February 4, 2016 | By Craig Workman |
Thinking vertical integration is critical to best price and lead time. Keith wrote that sometimes this statement is true, but is mostly based on simplified logic and not detailed analysis. “If vertical integration is universally the right model,” he said, “why did the vast majority of OEMs abandon it well before the outsourcing model took off?”
Your business should be able to manage production. Managing manufacturing, outsourced or not, and the supply chain is a profession of its own, and requires its own skilled professionals. Great small businesses may try to stick manufacturing operations under product development, but very, very few are truly successful with this strategy.
Bigger contractors will produce your product at a lower Valued-Added Margin (VAM). IndustryWeek.com said this may be true in some instances, but it’s almost wrong more times than it is true. “For most CMs, the largest cost contributor to VAM is what we refer to as labor influenced costs which include direct labor, indirect labor and even facilities cost,” stated Keith. The purchase of local labor isn’t impacted by volume discount as it would be for raw materials.
Just because one contractor’s presentation was better than the others, it doesn’t mean they’re the best choice. Make sure you don’t confuse resources and expertise of a sales and marketing department with the actual work a manufacturer does. Make reference checks and talk to the operations team, as well as the sales team.
Needing the most technically competent partner. Yes, technical experience is an important part of your decision, but it’s not the biggest factor. Working effectively with your contract manufacturer is a complex relationship, and must function well across many areas. You want your relationship with your manufacturer to be a commercial relationship, and the technical performance shouldn’t overshadow all other requirements.
When it comes time for you to chose a manufacturing partner, remember these tips to make sure you’re getting the best for your business. Don’t get burned by a partner that doesn’t fit your business’s needs!