Posted on 31 Jul, 2014 by John Mayes
When I read articles on the subject of outsourcing I note that 9 times out of 10 they focus on BPO (Business Process Outsourcing) which, as its names suggests, is all about contracting out ‘business’ processes. Typically these relate to administrative functions such as accounting, HR and payroll through to various levels of IT outsourcing.
What’s interesting to me however is that BPO was originally associated with manufacturing companies, like Coca-Cola. By outsourcing a number of their ‘non-core’ functions, such as the bottling process, the organisation was free to focus on key strategic business objectives – increasing market share in this case – which I think you will agree they have done quite well at.
Another common thread I see is that BPO is all about lower labour costs, and the perceived benefits of outsourcing to India and China in this regard. But surely, certain outsourcing is about securing specific knowledge and expertise, and therefore not anything to do with labour rates or transferring ‘business’ processes off-shore.
This got me thinking… How does the ‘process’ of UK manufacturing fit into the whole outsourcing debate and is it being overlooked by organisations?
Labour rates: savings or efficiencies?
Clearly cost reduction is one reason why companies outsource a business process, however, cost savings do not always necessarily require cheaper labour from offshore suppliers. With more focussed talent, skills, space and equipment at its disposal, a company specialising in providing outsourced manufacturing services, for instance, can deliver savings in a variety of ways and provide real efficiencies that significantly impact their customers’ bottom line. Factor in also some of the costs associated with offshoring, and working with contract manufacturing companies based in the UK could be equally, or even more, cost-effective than first thought.
Made in BritainThe manufacturing of high volume, price sensitive consumer products like laptops, tablet computers, cellular phones and mp3 players have long been outsourced to Far Eastern contract electronics manufacturers. According to analysts at IHS the total contract electronics manufacturing spend by 2016 is estimated at $451 billion. But what about closer to home? Through thorough research, companies producing complex electronic or electro-mechanical products in much lower volumes will discover that these are equally appropriate for outsourcing, and that the UK has some very good contract manufacturing specialists – providing a competitive range of end-to-end manufacturing services.
Overcoming your fears
The decision making process is inevitably similar regardless of what is being considered for outsourcing. From HR, IT and payroll services through to electronic manufacturing services, the major fears for outsourcers will often be around lack of control, flexibility and responsiveness once the activity has been contracted out.
In conversations I have with MDs and FDs looking to outsource, their key concerns often relate to these issues. In one case, where the MD was about to outsource his company’s entire manufacturing operation, I recall he was most apprehensive about losing the ability to respond dynamically to his customers’ requirements for customisation and delivery, etc., once the people producing his products were not under his direct control. In that particular example the outsourcing project proved to be a total success, with improvements in capacity and product quality, as well as a reduction in lead-times and increases in OTIF (on time in full) delivery performance – and the MDs fears quieted.
Reducing the risk
Outsourcing can be a risk to the unwary, particularly those who don’t enter into it with a desire for a mutually rewarding partnership. So it’s critical you do your research, identify a good provider with proven capabilities in the areas such as procurement, supply chain logistics and test, plus a track record in manufacturing similar products to yours in terms of product complexity and volumes. You also need to satisfy yourself that the proposed partner’s processes can accommodate your required level of agility, flexibility and responsiveness.
Finally, it is equally important for you to have a genuine, company-wide commitment to fulfil your part of the service level agreement. With these things in place the risk is relatively low and the positive impact on your business can be significant.
Let’s remember then that, whilst many articles covering the subject of outsourcing might ignore it, manufacturing is certainly one major ‘process’ within organisations that shouldn’t be overlooked in terms of outsourcing. So, the next time you’re under pressure to try and reduce costs or increase efficiencies, why not take a walk around your factory. You may find the answer you’re looking for is right in front of you. And better still someone close by just might be able to help?
Image by Simone Paoli