Do I need to consider outsourcing as a way to help my business grow?

1) Lower overall costs in manufacturing

2) Reduced capital equipment expenditures

3) Very good quality

4) Flexible work force personnel

5) Shorter time to market

6) Increased efficiency

7) Startup can focus more on core competencies

It seems that just about anything can be outsourced these days. Everything from information technology, to software development, design engineering, manufacturing and even health care are all possibilities. The choice to perform operations internally or move some if not the majority to an external supplier requires serious thought and consideration. Even during the startup phase, consideration should be given to it as a way to get your product to the market as quickly as possible.

When considering to outsource, cost should not be the only driver in this decision. Many companies view quality as their top attribute when moving forward with an outsource partner. Having good quality will equate to an overall lower cost of doing business with an outsource provider. Strategically, this is key because a low cost supplier may not provide the best quality that you need which could result in a higher return rate for example, which in turn could lead to a loss of your customer base.

Once you decide to use a contract manufacturer, two of the key considerations is to whom you outsource with and where would this manufacturing take place. A term called ‘offshoring’ is now common where companies outsource overseas to places like China, Malaysia or India to reap all of the economic advantages of doing so. Even though it may be viewed as premature to discuss offshoring in the startup phase, I will highlight some of the issues surrounding offshoring. View Outsourcing Offshore

Please note that before you exchange any important information with your potential outsource provider, get an NDA (Non-Disclosure Agreement) signed by both parties.

I have been using the outsourcing model for over 15 years, from design to total turnkey manufacturing. In the startup phase, I have used some smaller organizations to perform my prototype builds as they are typically more flexible, can assemble product very quickly (three to five day turn time is not unusual), are usually located within driving distance and provide good quality at a reasonable cost. These particular factors were important to me because I needed to get the prototype units into the design engineer’s hands quickly. Use of contract manufacturers can satisfy many needs including immediate, near term and long term and these needs most likely will change during the evolution of your startup. My long-term strategic focus was to find a contract manufacturer to be able to provide an entire turnkey solution. My immediate need was to find a contract manufacturer that was local to us that could perform relatively quick-turn prototyping for us. Do not get hung up on a ‘one size fits all’ solution here, as there are many options to getting your product built in a timely fashion. As I worked with the local contract manufacturer, I was also investigating strategic, long-term partners at the same time.

Outlined on the following pages is a step-by-step approach on how to select and successfully work with a supplier or contract manufacturer:

1) Benefits View Benefits

2) Selection criteria View Selection Criteria

3) Documentation needed View Outsource Documentation

4) Measuring performance View Performance

5) Communication View Communication

6) Intangibles View Intangibles

This is a sample supplier evaluation form that would be sent to a contract manufacturer for them to fill out and return to you. View Supplier Evaluation Form

In short, I like to treat each working relationship as a partnership so that it becomes a win-win situation for both you and the supplier. When I consistently receive good quality product that meets schedule at a reasonable cost, I in turn, will refer associates and colleagues of mine to these same suppliers.

While issues invariably arise, you should work together to solve them and not point fingers. Suppliers and CMs really do want to help you and your business grow as it means more potential business for them.