Why do Manufacturers Outsource to Contract Manufacturers?

MSI Dept Mgrs 100819

Outsourcing product and process manufacturing is gaining popularity in manufacturing circles.  People write about this trend.  Why are manufacturers making the switch?

There are all sorts of reasons why manufacturers outsource work to trusted Contract Manufacturers.  The short answer?  Choosing a to partner with a Contract Manufacturer can empower visionary and creative owners, senior leaders and management teams to “focus on what they do best”, and to “do what they like most”’ leaving the supply chain aspect of their manufacturing to others.

There’s more though.  Full disclosure.  MSI is a Contract Manufacturer with nearly 25-years of experience.  If you're thinking about outsourcing all or a portion of your production, hopefully you'll find it helpful to learn what others experience now.  Here are the more common reasons cited by MSI customers:


Strengthen Your Manufacturing Business Strategy

Why are you in the manufacturing industry?  Was it really to hire and manage hundreds of employees, and all that goes along with them?  Not likely. More likely, you had a dream.

What is your dream?  Maybe you embrace a socially conscious motivation?  How about improving conditions for those less fortunate?  Perhaps you see a void in a market that can be filled?  Could be that you seek to build legacy for your family members?  Others are looking to make that proverbial million bucks.  How does one make their dream come true?

One’s first instinct is to strive for as much control as possible, without ever considering manufacturing outsourcing.  This is an excellent strategy, when one has developed a world-class support staff supporting a broad array of disciplines.

Not all businesses can afford a deep bench strength of people resources to amass this level of talent.  The savvier leaders come to recognize that very few teams and fewer individuals have all the answers on the road to manufacturing excellence.  A Contract Manufacturer can be a huge bang for your buck. 

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Look back at your dream.  Identify what your team’s strengths are.  Identify which core aspects of your manufacturing business are most critical to success.  If investing heavily in supply chain management, and managing hundreds of manufacturing employees isn’t near the top of your list, you might be a candidate for divesting some or all of your supply chain to a Contract Manufacturer.  This will free up valuable time to work on your business, like you dreamed it.

Contract Manufacturing clients are intentionally insulated from the environment of the daily factory grind.  Wouldn’t you rather be focusing on:

* Long & Short-Term Planning & Strategizing
* Analyzing New Business Opportunities
* New Product Development
* Existing Product Improvement
* Sales & Marketing Initiatives
* Improving Customer Satisfaction (Reviews)
* Increasing Repeat and Referral Sales
* Internal Team Building
* …how about family?  Golf?  Vacations?

Focusing on these areas, without the distractions of managing a production operation, they discover increased time, more focus, less stress and improved profits.  Remember that dream? 

Control Manufacturing Labor Costs

Direct and indirect labor costs usually represent the highest single expense for most businesses.  Stabilizing manufacturing labor costs is a common objective.  Since individual employees vary in their productivity, when a manufacturer produces in-house, the cost of goods produced varies from day-to-day.  Gaining control of manufacturing labor costs requires ongoing management oversight, which is time-consuming and eats in to manufacturing profits.

Individuals workers’ production rates are supported by variables that are difficult to manage such as personal motivation, attitude, mental and physical health, sleep, substance use, and many other variables.   And that is not considering the occasional drama that adversely affects the other workers and the company’s bottom-line. 

What if your products were manufactured with the stability of fixed per-unit pricing?  Would that be a game changer for you?  Hiring a Contract Manufacturer can effectively flatten-out variable manufacturing labor costs…along with relieving a headache or two.

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Managing Manufacturing Hiring Costs

What does it cost to hire manufacturing workers?  

Including wages, benefits, and other factors, it’s more than some people think.  In August of 2016, SHRM (Society of Human Resource Managers) published a survey placing the average cost to hire an employee at $4,129…for one employee.

Did you know that hiring costs alone can outweigh the cost of engaging with a Contract Manufacturer?  If a company needs to hire ten employees to meet their production schedule, that adds up to over $40,000 just in hiring costs. 

How long does it take to hire people?  According to the same survey, it takes on average 42 days to hire. 

Onboarding with a Contract Manufacturer can take as little as 2-3 weeks.  That same 42 days using a Contract Manufacturer can mean that your product can be assembled, packaged, shipped, in stores, on the shelves, generating revenue for you…without hiring a single worker.


Where Does One Find Manufacturing Employees?

Need manufacturing workers?  Who doesn’t these days?  For many, a capable, trained, skilled and available workforce continues to remain a key challenge for manufacturers.  You can hire temps to fill the void.  Temps don’t always work out as hoped.

Contract Manufacturers provide immediate relief in a labor shortage.  In very short order, a capable Contract Manufacturer can deploy their workforce on a manufacturer’s behalf.  

With a trusted Contract Manufacturer in your tool bag, a manufacturer can accept that new purchase order, conveniently bypassing the rigors of hiring, training and skipping all of the human resource tasks involved.


How do You Increase Manufacturing Space?

Your manufacturing business is growing.  Do you lease, buy, build or add-on?  Manufacturing and production space is one of the larger expenses for manufacturers. Add up the cost to buy, lease, build new, heat, cool, insure and maintain…you get the idea.  Contract Manufacturers make it easy, far less costly, while maintaining flexibility.

Most experienced Contract Manufacturers have space available that is already engineered and geared-up for manufacturing use.  When more space (or less) is needed, the Contract Manufacturer takes care of it.  How easy is that?

Later, when (or if) that extra manufacturing space is no longer needed, you’re not stuck paying big money to shut-down, move your people and equipment, clean out the space, and/or pay for space that no longer has the manufacturing revenue to support it. 

Speeding-up Manufacturing – Getting Back on Schedule

The best manufacturers continuously seek ways to speed up their manufacturing processes.  Most manufacturers run into production delays from time-to-time.  Last-minute orders, expanded orders, new customers, labor shortages, and equipment failures can put your production schedule behind.  How many manufacturers want to have that conversation with their customer?

Partnering with a trusted Contract Manufacturer can enable quick and easy production volume scaling (up or down) without sacrificing quality or reputation, and without hiring production technicians, only to offer layoffs when production volume eases.

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Manufacturing Quality - Getting it Right the First Time

Contract Manufacturers who adhere to ISO 9001:2015 standards are repeatedly and consistently able to assure the production of higher quality products due to stringent standards.

Consistent high-quality translates into fewer product returns, improved customer satisfaction, increased repeat orders and referrals.  Not only do manufacturing profits improve; knowing that high quality products are rolling out your door makes for a better night’s sleep.

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What does a 100% Zero-Defect Guarantee Mean for Manufacturing Profits?

What is acceptable manufacturing defect rate?  Ideally, zero defects!  However, no one is at zero.

Most manufacturers are mostly satisfied with their defect rate.  When you’re serious about profits, efficiency, product returns and customer satisfaction, you are constantly seeking improvements in production quality.

An easy way to get to zero defect-related expenses is to get someone else to make your product.   Some Contract Manufacturers offer some sort of guarantee on defects in workmanship.  Others offer a 100% zero-defect guarantee. 

Hiring a Contract Manufacturer with a 100% zero-defect guarantee means the elimination of product return costs due to workmanship.  More profit for you. 

Conference 061520Who Really Enjoys Managing a Large Team of Manufacturing Workers?

Some enjoy the rush.  Others feel drained every day.

Not all business owners and senior leaders have an interest in taking on this sometimes-daunting task, at all.  It’s not for everyone.

With a Contract Manufacturer managing their manufacturing and supply chain, business owners and senior leaders are empowered to focus on the core aspects, while watching their business grow.

For some it’s consistently more rewarding to collaborate with a less-stressed, like-minded team of product development, sales, marketing, customer service and accounting staff.  Doing so leaves the lion’s share of the ticklish employee related challenges to your Contract Manufacturer. 

To share your thoughts, suggestions or new ideas, please contact:

KK Headshot 2017Keith Koehler
Business Development Manager
Manufacturing Solutions, Inc.