Outsource to a Contract Manufacturer: Make or Buy?

Have you considered taking some of your manufacturing process and doing an outsource to a contract manufacturer? In many instances, your decision will depend on your core competencies and where you want to allocate your time and resources.

One of the most common questions in a factory is: Do I want to MAKE IT, or BUY IT?

There are many reasons why a company may decide to outsource a process to a vendor.

• cost reductions
• space utilization
• resource allocation
• quality improvement

Jack of all trades, master of none

More and more companies are realizing that it takes a great effort to maintain a process in-house where the process is not part of their core capabilities. For example, an OEM that designs and builds CNC Metal Cutting Machines is great at manufacturing said machines, but not so great at building cable assemblies.

Another example: An OEM that is amazing at designing and building Industrial Water Pump Systems, but not so great at building Industrial Control Panels. Or how about a Communications company that design and build best in class Satellite Antenna Products, but struggles with low voltage electronics assemblies?

When to Outsource to a Contract Manufacturer

Making a “Make or Buy” decision to outsource to a contract manufacturer can be simple if you ask yourself the following questions:

1. Is this a proprietary process of our core products? Is this process part of our core capabilities?
2. Will outsourcing this process reduce the quality of our products? If you answer no to these questions, then more than likely the process is a good candidate to outsource.

See, there are companies built to service these specific processes, for example, metal fabrication shops, cable assembly shops, industrial control panel shops, etc. They have the equipment, tools, space, and expertise to deliver quality products to their customers, and, therefore, can offer great quality parts and service at an affordable price. Bringing in-house a process requires a big invest in capital equipment and people. Regardless of the current backlog and the state of the business, companies have to keep their investment in equipment and people productive. If a process is outsourced, then the burden is passed on to a business diversified in the specific process. Or, if the orders stop coming in, and the process is kept in-house, then companies find themselves in a predicament.

I find that doing a Gemba walk is the best way to figure out which internal processes are good candidates to outsource. Gemba is a Japanese word for The Place, a Gemba walk is when you walk to The Place where humans are creating value for the customer. Doing the Gemba walk gives you the opportunity to speak with the process owner, who are those people in the front lines adding value to the customer.

The welder, the wiring tech, the assembler, the operator….It’s incredible how quickly they let you know what bugs them, what tasks are those that they wish they didn’t have to perform. More than likely someone has a machine that performs that task more efficiently and at a lower cost. And even better, they are probably just down the road. When you remove the tasks that bug your best employees, and when you improve their morale by eliminating what bugs them, then you improve your business on a human level.

No matter who you choose as a contract manufacturing partner, make sure they have the  space, tools, quality systems, and most importantly people who know how to produce a really great looking control panel. I love doing Gemba walks. Contact me and we can do it together at your place.

Luis Santeliz is Innovative-IDM’s Lean/Process Manager, he has a B.S. Degree from Northern Illinois University in Manufacturing Engineering Technology. You can contact him at [email protected].