Outsourcing
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Outsourcing, as a trend over the past few decades, has benefitted both consumers and companies. The ability to seek lower-cost labor, materials, and capacity has drastically reshaped the modern-day business environment. Have we hit peak outsourcing?
Outsourcing is prevalent in manufacturing, but it can be found in any industry where companies hire other providers to fill service needs at a lower cost than they could otherwise perform internally. Read this article, which discusses why contract manufacturing occurs and presents its opportunities and risks.
Benefits
Contract manufacturing offers a number of benefits:
- Cost Savings: Companies save on their capital costs because they do not have to pay for a facility and the equipment needed for production. They can also save on labor costs such as wages, training, and benefits. Some companies may look to contract manufacture in low-cost countries, such as China, to benefit from the low cost of labor.
- Mutual Benefit to Contract Site: A contract between the manufacturer and the company it is producing for may last several years. The manufacturer will know that it will have a steady flow of business at least until that contract expires.
- Advanced Skills: Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with raw material suppliers or methods of efficiency within their production.
- Quality: Contract Manufacturers are likely to have their own methods of quality control in place that help them to detect counterfeit or damaged materials early.
- Focus: Companies can focus on their core competencies better if they can hand off base production to an outside company.
- Economies of Scale: Contract Manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be.