Operational Considerations for Offshore Manufacturing

Human resources

It is becoming a common fact of many first world countries that domestic manufacture is often an expensive luxury that can be ill-afforded. This is especially true for those industries where there is an influx of less expensive foreign competitive products and where the buy decision is more driven by cost than country of origin. The reality is that the minimum wage is rapidly approaching per hour, factory overheads are increasing due to rising electricity and incidental costs, and the cost to import from another country is often lower due to the strong Australian dollar. Manufacturing industry and product designers are faced with the rapid realization that this situation is not likely to change and survival means that occasionally tough decisions need to be made in order to preserve the future of their company and retain or recover their market segment.

For affected industries, there is little hope of a paradigm shift in consumer or end user behaviour towards supporting a local product when the alternative is significantly less expensive and often of comparable quality. So companies start to look towards outsourced manufacture models and transfer all or portions of their manufacturing to a LCC (Low Cost Country) where the minimum wage is typically less per day than we pay per hour and in many cases there has been significant investment in equipment and processes to ensure repeatable and economical manufacture of outsourced products.

While there is an obvious requirement for industries that are losing their customer base to foreign imports to look towards outsourcing to a LCC, there process of effectively outsourcing all or part of your manufacturing should be undertaken as a strategic move rather than an act of desperation and as such should be carefully and diligently monitored and maintained to ensure that your company still retains control of the end product that is being manufactured and submitted to your customers. This article looks at operational issues in establishing and maintaining a partnership with an offshore manufacturer to ensure you will experience the benefits while avoiding many of the well published pitfalls.

Know who you are dealing with.

This comes down to due diligence and ensuring you are dealing with the company that is going to be manufacturing your products and not a loosely associated “representative” or reseller. Do research on the company. Visit them IN PERSON. Talk to someone other than the sales representative. Find out about their standard process for introduction of new products to their facility. Know exactly who you need to contact should there be a problem and what processes they will employ to resolve any problems that have been raised to ensure you don’t experience ongoing repetitive failures until the entire project is written off as a bad idea.

Size Matters.

Leave your ego out of the equation. Every executive would love to be able to boast that they have their products being manufactured at Foxconn alongside Apple or another well-known facility. The truth is that often this is not a good idea even if you have acceptance from the facility. In essence it comes down to how your business is regarded within their facility. If you have 0K of product being assembled per year and your target facility boasts annual revenue around 0M then they will see your business as opportunistic to be undertaken during low season rather than important and to be concerned with your mutual success. Alternatively if you have 0M of manufacturing and your target facility currently only has revenue of 0K there should be serious concerns about their ability to adapt to a sudden increase in workload due to your contract. You offshore partner should be sufficiently large to be able to accept and undertake your work but not too large that they see your work as an inconvenience and you are given excessive lead times to allow them to “fit your work in” and junior support staff to manage your project. This comes back to knowing who you are dealing with. If you have never visited the actual facility that will be undertaking your work and entrust everything to a sales representative who advises you they will take care of your project then you are asking for problems.

Know EXACTLY what it will cost.

When you receive your quotation from your potential outsource partner make sure you are comparing this fairly with the domestic costs. Ensure you take into consideration the extra costs and time involved in offshore manufacturing. Shipping costs, customs clearance, failures / BER product, MOQ, holding costs, order levels required to accommodate shipping lead times. All financial aspects of the supply of your products ready for sale need to be included otherwise you are using a flawed financial plan and will be wondering why your profit levels are not meeting forecasts.

Specifications

The majority of issues at early stages of a manufacturing contract with a LCC supplier can usually be pin-pointed to issues with the documentation provided rather than incapability on the behalf of the supplier. In essence any requirements that have not been explicitly documented will likely not be met by the LCC supplier, even if those requirements would seem to be a common sense requirement from the perspective of the OEM designer. Put simply if it is required make sure it is documented right down to packaging and labels.

 

While this article does not propose to be a comprehensive guide, some of the most common issues are highlighted and explored. If you are considering offshoring, one of your first actions should be to engage a professional who has done it before. Whether it is via employed, contract or consulting professionals, exploring the mysteries and rewards of outsource manufacturing is best undertaken with an experienced guide.


Brian Le Mon

Principal at EQP Optimsation Solutions

A lot of pondering and analysis of my work history brought me to the realisation that, in essence, the key to building and running a sustainable business can be distilled down into 3 main factors: EFFICIENCY, QUALITY and PROFITABILITY. As a result EQP Optimisation Solutions was born. Contact me directly on 0433 687 545 for a confidential discussion to discuss business mentoring or consulting solutions and how we can EQUIP your business for a profitable and sustainable future.

EQP Optimsation Solutions

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