The first step in successfully outsourcing a manufacturing operation is to clearly understand what the term “outsourcing” means and to understand the general reasons why a company would choose this approach (click here for an in-depth discussion).
In addition to the general reasons referenced in the article above, here are a few of the reasons why companies have chosen to specifically outsource their manufacturing with CaliBaja:
Cost Savings – Outsourcing your manufacturing to a low-cost labor market will drastically lower the “labor” cost associated with your products. Depending on the ratio of “labor” to the other cost of goods sold expenses in the products you sell, this reduction in labor costs has the potential to exponentially increase your profit margins.
Cost Restructuring – Outsourcing your manufacturing drastically reduces your operating leverage by decreasing the ratio of fixed to variable expenses. Essentially, your fixed manufacturing costs are almost completely replaced with predictable variable costs.
Improved Quality – Superior quality control can be obtained with outsourcing if you choose the right provider and setup the relationship correctly. To choose the right provider: make sure that they registered with at least one internationally recognized organization that is focused on quality – such as ISO or FDA. To setup the relationship correctly, make sure that you have thoroughly documented quality specifications and that your provider is willing and able to accept responsibility for manufacturing the products in compliance with those specifications.
Access to Operational Expertise – Outsourcing your manufacturing to a competent provider allows you easy and inexpensive access to operational best practices that would be too difficult or time consuming to develop in-house. Our core competency has always been manufacturing and over the years we have correspondingly developed an unprecedented level of experience and knowledge that we can easily apply to manufacturing your products – outsourcing your manufacturing with CaliBaja can save you the hassle of re-engineering the wheel.
Reduced Liability – In-house production entails many of types of risk. Quality, on-time delivery, employee safety; the list goes on and on. Anytime you perform a function internally – you are liable for the outcome. With CaliBaja, the extensive liabilities associated with in-house production are no longer your concern. If we agree to deliver something, we are responsible for making it happen.
Reduced Time to Market – The amount of time it takes to bring a new product to market can be substantially reduced with outsourcing as you are able to greatly accelerate production ramp-up through the additional capability brought by the supplier. An operation that would take you months to develop in- house, can be started up in a matter of days with outsourcing – this has enabled numerous clients of ours to enter new markets and offer products that never would have been possible with in-house production.
Access to New Markets – Working with an offshore supplier gives you the ability to access foreign markets that were once unobtainable due to the lack of physical proximity to your manufacturing operation.
Ability to Focus on Your Core Competencies – One of the greatest advantages to outsourcing your production is the ability to focus on your core competencies. Without the constant demands of managing production, you will have more resources to allocate to growing your business.
The decision to outsource your manufacturing to a contract manufacturer in Mexico is usually primarily driven by a desire to reduce operational costs – which is easily achievable once the operation is up and running smoothly. However, it is very important to understand that just like any other investment that will eventually save you money, there will be an upfront demand for capital before you realize a return on your investment.
The following are a few upfront expenses that should be budgeted for:
Before you commit to outsourcing your manufacturing to a contract manufacturer, there are some important questions to ask yourself:
If you can emphatically answer “yes” to all of these questions, there is a strong probability that you a good candidate for manufacturing in Mexico. Please feel free to take advantage of our experience by scheduling a consultation with one of our outsourcing experts and we will quickly and clearly let you know our opinion on the subject.
If you have done your homework and are confident that contract manufacturing in Mexico is right for you, then the next step is signing the contract.
While the act of actually signing on the dotted line just takes a couple of seconds, there is a lot of work that needs to go into getting the contract ready to sign. The contract is essentially the one document that will establish the foundation upon which the relationship will hopefully flourish for many years to come; and therefore should always address the following points – regardless of who you work with:
Once the decision has been made to move the manufacturing operation to a contract manufacturer and the contract is signed, the next step is to transition production from the existing location to its new home. This is the most intricate step of the entire process and depending on the complexity of the operation, may require a significant dedication of resources from both ends:
One of the benefits of working with CaliBaja is that we have done this many times. So many in fact that we have a whole department dedicated to ensuring that the process is completed as expeditiously and painlessly as possible.
Once your manufacturing has been completely transferred to a contract manufacturer, the most difficult part of the outsourcing process will be behind you – but your relationship with the contract manufacturer will have just begun.
Think of your relationship with a contract manufacturer like a marriage between two people. While it is most certainly not impossible to end one marriage and start a new one, it is commonly understood to not be the most pleasant experience. That being said, it is undeniably important to choose your partner wisely and once that decision is made: commit to the relationship, communicate, respect the other party’s wishes and desires, and above all else be flexible.
Notwithstanding the slight digression of the aforementioned analogy, our experience has made it explicitly clear that maintaining a healthy customer – supplier relationship is of paramount importance for all parties involved. The manufacturing world is constantly evolving and as a result one must be able to continuously improve in order to stay ahead of the curve and remain competitive. Once your manufacturing has been outsourced to a contract manufacturer, a partnership has effectively been created and as a result the continuous improvement that we all aspire to achieve cannot be effectively realized without a healthy customer – supplier relationship.
We here at CaliBaja strive for open, honest, mutually-beneficial, long-term, business partnerships with all of our customers so as to be able to provide meaningful / tangible support amidst the ever-changing myriad of challenges that our customers face on a day to day basis. Once we understand the production-based challenges that exist with your operation, we will be by your side to you to help overcome them – day after day, year after year.
The most common mistake that companies make when looking into contract manufacturing is thinking that you can outsource your problems – if you currently have issues with your supply chain, quality problems caused by inherent process limitations, or any other reoccurring problems with production that you have not adequately addressed in-house, do not simply assume that they will be fixed by outsourcing your production to a contract manufacturer. In many cases we are able to leverage our experience to improve existing processes and eliminate waste; however, this should never be the primary driver for outsourcing production.
Having unrealistic savings expectations is another common mistake. For example, expecting that you will be able to cut 95% of your total production cost by moving your operation just south of the border is simply unreasonable. You should expect to reduce the labor cost of your product by between 50% – 75% (depending on where your existing manufacturing is currently located) – many of the other costs (raw material, distribution, etc.) will likely remain approximately the same.
Thinking that you can operate in Mexico with fewer resources/support then you would need in-house. If through years of experience you have found that your particular operation requires 1 supervisor for every 5 direct laborers, there is no reason why that ratio would be any different when are manufacturing in Mexico – the only difference would be that each of those positions would cost you less in Mexico.
Overlooking the support functions required to properly run the operation. You need to have a plan to continue all of the support functions of the operation either in-house or outsource them to Mexico as well. For example, if your in-house operation requires a dedicated purchasing agent for streamlined material acquisition, your operation in Mexico will need the exact same level of support – the only question is whether or not you want to continue performing that function in-house or outsource it to Mexico as well.
Overlooking the new functions that will need to be performed as a result of manufacturing in a remote location. For example, if your main customer has always been located right next door to your manufacturing facility, you probably have not spent much time thinking about the logistics of delivering your product to them. Once you outsource your manufacturing to Mexico, on-time delivery of your product now becomes more involved.
The underlying cause of the overwhelming majority of the problems that companies encounter when outsourcing production is a simple lack of preparation. The outsourcing of a manufacturing operation to Mexico (or anywhere in the world for that matter) is a major undertaking that should be planned for accordingly.
