The decision to outsource product assembly and manufacturing is not black and white.
For many Original Equipment Manufacturer (OEM) companies, outsourcing manufacturing and product development includes many grey areas where various advantages and disadvantages need to be weighed. Especially when it comes to comparing different contract manufacturers against one another, the differences aren’t always clear – meaning your final decision isn’t always an easy one.
To help you distinguish reliable outsourced product assembly partners from those that aren’t a good fit for your OEM company, here are the top four facts you need to know:
Fact #1: Cost Is More Than Just Labor And Materials
Before outsourcing your product assembly, it’s critical that you understand your actual costs of manufacturing in-house. Then, when you’re selecting and comparing different private label manufacturers, you have a more holistic understanding of all the cost factors involved.
Many OEM companies simply compare their direct labor and materials costs against the proposed prices of contract manufacturers. However, this doesn’t accurately reflect your true costs of assembly for a particular product line or piece of equipment. You shouldn’t forget about other factors, such as fixed and variable indirect costs or the opportunity cost of your own factory floor.
When investigating these indirect costs with potential private label manufacturers, a trustworthy partner should provide you with any and all information upfront, no questions asked. From the beginning of your research phase, a contract manufacturer should have no qualms with sharing production processes, material costs, direct labor costs, overhead costs and profit margins. In fact, they should share this information with confidence.
Fact #2: Not All Product Assembly Partners Are Created Equal
When evaluating the range of services offered by an outsourced product assembly partner, you must keep in mind your own business needs. Look past the slick sales presentation and research whether they specialize in the particular services that meet your needs – or whether those services are non-core competencies merely mentioned to close the deal.
You also need to consider if their services are integrated into a cohesive, streamlined process to lower costs and eliminate headaches for your OEM company. While many contract manufacturers offer similar services, they aren’t created equal when it comes to streamlined solutions.
Fact #3: Size Matters For Your Relationship
For small- to medium-sized OEM companies, relying on a too-large product assembly outsourcer spells disaster. The size of a contract manufacturer has the power to make or break your relationship, because larger contract manufacturing companies find it more difficult to service smaller accounts.
While the relationship might initially seem like a fine fit, it’s only later that you discover your OEM company isn’t getting the products or equipment it needs on schedule. In order to keep your product assembly from being continually delayed on the schedule of a large contract manufacturer, be sure to find an outsourced partner whose size fits your own.
Fact #4: Your Intellectual Property Must Be Kept Safe
There are only a few assets more important to your OEM company’s success than your intellectual property. While outsourcing overseas or to a cheaper contract manufacturer might look appealing, you need to complete your due diligence on the security of their data systems and (if applicable) the intellectual property laws in that country or region.
A reliable product assembly partner should have secure physical and digital protections surrounding your intellectual property at all times. A cheaper contract manufacturer might be a bottom-line boon for your OEM business for a little while, but if your intellectual property is leaked or infringed upon, they will be the most expensive contract manufacturer you hire.
Outsourcing product assembly isn’t a decision to take lightly, so you need to conduct thorough research of each potential contract manufacturer before you make any agreement. When you keep in mind these four facts about outsourcing manufacturing, you’re better equipped to make the best decision for your business.
Looking for a reliable contract manufacturer who takes the lean manufacturing mindset seriously? Call me, Craig Zoberis, at 630-948-4879 or click below to download a tip sheet from Fusion OEM and discover what questions you should ask a contract manufacturer before you sign the final contract.