Nowadays, more and more small business owners are outsourcing aspects of their work. But if you’re new to the field, you might be a bit unsure as to what outsourcing is and what best suits your personal business needs. Here’s everything you need to know about the outsourcing process!
What is Outsourcing?
Outsourcing is a commonly used business practice where businesses use independent third-party companies to complete specific tasks, operations, jobs, or processes. There are various reasons that companies do this. Sometimes outsourcing can save money: it can be cheaper in the short term to use third-party manufacturers to create a short run of goods.
It may also be easier to draw in individuals with independent expertise to complete one-off tasks rather than training one of your own employees or hiring a full-time employee to do one task and serving little more purpose for the benefit of your company.
Why Will It Benefit Me to Keep Things In-House?
While outsourcing is great for one-off tasks, or short production runs, it’s often better to keep things in-house if you plan to repeat the same tasks and manufacturing over and over. For these kind of things, outsourcing can prove more expensive in the long run. It’s better to own the means of production or employ the expert individual in the long-term if you’re going to require their services more regularly.
There are more benefits to doing this than mere cost and profit too. When you outsource, you hand a portion of control of your company over to someone else. You have to place your trust in them and hope that they complete the required work to the quality that you expect.
By keeping things in-house you regain control: you can oversee processes and make tweaks and changes along the way.
What Can I Keep In-House?
Manufacturing can easily be kept largely in-house. Consider investing in machines that you will get repeated and long-term use out of. For example, milling machines, robotic arms, and conveyor belts. This can ensure that your goods are produced, assembled, and packed as quickly as possible and that you can check up on them during every step of the process, assuring quality and precision.
Many people use outsourced market research to save time. But if you have a little patience and work a few extra hours you can do the job yourself. Most of the research is already out there with results posted online. Then you can conduct small-scale specific interviews yourself. Simply use your social media page to find volunteers who will be able to give you a deeper insight and understanding of your brand and brand image.
These are just a couple of areas that you can shift from outsourced work to in-house work. It’s definitely worth the effort in the long run. While you may not see immediate results, you’ll notice the savings that you make mounting up over time. Any outlay for machinery or robotics will pay for itself and slowly turn into profit.
If you are a growing creative business earning money from making physical products, at some point you are going to have to make a big choice — do you scale things up in-house or do you outsource the manufacturing to a third-party? There are certainly some benefits to going it alone, but there are also some distinct disadvantages. Let’s take a look at everything you need to know.
When you keep everything in-house, you can maintain your required levels of quality control. You can supervise every last step of the process, keep an eye on everything from waste through to productivity, and will ultimately have 100 percent responsibility.
Outsource to a third-party, however, and things are a little different. Other than an interview, and a few check-ins to the manufacturing plant, you have no control over what happens. For example, will the manufacturer make all the final checks that you would? Are they following your usual procedures?
Moving products around the country in vast quantity is a tricky business as it is. But when you use a third-party manufacturer, it is just another major kink in your supply chain. Bringing everything in-house means you can avoid everything from customs and import issues through to reducing the cost of arranging additional deliveries.
Better price per unit
Ultimately, the goal of any product creator is to reduce the costs of making that product. The lower the expense, the lower you can afford to charge customers, and the more products you will sell. Now, creating products in-house certainly has some significant costs involved when you are starting out. However, in the long-term you’ll find these will reduce, giving you more options when it comes to competitive market pricing.
Make no mistake about it, if you want to manufacture in-house, you have to make sales. The costs are enormous, and many small companies who have made products in-house have died on their feet as a result of having too many resources and too little demand. There are employees to pay, taxes, rent, and rates — and then there is the massive amount of money you will spend on utilities and new equipment. If you don’t have a steady stream of sales yet, the chances are your business will fail.
When you’re a manufacturer, you have a lot of legal responsibilities to cover — particularly when it comes to waste management. As Oil Water Separator Technologies suggest, water contamination is a critical issue, and you also need to think about the disposal of hazardous waste materials. The big manufacturers will already have systems, processes and the right equipment to deal with these issues. You, on the other hand, will have to face them all from scratch.
As a final point, it’s worth stating the reason why so many American manufacturers outsource to foreign countries: they have lower labour costs. For a home-based manufacturing worker, you might have to pay them $10-15 per hour. But a factory out in China could be paying their workers less than the equivalent of $2. Given that labour will be your primary expense, it’s often worth looking further afield.
There are no right answers when it comes to making the manufacturing decision, and every company will have different needs. Hopefully, some of the ideas above will help you make the right choice.
Maybe you have a custom jewelry, fashion, vehicle interior, or decor business that you want to improve. For businesses manufacturing the cut-throat ethos in the boardroom should also be transferred to the production line. Custom design companies, need to uphold and even cherish the idea of purity or translation. From the order, a customer puts down and the exact design they want, to the minds and great hands of the labourer, to the final, one-of-a-kind birth of the product.
In such a field, you deal with demanding customers, but this is the very nature of making bespoke designs. Managing client expectations is perhaps the most stressful part of the business. This also leads into monitoring employees and switching between platforms of discussion in meetings, to the nitty-gritty sparks and thuds of the manufacturing process.
There are various tools which get the job done, but in all truth, the artist must be of great superiority to the tools he or she is using. As the owner, you can trim, contour and shape the entire process, so the organization of workflow is streamlined to get the most out of business.
In previous decades, a firm but a fair gap between managerial and executives staff to the employee ‘on the ground’ was thought a rightful and thus, commonplace. However, to make the most out of your product in the modern world of business, customer expectations, never before seen levels of rival competition, and the power of negative press on social media, communication is vital to staying alive. This should get translated back onto the floor. Regularly, ask for feedback on how things could improve from your workforce. Just like a business may do questionnaires or marketing to consumers, every month you should ask your own employees what faults and improvements they can see and suggest.
The art of efficiency
Where your most significant level of manufacturing is, namely the initial design team, the floor manager or director should be close by. Nothing is more shortsighted than having an office where higher-ups are far from the action. Your workforce is less likely to run a question of hesitancy by you if you’re physically further away. This is where errors can occur frequently, so move the office of the managers closer to where all the manufacturing is going on. A surefire way to understand the crucial relevance of efficiency is to earn a lean master certification. Not only will you be able to employ financial accounting based on activity metrics, but be able to strategically implement improvements to your products by analyzing trends to make the best decision.
Expand the product line
If your current offering of products is inefficiently satisfying consumer demand, then the only way around this is to create brand new items and products. You can only improve a product so much before the several value-adding features give way to entirely new demands. Most clients in the custom design industry will take a template and add their own artistic flair, but others will want a complete redesign. It’s important to future-proof your business, by taking on requests from customers to start a new project, and thus add to the lineup of products your business offers.
It’s not all that unusual for someone expanding their business into manufacturing and production to suddenly find that demands get a lot more serious. When running any other kind of business efficiency and productivity might seem like abstractions that you improve as you go along. When you’re on the production line, however, you can’t afford to let inefficient practices liner. Right from the get-go, you have to strive towards getting the greatest returns on investment as soon as possible. If you’re familiar with lean principles in manufacturing or business in general, don’t be surprised to see a few of them here. They’re still an excellent guide to improving productivity and efficiency.
Set yourself a long-term goal
The steps we’ll be mentioning here aren’t something to be slowly implemented over time. They need real work done on them, now. They need a strategy, which means you need to find the goal you’re working towards. In manufacturing, one of the best goals to work toward is overall equipment effectiveness(OEE). It looks at all the time your manufacturing equipment is working. Then it identifies how time is lost through unavoidable causes like schedule loss, as well as the very avoidable kinds of lost time like availability of resources, performance issues and time lost producing poor quality goods. This is how you measure OEE and your goal is to remove all those sources of loss so you get to a state of total effective equipment performance.
Follow the metrics
With a goal focused so much on the equipment, you also need to understand the larger concept of successful manufacturing that it plays into. You know equipment effectiveness isn’t everything, so what data should you use to communicate and understand its overarching effects? Set up a metrics table that you use to measure the impact of improving your processes. Include quality metrics, like yield and rejected products, and efficiency metrics, like throughput and capacity utilization (out of 100%, how much of your output capacity is being used at any one time?). These can help you identify more specific sources of lost ROI (return on investment).
Map out your workflow
Flow is a very important concept to any business. In manufacturing, it’s actually easier to spot most of the time. It’s as simple as creating a map of the production line in its entirety. From there, you graph out the progress of your materials as they are worked into the final product. Doing that allows you to see whether they’re taking the most efficient path or not. For instance, large distances between one process to another create lost time while you’re waiting for the goods to be transported from one area to another. You can also spot when secondary equipment that isn’t part of the main production line is obstructing that process. It can be a good idea to clear the whole floor and start planning the workflow from the start. Order the primary tools first in a way that eliminates waiting for transportation, then place the secondary equipment out-of-the-way after.
Identify and fix bottlenecks
As well as a physical map, create a process map that shows all the work being done. It will likely consist of a lot of processes leading off into different processes. Rarely is it purely linear. Those moments when it becomes linear can be the problem. Many processes leading into one means that one process could be holding up the rest of the workflow. Those are your bottlenecks and they need to be accounted for. For instance, if there’s one piece of equipment in particular that needs to be used more often before work can continue, consider increasing your inventory of that equipment. Bottlenecks don’t only happen on the factory floor, either. Your bottleneck might be that you can’t keep producing more goods because your inventory is full and you’re waiting for shipping to commence. Scaling up your shipping is the right call in that situation.
Most downtime in manufacturing is down to equipment failure. As well as frequent maintenance, you should schedule troubleshoot in any planned downtime you have. You should also be aware of any inventory needs you have in terms of replacement. If you have the right replacement parts waiting in the wings, it means less time is spent waiting for them. Most manuals for pieces of industrial equipment will tell you exactly what replacements you’re most likely to need.
Master your inventory
Just as you should know when you need to stock a few extra components in the event of equipment downtime, you should also know when not to stock extra resources. You might think bulk buying saves you effort down the line, but it could be drastically impacting your return on investment through the carrying costs of inventory. It’s best to develop a system that alerts you to inventory needs in advance but ensures you’re not bringing in too much inventory. Get to know the demand on resources involved in your processes.
Get smarter tools
You might think that using simpler tools means you’re saving money, but the truth is that any gains you make by saving on the purchase could be eclipsed by the amount of ROI lost through less efficient means. Smarter tools might cost more and require more training, but that’s because they’re sophisticated tools that can drastically improve the efficiency of the production line. If your finishing processes are proving slow, perhaps even bottlenecked production, then considering learning the news about coating equipment. If metalworking takes up most of the time on your floor, then look at CNC milling tools.
A lot of those smarter tools you can get will also be automated. We know that there’s a lot of dragging feet when it comes to moving into automation. The reduction of your dependence on human effort could indeed mean that some jobs are no longer going to be needed. But if it’s a choice between efficiency and losing employees, then know that poor efficiency will likely end up in losing a lot more people when the business is unable to meet its clients’ goals and lose a lot of custom. Look at the positives of getting automated, including mitigating the effect of labor shortages and improving the safety of workers by getting them less involved in dangerous tasks.
Invest in employees, not just equipment
As for your existing labor, one of the ways you can help them plan to avoid obsolescence is by providing the training they need to move into other roles in the business. Automated equipment will need operators and maintenance and the freeing of labor could mean you have the human capital ready to expand your operation. Don’t treat employees like they’re only good for one task. Instead, consider all the skills that could make them much more useful in their role. Better understanding the product, materials, and equipment could lead to a broad diversity of skills that gets them more engaged with the process and makes them a lot more useful to you.
Standardize absolutely everything
If you want an efficient production line, then you’re going to have to standardize all the equipment usage, inventory transportation, and maintenance. Create systems and guidelines that address every step of the workflow and the correct way to do things. This makes it a lot easier to train new employees when you have those standardized methods at your disposal. But standardization doesn’t only belong in the production line itself. It can be applied to the knowledge workers in administration and planning as well. Even more important, it should be implemented regularly in your safety practices. Getting people compliant means ensuring there’s no uneven training. Improvising your training makes it a lot easier for certain employees to miss information that others have received.
Finding the best ways to implement these strategies isn’t something you’re going to be able to do by yourself. One person can only be so creative. You need to use the mental capital as well as the labor capital that your team provides. This is one reason why more intricate, ongoing training for workers on the floor is important. They will have the hands-on experience of using equipment and resources that could spot ways of improving productivity that you haven’t considered. So, think about implementing an incentivization scheme. Offer rewards to anyone who makes recommendations that have an impact on decreasing downtime, loss through faulty goods, or improve your progress towards total effective equipment performance. Compensation is an effective reward, but so are more creative choices like flexible work choices.
Without addressing the problems of productivity in your manufacturing processes, you’re going to have a hard time keeping the costs down. You’ll be dealing with more downtime and more late orders for the clients you’re supplying. The points above aren’t a ‘done in one’ checklist. They’re the tools you use to keep the improvement continuous. Your equipment, your demands, and your clients will change. You have to keep looking over your processes and risk of loss as they change, too.