall cost of the product. Shipping by sea carrier is preferred but will add many weeks to delivery time (and will stretch the inventory pipeline as well). Airfreight can be cost prohibitive if your product is very heavy or bulky in nature. You also need to consider the broker fees, taxes and duties that will be incurred as well.

3) Language with a foreign country can be an issue. Most countries use English but there may be misunderstandings on what was said or written. I have gotten into a habit of having the person I am speaking with to always repeat back to me what I said so that I know and they know what I initially said. The same goes for email as I request for them to email me back what I have instructed them to do and to ask questions if anything was unclear.

4) When making a schedule change, it is much more difficult for an offshore CM to respond to the change due to the extensive inventory pipeline.

5) Be cautious about sending sensitive or proprietary information offshore, as it can be hard to enforce non-disclosure agreements.

6) Flying overseas, staying at a hotel and eating out daily can be costly when you have problems that cannot be solved by phone or email and require you to travel to the outsource provider.

7) High volume manufacturing is an important part of the offshore equation. Offshore CMs like high volume of the same product with little variation. If your volumes drop for whatever reason, you may have to pay a higher price and ultimately be forced to move your production elsewhere.

8) Product complexity is important in that relatively easy products to assemble will yield the highest net cost savings. Complex, highly engineered units on the other hand may still be lower in cost but may require more capital-intensive equipment to manufacture with which will reduce the net cost savings benefits. It will also require more training for you to provide to the CM, which usually means more overseas travel, phone calls etc.

9) Engineering changes will be extremely hard to manage especially complex ones. The long inventory pipeline makes it very difficult to manage this effectively.

As mentioned earlier, while this discussion on offshore manufacturing may be premature, it is worth mentioning that at some point in time, you will need to consider where and how your product will be manufactured. Picking the right CM is just as important as making the right design decisions. A good CM can be very good for your company. The flip side of this is not so good and can be costly to you. Choose wisely. Return to Outsourcing