Not only is outsourcing manufacturing a matter of convenience for small and mid-size companies; it is a pre-requisite for survival. Without the ability to farm out their manufacturing to contract manufacturers (CMs), companies simply lack the economies of scale that allow them to effectively compete with their larger competitors. Few companies have the ability to invest in — and routinely upgrade — the millions of dollars in equipment, personnel, and process technology required to compete in a market of shrinking product lifecycles and eroding margins. If you are a smaller company, you will likely face more challenges than your larger competitors when it comes to outsourcing. The onus is on you, the original equipment manufacturer (OEM), to make the right CM selection, establish robust business processes, negotiate win/win pricing and contract terms, and invest time and resources in the relationship on an ongoing basis.
The objective of this white paper is to identify outsourcing issues and risks that are unique to smaller companies, offer you insights on how to address them, and ultimately help companies establish long-term success in manufacturing outsourcing. This paper identifies ten key areas in which the unique challenges facing smaller companies are most apparent.
Before examining these areas in greater detail, two key terms should be defined. First, the term outsourcing denotes the process of transferring manufacturing and related support functions to outside companies, whether those companies are onshore or offshore. (While for some OEMs this may mean transferring manufacturing to a low-cost region like China, outsourcing does not necessarily mean going offshore.) Second, while there are no clear lines delineating large, medium, and small companies, in this paper, the designation of smaller refers to small and mid- size companies ranging from pre-revenue startups to those with approximately $250M in annual revenues. Typically, these companies have less than $50M of annual purchases in outsourcing.