Outsourcing Essentials 1 - Getting Started
Outsourcing Essentials 1 - Getting Started

It is becoming a common fact of many first world countries that domestic manufacture is predominantly an expensive luxury that negatively impacts your product's marketability by creating a sale price that is significantly higher than imported products. This is particularly true in Australia where the minimum wage is rapidly approaching $20 per hour, factory overheads are increasing due to rising electricity and incidental costs, and the cost to import from another country is lower due to the strong Australian dollar. Manufacturing industry and product designers are both faced with the rapid realization that this situation is not likely to change and survival means that occasionally tough decisions need to be made in order to preserve the future of the company and increase the market segment.

Read more: INSIGHT - Outsourcing Essentials 1 - Getting Started

Outsourcing Essentials 2 - Supplier Selection
Outsourcing Essentials 2 - Supplier Selection

Lets assume you have thoroughly reviewed your products and processes as outlined in the preceding "Getting Started" article and you have also identified what your key priorities will be in selecting a supplier for manufacture of your products and the break even cost you require for this venture to be profitable and beneficial from your company's perspective. The next problem you will face is " How do you find a suitable supplier and when found how do you then make the decision about which supplier you wish to engage to manufacture your products.

 

A first inclination may be to send a delegation to attend a few regional trade shows near to the region you are intending to outsource your manufacturing. This may be a good "eye opener" for your delegation to see the variety of products and services that are on display, but as far as yielding any substantial direction for selection of your future supplier, Trade shows can be a bit of "hit and miss". While there are some legitimate manufacturing companies attending the Trade show you will also find a plethora of trading companies that appear to be legitimate manufacturers but are actually little more than a few people in an office space attempting to market manufacturing services for companies with whom they (often) have little or no formal commercial relationship.

 

Read more: INSIGHT - Outsourcing Essentials 2 - Supplier Selection

Outsourcing Essentials 3 - NDAs & Terms
BPO, Outsourcing, Custom Offshore Contract Electronic / Electrical / Mechanical Manufacturing, Sourcing and Procurement. How do you protect your IP in a new outsourcing venture?

You have found a supplier you feel is suitable for manufacturing your products and have undertaken the required due diligence to ensure they are a true manufacturer and have the capability and bandwidth to effectively manufacture your product. So now you are looking to move forward with the manufacturer relationship.

The first thing you need to consider is how are you going to protect your product and legal rights. Your supplier will typically provide you with an English name that they "operate" under for international clients. In many cases this name has no legal connection to the actual business registration and as such when inserted into a contract or an NDA is NOT LEGALLY BINDING.

To look at this issue from a different perspective: Suppose you have identified that your company "Bob's Design and Fabrication" has a strong potential market in Russia and you decide to start pursuing clients from this country. One of the largest roadblocks you encounter in the first case is that your business is not accepted as legitimate or as a preferred supplier due to the fact that when you submit quotations the first thing that your potential clients see is the foreign business name. To get around this you decide to translate your business name into the local language. To save on costs you simply input your business name into Google Translate and get "Боб проектирование и изготовление".

 

Read more: INSIGHT - Outsourcing Essentials 3 - NDAs & Terms

Outsourcing Essentials 4 - Specifications
Outsourcing Essentials 4 - Specifications

Once you have evaluated and selected a preferred supplier for your manufacturing requirements and agreed upon contract terms, you should then be in a position to start transferring your IP for current products to the manufacturer. The information you have provided the supplier at quotation stage can be imperfect without affecting the final pricing, however once you are proceeding to manufacturing stages with this supplier you then need to go through your documentation and specifications on a microscopic level to ensure any requirements you have for your product is adequately captured.

The majority of issues at early stages of a manufacturing contract with a LCC supplier can usually be pin-pointed to issues with the documentation provided rather than an incapability on the behalf of the supplier. In essence any requirements that have not been explicitly documented will likely not be met by the LCC supplier, even if those requirements would seem to be a common-sense requirement from  the perspective of the OEM designer. This article details common areas where documentation may be insufficient, misleading or targeted for a entirely inappropriate audience.

 

Read more: INSIGHT - Outsourcing Essentials 4 - Specifications

Outsourcing Essentials 5 - Logistics

Assuming you have succeeded in selecting a suitable supplier and transferring your documentation and instructions to this supplier in a manner that is easily understood and interpreted, you will now be looking at how you are planning to transport finished goods from your supplier to their destination.

Do you want all finished goods to return to your warehouse for storage and / or testing and QC checks?

Do you want the supplier to act as a distribution centre and ship direct to end customers on your behalf?

Do you have sufficient quantity to justify a sea container as means of shipment and have you accounted for the delivery time impact sea freight will impose on your ordering and storage requirements?

What will be the most cost effective method of shipping for your products?

Have you included freight and customs considerations in your costing analysis for the outsourcing venture?

 

Read more: INSIGHT - Outsourcing Essentials 5 - Logistics

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