Strategic Outsourcing for Manufacturing

Filed in archive Best Practice on October 31, 2007

As I've mentioned before and even on my previous posts, strategy in outsourcing is important because it keeps you above your game. In manufacturing, this kind of thinking is also applicable thus the need to have a guide when having these manufacturing deals.

In this article entitled How to Get The Best Deal in Contract Manufacturing, it outlined the different expectations which you could see when entering a client engagement. Here are the expectations which were mentioned:

-The contract manufacturing vendor focuses on protecting its downside by reserving the right to increase customer prices, e.g., component materials, labor costs, and overhead costs, during the term of the agreement.

-The contract manufacturing vendor provides some form of a cost-plus pricing structure to the customer, where the vendor has no incentive to reduce costs or increase efficiency, innovation, or effectiveness in addressing the customer's needs.

-The customer gains comfort from the belief that it will not overpay as it relies on the notion that all contract manufacturing vendors will be subject to similar cost structures.

-The customer is willing to accept the inherent potential price increases because it retains the perceived flexibility to move its manufacturing to an alternative provider.



-Both parties are heading down a path where the contract manufacturer will provide out-tasking services to the customer, with the threat of moving business as the only viable lever the customer maintains to control costs and obtain high-quality service.

Once you've recognized these factors, it would be advisable if you would incorporate your own needs and expectation in these outsourcing deals so that it would still deliver your exact expectations.