What is the concept of outsourcing?
Have you ever thought about this fact that how these startup companies manufacture, sell and does the marketing by themselves? Many of these start-ups are using outsource manufacturing technique to avoid the manufacturing setting-up extra burden on the new comers of the market. Outsource manufacturing is the process in which the manufacturing is done somewhere else and tagged on their brand name and sell in the market. Outsource manufacturing is basically done by the companies to deduct many cost such as initial set-up, initial cost to kick off the manufacturing and the shortage of labor etc.
Why do companies go for outsource manufacturing of products?
Start-up companies don’t not have sufficient funds to raise product and information is limited for the start-ups regarding the quality, product design and manufacturing process.
The outsource manufacturing and start-ups are always hand-in-hand since start-ups have to battle in fund related things. Outsource are highly effective in providing the unique product in highly proficient workforce and sensitive environment.
These help companies to fulfill their goals and satisfy their investors, stakeholders and employees. And helps in managing the financial health of the company. Since, manufacturing includes many unknown costs that could put low budget company into difficult positions.
What are main benefits of outsource manufacturing?
There are many benefits of outsource manufacturing such as:-
- Cost Saving:- Main factor for companies to move towards outsource process is saving penny. Outsource manufacturing processes help in cutting out the costs of your products increase your margins. The ultimate goal is to help your clients and rely on your products. They are able to offer less time by domestic customers, they may be deficient in getting the skilled labor, supplier of raw products and sourcing options that you have by manufacturing outsource.
- Skilled Labor:- The substantial skilled labor is the necessary for proper development of product and making the product up to the industry standards. And finding these skilled labor is a tedious job so outsource manufacturing put companies out of these tension.
- Specialized Supplier:- The specialized supplier is necessary to be there to give the raw material, various other product used in production and services at better cost. And makes product as cheaper as possible that is the direct benefit to the company.
- Transfer of risks:- Supplier allows you to transfer capital risk during scaling-up the business. Taking too much of capital risk may cause difficulty for the business to function with heavy cost of machinery, overheads cost and the minimum cost to lead the production. It is extremely important to check the grade of supplier before starting the production and proper auditing and qualifying of supplier product need to be done. Since, the quality shouldn’t be the issue during the branding of the product.
What are examples of outsource manufacturing?
As we all understand that outsource manufacturing involves in industry goods manufacturing unit to distant location, usually in developing country or to some other company which offers better economy.
Here, we are giving few examples of outsource manufacturing-
Ford Motor- Ford motor started its outsource manufacturing in India in 1998 for its escort model.
Samsung Manufacturing Unit- Samsung started its manufacturing unit in Noida in 2018.And it is world’s largest mobile manufacturing unit. Total cost spent by Samsung in India was 4,825 crore.
General Electronics (GE)- GENERAL ELECTRONICS is an American multinational company that builds digital solutions for many other sectors like aviation, healthcare, power and also builds technologies too. GE has outsourced its services to India and invested $120 million to build a R&D center for new technologies and solutions. At its location in Bangalore, GE employs 2000 engineers and scientists.
Challenges of outsource manufacturing:-
Outsourcing failure rate is slightly high due conflict of interest in any outsourcing manufacturing. The demand of clients is always high at the minimum possible where lies the major issue of conflict. The conflict should be managed so that client and vendor both should not bear any kind of loss.
Seeing the cause of failure of outsourcing is rush due to absence of proper business deal. Outsourcing has a major challenge of maintaining the quality to bring up to global standards, agility and profitability is increased, or to gain the competitive advantage in this cut throat market place.
Risks increase the gap between client and vendor responsibilities of both the side increases.
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