Contract manufacturing is the process of outsourcing production of a product, or a portion of a product, to an outside company or companies. Effective contract manufacturing allows taking advantage of specialization: concentrating on and becoming an expert with a particular product or process. Read more
Since the 1990s, outsourcing has been a way of life for manufacturers. Many traditional original equipment manufacturers (OEMs) manufacture a minimal amount in-house, and continually evaluate the possibility of outsourcing additional functions, and the contract manufacturers (CMs) have risen to the occasion. Top notch CMs like Revotech provide customers with complete turnkey service, including design, development, certification and drop shipping. Despite these and other substantial benefits, outsourcing presents a unique set of risks to the OEM. It requires a new way of thinking about and managing supply chain and inventory control. In this post, we examine three common pitfalls we commonly encounter. A manufacturer must avoid these outsource manufacturing challenges to increase the effectiveness of an outsourcing program.
1. Underestimating Logistics
Transportation and logistics together are the most under-anticipated issues we encounter, particularly with customers new to CM. Shipping ocean extends lead-time four weeks, and reduces the OEM’s flexibility to respond to unforeseen demand changes, customization, rework, etc. It also increases the time-to-market and new product development due to the need to ship (generally air express) samples and first articles for review and approval.
2. Delivering a Deficient or Incomplete Specification
While not unique to contract manufacturing, a deficient or incomplete specification can lead to ongoing problems in the life-cycle. When managing a development/production process not under your own roof, a clear and concise spec is critically important, and includes drawings, bill of materials (BOM), testing methods, compliance issues, etc. Proper documentation provides not only a path to a successful OEM/CM relationship, but provides recourse to the OEM in the event the final product is not to spec.
3. Ignoring Compliance Issues/Requirements
Lower cost of labor and overhead in some regions allow contract manufacturers to provide a competitive advantage to their OEM customers, particularly those with high volume, high labor-content products. What a good CM will NOT do is provide the OEM an ‘end-run’ around environmental compliance issues, or technical certification such as RoHS or UL.
Common Mistakes to Avoid in Outsource Manufacturing
Outsourcing has enabled small to medium OEMs to compete with their larger competitors by leveraging economies of scale. Outsourcing includes risks, however, that can severely impact a small company’s performance. But these challenges can be mitigated by a careful and diligent CM strategy and by working only with a reputable contract manufacturer with a proven track record.