10 Challenges That Small Companies Face in Outsourcing Manufacturing

Outsourcing is majorly done for the convenience that a company gets and also helps it to focus on other vital areas. Outsourcing the manufacturing of a product for small and mid-size companies which are short on financial grounds compared to giant manufacturers is like a blessing. At the same time they also have to face greater challenges for it.
There are ample of companies which have outsourced their manufacturing and are enjoying a great success and if done properly, it can lead to phenomenal savings on expenditure.
If you’re a small time company looking to outsource your manufacturing department, this article here will let you know the challenges that you may face and their solutions to avoid any upcoming shortfalls.

1. Choosing the correct Contract Manufacturer

Problem: This is the first step of outsourcing a process and many times it can be very difficult unless you have one of your friends as its owner. Selecting an appropriate contract manufacturer doesn’t only involve their type of work, price or quality it also depends on factors like their geographic location, their strategies, the ease of transport that is possible and other managerial skills.
Solution: Mark short and long-term goal of yours with the manufacturer. This will help in forecasting goals of yours. This entire if settled on a fair price will be a big hurdle crossed. Keep your business proportion according to the manufacturer’s revenue to avoid any losses. Too low proportion of work from them will make them reluctant towards you.

2. Forecasting

It is a part of any business that anyone commences. You do have a future in sight and that is why you open up a company. It can’t be always possible fallout correctly. It gives an estimate to the manufacturer that how much business that you may give to him and if you fail to keep up due to any circumstances or say financial hits, the manufacturing may lose interest in your endeavors and it may become hard to get them back in your bag.
Solution: Firstly, make sure that the forecasting you do is practically correct and is viable. It should be suitable enough for the manufacturer to gain out revenue. Take time to understand your sales and interaction with your consumers, which will help you to make the sales forecast chart of yours. Evaluate your demand and supply smartly to create your forecasting report.

3. Reduce your inventory liabilities

In OEM and CM relationship, each tries to pass on its inventory liability to each other and this may create constant clashes between them and they many times get charged excessive in inventory.
Solution: Clarify each and every point, especially liabilities of any parts in the beginning of the relationship. Clarify all the points on liability to ensure avoidance of such circumstances. Also sort out minimum order quantities and sizes.

4. Monitoring quality

The competition in the market is at its peak and a product of low quality, especially from a newly emerged brand will make no one fancy their product. New companies generally face a hard time convincing customers about their brand and product quality.
Solution: Discuss your plans thorough with your CM and be clear of the defects that technically arises or of any faulty product. Monitor the manufacturing process or appoint officers for quality inspection if there aren’t in the CM’s firm. Minimize the failure rates.

5. Getting the correct team to work

Many times the companies aren’t impressed with the team assigned to them for doing their work in a CM. This leads to improper communication and lack of interest in working with each other.
Solution: While the CM may not assign its best team on your assignment, you should know where you require the right amount of attention in the production and can employ your own personnel in the process to ensure the proper outcome. Establish a strong relation with the CM to facilitate the workflow and avoid any mismatched opinions.

6. Calculating the cost

Many times a company may offer contract to firms outside the national boundaries just in order to save some cash or for the quality and service offered, but they do not realize the facts like the cost of transportation, communication problems and defects.
Solution: Before assigning such type of project, create proper plans and a cost model that can effectively show the coverage of these costs that would come in the package and also should address the difficulties of being so long distanced. It should be commenced only if all the costs for the import/export are justified.

7. Compliance with environmental directives

Most of the small firms take that these environmental compliances have to be fulfilled by the CM; hence they hardly care about the environmental compliance certificate. This may not result well in favor of the company as the environmental regulations thrusts all the responsibilities on the brand and not the CM.

Solution: Work with your supply chain partners and ensure all the directives are fulfilled. If you are established in more than one region, then ensure all of their directives are being fulfilled. Keep a check on supply agreements, the parts they use and effects of their processes.

8. Defining your product

It does happen several times to a company that they are facing reduced product cycles and pressure to increase the product performance. If you wouldn’t know your own product then how could you describe it to the CM? For this they tend to make changes in the product, but are left behind as they don’t understand from where or on what area the work needs to be done.
Solution: First get all the product data on your table and analyze it. Understand where it falls short and try to bridge the gap. Make alternative courses and choose the correct one, then the main step would be to execute it. Gather the correct data and put it together to come out with an effective decision.

9. Avoiding amplified price

In the speedy and continuous ongoing process companies tend to lose track of the charges that CM charge sometime for their products due to changing factors of production. The high prices are most difficult to bear for any firm.
Solution: The companies should prevent these types of charges by having an effective communication on the cost-structure and the quotation they give you. All the contracts and terms should be transparent for each other’s better understanding. There should be regulations to control these types of surprises which shouldn’t either harm any of them.

10. Making an exit strategy

It shouldn’t be necessary because of business shut down, but the rise of other competitors in the same sector can give you plenty reasons to switch. It can be difficult to do so somehow because of the relations and the contracts.

Solution: From the beginning of the contract with your CM, you should add the clause of your exit term to this agreement and also as a way that the CM shouldn’t be doing so until you get a new working company working for it instead, which will ensure the regular production flow and uninterrupted work and revenue to both.

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About the Author: Arjun N

Founder of SolutionBuggy who has about 11+ years of experience in manufacturing industries. An entrepreneur with astute sales and marketing skills.

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