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ACKNOWLEDGEMENT: DEDICATION ABSTRACT 1. INTRODUCTION 1.1.Definition of Outsourcing 1.2.A Brief History Of Outsourcing: 1.3.The Trends Shaping Outsourcing Manufacturing 1.4.Initial stages of evolution 1.5.Outsourcing Today 1.6.Key decision of outsourcing 1.7.Why do companies outsource 1.8.Observations from the survey results 1.9.Outsourcing or Insourcing 2. WHAT SHOULD BE OUTSOURCED? 3. 7 BUSINESS FUNCTIONS THAT CAN BE OUTSOURCE 4. OUTSOURCING MANUFACTURING 4.1.Things To Consider Before Outsourcing Manufacturing 4.2.How To Outsource Your Manufacturing And Cut Costs 4.3.Manufacturing Your Own Products Or Using Third Party 4.3.1.Make/buy studies 4.3.2.Full cost analysis 4.4.Choosing A Contract Manufacturer
4.5.Important Things To Know About Manufacturing Suppliers

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4.6.Working With Overcies Manufacturing 4.7.Outsourcing Your Manufacturing Pros And Cons 4.8.How To Ensure Quality Control 4.9.How To Outsource Your Manufacturing Process 4.9.Measure And Evaluate Manufacturing Outsourcing 4.10.Manufacturing Outsourcing: 6 Common Pitfalls To Avoid 5. OUTSOURCING MANUFACTURING PROCESS FRAMEWORK 5.1.Zeng Framework

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First of all we would like to thank to All MIGHTY ALLAH who has given us the consistency and erudition to make our endeavor credible. This work has been dependent on the support and contributions from several people. These people have through their commitment, encouragement and support helped me through the journey to write this Research work. I would like to thank first and foremost, to our teacher, SIR ZULKARNAIN, for giving us this opportunity to work on this project, for providing us guidelines throughout the project as how to collect the data and how to work on our project. It is due to his continuous efforts and support that we are able to complete this project in a very comprehensive manner. Afterwards, we would also thanks here to all those people who directly or indirectly help us in achieving our objectives regarding this project.



I dedicate my work to Al Mighty Allah who gave me the courage to complete this project and to Hazrat Muhammad (Peace Be upon Him) Who irradiated the darker paths of humanity With blaze of knowledge and guidance. To my Loving parents whose prayers make us able to complete this project. And to Sir Zulkarnain who provide me related information’s and guide lines to complete this task effectively.


This project assesses the outsourcing of manufacturing activities by firms. Is Outsourcing manufacturing as the strategic solution to strengthen future competitiveness or just a modern trend? The analysis begins with first generating an awareness of the nowadays manufacturing outsourcing business and variances and the steadily surrounding decision making process. The advantages and disadvantages of manufacturing outsourcing and the different impacts of outsourcing on business. And in what condition and when to outsource the manufacturing and how to measure its performance. The insourcing/outsourcing decision requires a careful understanding of internal core competencies, both currently and in the future. The decision involves considering total cost, as well as quality, technology, and customer requirements. Insourcing/outsourcing decisions must be aligned with other functional strategies. Traditionally, in most industries strategic aspects of manufacturing outsourcing have been subordinate to tactical considerations. However, in the past decade, the need for considering the long-term and strategic goals of conducting business in a global multiple-partner environment has been magnified. Consequently, the complexity of making outsourcing decisions has increased. The currently available decision models do not take into consideration the most important and comprehensive strategic and tactical aspects of outsourcing. Therefore, we also see researchers propose a framework for making strategic manufacturing outsourcing decisions through developing a meaningful multi-factor decision model.


which required identifying critical processes and deciding which could be outsourced. Let us. United States. businesses may decide to outsource book-keeping duties to independent accounting firms. United Kingdom and Japan. in this section. They Industrial Revolution. investment is placed into safe. These trends are driven by business top management by seriously all aspects of business. Germany. Outsourcing is an effective cost-saving strategy when used properly. like Mexico. The Trends Shaping Outsourcing Manufacturing: As the certain market. companies have grappled with how they can exploit their competitive advantage to increase their markets and their profits. outsourcing is still a term many people do not understand fully. France. To increase their flexibility and creativity. In the 1950s and 1960s. the rallying cry was diversification to broaden corporate bases and take advantage of economies of scale. companies expected to protect profits. 6 . predictable markets like the United States and countries that are intimately connected to them. These trends also support the notion that during times of economy duress. organizations attempting to compete globally in the 1970s and 1980s were handicapped by a lack of agility that resulted from bloated management structures. try to examine some of the basic factors that are common to all types of outsourcing and thus derive a definition and after this go towards manufacturing outsourcing.INTRODUCTION Despite receiving a lot of attention in the last decade. Definition of Outsourcing : Outsourcing is any task. A Brief History Of Outsourcing Since the Industrial Revolution. Alternatively. job or process that could be performed by employees within an organization. and directly control‖ its assets. the functions that are performed by the third party can be performed on-site or off-site. By diversifying. companies have gaining competitive advantage by outsourcing manufacturing portion to increase their markets and their profits. Hiring a temporary employee while your secretary is on maternity leave is not outsourcing. many large companies developed a new strategy of focusing on their core business. In addition. It is sometimes more affordable to purchase a good from companies with comparative advantages than it is to produce the good internally. as it may be cheaper than retaining an in-house accountant. which are perceived to be more stable for investment. even though expansion required multiple layers of management. Subsequently. but is instead contracted to a third party for a significant period of time. The countries such as Mexico. manage. An example of a manufacturing company outsourcing would be Dell buying some of its computer components from another manufacturer in order to save on production costs. The model for most of the 20th century was a large integrated company that can ―own. operation. Industrial and business trends are going direction towards the world outsourcing manufacturing for decreases its cost and to focus most on its core aspects‘ of business which will leads them more easily towards success.

as organizations began to focus more on cost-saving measures. and the like as a matter of ―good housekeeping‖. However. for example. Outsourcing components to affect cost savings in key functions is yet another stage as managers seek to improve their finances. security. human resources. internal mail distribution. Outsourcing is a growing trend that is not likely to slow down in the future. and fulfillment services. Managers contracted with emerging service companies to deliver accounting. data processing. printing. even though that person has been trained to handle customer service duties. and more more employees may be finding that they are being replaced by outsourced workers. most organizations were not totally self-sufficient. Publishers. Many people work as independent contractors providing services to businesses of all sizes. he or she will likely be speaking with someone who is working for a separate company. Some individuals may find that they are laid off from the company they work for. and are then hired back to that some company as a contractor. they started to outsource those functions necessary to run a company but not related specifically to the core business. When a customer calls an insurance company's 800 number with a question or a concern. have often purchased composition. In the 1990s.Initial stages of evolution Outsourcing was not formally identified as a business strategy until 1989 (Mullin. The days when someone worked for one employer for all of their working life is becoming a thing of the past. 1996). The use of external suppliers for these essential but ancillary services might be termed the baseline stage in the evolution of outsourcing. Why do companies outsource Here are some common reasons:        Reduce and control operating costs Improve host company focus Gain access to world-class capabilities Free internal resources for other purposes A function is time-consuming to manage or is out of control Insufficient resources are available internally Share risks with a partner company 7 . Outsourcing Today Now. the outsourcing of many business functions is quite common. plant maintenance. they outsourced those functions for which they had no competency internally. Outsourcing support services is the next stage. Call center companies are kept busy from a steady stream of clients looking to outsource these duties. Not all outsourcing involves foreign workers.

s. cost or headcount reduction were the most common reasons to outsource. and focus on carrying out core value-adding activities in-house where an organization can best utilize its own core competencies. process. KEY DECISION OF OUTSOURCING  Purchasing an item.In earlier periods. (2007) Outsourcing and transaction costs in “real” time and space) 8 . In today‘s world the drivers are often more strategic. or service externally when the organization has the capability to produce it internally is equivalent to "selling jobs"  Overriding factor in considering internal versus external products/processes / services is TOTAL COST DECISION PROCESS (Montresor.

legal or environmental Internal capacity is underutilized Percentage 29 22 20 19 06 04 9 . and 3) internal manufacturing or service performance is insufficient or does not meet requirements. Driver Need to reduce cost or internal headcount Internal capacity constrained by increasing market demand Internal manufacturing is insufficient or does not meet requirements Strategic sourcing process Regulatory. 2) internal capacity constrained by increasing market demand. The subheadings (underlined text) were risk considerations that survey respondents scored according to how effectively each one was managed in their respective companies.Main factors influencing successful outsourcing The critical areas for a successful outsourcing program as identified are:          Understanding company goals and objectives A strategic vision and plan Selecting the right vendor Ongoing management of the relationships A properly structured contract Open communication with affected individual/groups Senior executive support and involvement Careful attention to personnel issues Short-term financial justification OBSERVATIONS FROM THE SURVEY RESULTS Each heading in this section reflects a section of the survey. Drivers of Outsourcing Review The top three drivers that most often cause an outsourcing review are 1) the need to reduce cost or internal headcount.

(Protiviti’s Reduce Outsourcing Risk and Procurement Capability Assessments) REASONS OF OUTSOURCING 10 .

This is perhaps one of the most important factors for businesses choosing to outsource. companies of all sizes use outsourcing to let go of managing non-core functions while saving a lot of money in the process. Though there are many outsourcing vendors. Today. Supporters believe that it will lead to better management control and job creation at the local level. though it might take more time than outsourcing. A poorly defined objective may result in neither insourcing nor outsourcing being beneficial. Done well. Doing 11 . It is also employed when temporary workers fill positions within an organization for a short duration.What is Insourcing Insourcing is a recent concept that has been advocated as an alternative to outsourcing. businesses need to look closely to see how difficult it is to implement. Outsourcing also gives you access to specialized skill sets of resources and processes that insourcing simply cannot match—not without significant costs. Insourcing also seems to be popular among those companies who have been dissatisfied or even unsuccessful with outsourcing. Insourcing can also mean an organization building a new business center or facility which would specialize in a particular service or product. Insourcing may give you a preview into how outsourcing can work. insourcing may help you build a team of skilled people. Insourcing makes sense when the business requirement is only temporary or where no significant investment is involved. it is important to assess potential vendors before shaking hands on a partnership. Outsourcing or Insourcing Before deciding whether insourcing or outsourcing is the best option. Insourcing can also help smaller businesses and startups that have little or no experience with outsourcing. It was once considered a luxury only larger companies could afford. Insourcing seems to be more prevalent with manufacturing companies that hire labor and services from an external organization in order to cut costs and decrease their tax burden. Outsourcing is a clear winner when businesses need to cut costs while still requiring expert personnel. Though insourcing may look like a straightforward option. Insourcing is also an option for those who want to outsource but are wary to do so. Insourcing is also seen as a solution to the problems of control and hidden costs with outsourcing. it is important to first define business goals.

The key factors which have led to a growing trend of outsourcing are    Lack of expert-labor in some portions of the business process Availability of cheaper labor. Complexity/dynamism of the process. while often reducing costs. and effective. 2. Strategic importance of the process Ken Garrett is a freelance lecturer and writer 12 .a little homework before choosing your outsourcing partner can lead to long term gains and help you build a long-term competitive advantage for your business. Ongoing operational costs that may be avoided by outsourcing are also a consideration. In a nut shell. It uses two axes: 1. outsourcing allows organizations to be more efficient. and one should consider each project on its individual merits. whilst not comprising on the quality of output Ability and feasibility to concentrate on the other crucial business process WHAT SHOULD BE OUTSOURCED? Harmon‘s Process Strategy Matrix provides very useful guidance about which processes can be safely outsourced and which should be kept in-house. Dynamism is a measure of how much the process changes. but subject to automation or other improvement. How to decide whether to outsource There are no simple criteria to conduct an outsourcing versus in-house analysis. flexible. The benefits associated with outsourcing are numerous.

If. Furthermore. benefits. while cutting down on administrative cost. You can achieve quality results by outsourcing firms who are experts in certain areas of your business. the process were very complex and subject to many changes. If that is not enough to convince you. then automation will be difficult to achieve and even more difficult to keep up to date. 2. outsourcing is not recommended. then you probably can achieve the same goal by hiring a great reputable human resources firm to perform these functions for you. and can encompass anything from embroidered hats to drill parts to car stereos. and protocols change frequently. If a process is strategically important it is likely to be a source of competitive advantage. If that were to be outsourced. without paying high prices. it allows you the flexibility to focus more on your core business operations. Manufacturing is capital intensive. companies such as DuPont. 3. Some American companies are requiring that their basic legal task to be performed by legal firms who are said to be quite efficient and fast. This allows you to easily capitalize on their expertise and abundant knowledge. There are several basic business functions that can easily save you time and money by outsourcing. They are: 1. or drafting contracts. What would then be left for the outsourcer to do? If a process is relatively stable and non-complex. Legal Services This is a controversial issues. and modern manufacturing often involves frequent changes to machinery and production. Many companies are outsourcing their basic legal needs to companies that are located in places such as India. Manufacturing requires large factories with dozens of pieces of specialized machinery and operators who know how to work them. where strategic importance of the process is high. 7 BUSINESS FUNCTIONS THAT CAN BE OUTSOURCED Outsourcing can be a great way to get quality results. then automation would be feasible and worthwhile. Such legal duties consist of processing legal documents. meaning that it involves a lot of money and specialized equipment. Therefore if you are concerned about the high cost that accompanies hiring employees and providing consistent training. and wage issues are functions that should not be taken lightly. but it demands some discussion.Notice that in the right-hand pair of quadrants. Manufacturing Manufacturing is the business of producing industrial goods. employee law standards. however. Morgan Stanley. The Human Resource department needs continuous training and education as laws. then the company would be telling the supplier about its most valuable secrets and competences. Human Resources Keeping up with benefit packages. and Cisco Systems were said to have successfully outsourced their 13 . researching legal codes.

patent management and research. with the advancement of technology it makes it even easier to perform and manage IT issues remotely. Website design and development is not a job that needs to be conducted at your office. search engine optimizing. or one that is miles away from your business. you can hire an IT firm who would be able to perform the same services as your employees would. prepare quarterly payroll/sales tax reports. Instead of hiring an IT departments to an outsourcing firm permanently. The list of functions that can be outsourced can be endless. you can rest assured that your web presence will give you a "leg up" on the competition. Experts in market research. to your advantage. Therefore. Website Services This is another great way to effectively outsource a much needed function. Now. You are also assigned a representative to your account. 4. and provide online access to all of your information. and technical support. Most firms can assist you with many internet related activities such as website design/development. pay employees. and ecommerce. training. What should of course be kept in mind is the nature of your business and the demands of your customer. these firms are all located in India. by creating an informative and quality driven website. MBA's. in which you can contact if you have any questions. 14 . investment banking and research. email marketing. Accounting or Bookkeeping Services There are many accounting firms that offer outsourcing capabilities that are both convenient and economical.People working in a KPO are highly skilled and qualified individuals such as lawyers. Chartered Accountants. 6. invoice clients. Company Secretaries etc. Outsourcing can help increase your profit margins however what needs to be determined is how you can make it work for you. medical research. Not to mention. desktop support services. legal research. These firms can do everything from pay vendors. engineering and construction specialists etc. Knowledge Process Outsourcing Companies can decide to outsource some of the high value and high skill requiring jobs to places where they can have access to some of the best talent in that particular field. without the added cost. 7. Most outsourcing firms provide both onsite and remote monitoring. engineers. 5. hardware/software updates. doctors. IT Outsourcing you IT needs is a great way to save on cost and office space. Outsourcing allows you the option of selecting from a local firm.

Furthermore. An increasing number of companies spend an increasing amount of money to outsource their manufacturing. Since different 15 . Surprisingly it can be much cheaper to relocate your manufacturing plant to China and ship the products back to the United States. When you are focusing on cutting costs. Part of working with china manufacturing plants also means you need to be able to hire an auditor that will help you assess the suppliers and to make sure both companies are maintaining quality standards and ethical standards as well. According to companies Accenture and The Outsourcing Center. outsourcing manufacturing is one of the best ways to do it.WHAT IS MOST OUTCOURCED OUTSOURCING MANUFACTURING Many manufacturing firms have started outsourcing manufacturing because the costs to produce the products are too expensive or the cost to hire employees is too expensive. companies opt for outsourcing as a way to increase flexibility and decrease the money and manpower involved in building and maintaining their own factories. for many small companies. outsourced manufacturing makes much more financial sense than building a factory that will be underutilized.

A popular method for quality control is Lean Six Sigma. A big problem lately has been dealing with the lead paint issues. and disposal 7. Overseas manufacturing can save your company money. it can be hard to standardize procedures overseas and through different cultural barriers. Recruitment of staff and training of staff To help with quality control and t make sure you meet quality standards. Review of management procedures 4. You must be able to have good communication with these facilities in order to ensure that everything is working correctly and that they understand your needs and that they are actually following them. This will help to keep the manufacturing plant on their toes and to make sure they are listening and honoring the needs of your company. Continuous process improvement 5.countries have different operating procedures. Internal and external audits 3. Will the manufacturing plant pay for the product recall and handle the publicity to fix your tarnished reputation or will this fall directly to your company? This is a big issue to talk over before you start outsourcing manufacturing. Hiring a quality control specialist is a must with outsourcing manufacturing. control. Quality of materials and effectiveness of the materials 2. you will have a product recall. Documental control and organization 6. This allows you to not only focus on reducing your defect ratio so your customers have quality products. but is the hassle of cultural barriers worth it? You also need to consider how expensive your raw goods are and where they are coming from. Identification of waste. you will want to focus on additional things like lean manufacturing or Six Sigma. It is the only way to make sure corrective issues are implemented when you are trying to address problems within the company's manufacturing and assembly lines. it is recognized that lead paint is dangerous to children and adults and when toys are manufactured using lead paints. Some of the things to discuss with the quality control specialist include the following:      Health and safety Employee morale and pay Manpower needs Resources Management structure 16 . Surprise your manufacturing plants by sending in quality control checks and audits. you will also focus on improving the rate in which the products are produced along with the employee morale. In the United States. Some of the challenges you will face as your outsource manufacturing include the following: 1.

You will need to become familiar with them in order to find the one that works best for your needs. • Decide what manufacturing process will be used-There are different ways to outsource your manufacturing. For many manufacturing businesses this cost savings can often mean the difference between staying in business and shutting their doors. This can mean significant cost savings and higher profitability if it is handled correctly. Keep in mind that there may just be a better way to save money. Because of the high cost of producing an entire product in one location outsourcing can often be a cost effective solution. the process may be somewhat different. THINGS TO CONSIDER BEFORE OUTSOURCING MANUFACTURING Because of the difficulties within the economy many manufacturing businesses are looking for ways to cut costs.      Commercial conditions Business licensing Legal procedures Company history Location Local infrastructure The quality control specialist will be able to make sure your company is able to run correctly even though they are in other countries. One of the most widely considered ways to cut costs is outsourcing some of the production of their product. Here are some things to consider before outsourcing manufacturing• Decide if outsourcing will be profitable for your business-The bottom line in outsourcing is whether or not you will make money by utilizing it. • Decide what potential products (or parts of products). Random checks are the best way to make sure you are running a successful plant and that you have gathered all the right information to make sure you are maintaining a high reputation. will be outsourced-As part of the process of determining whether or not you should use outsourcing you will need to look closely at all products and determine if the entire product or parts of it should be outsourced.. These are the people who will be able to find the company that will best meet your needs. However. Remember. so it is important to determine if it can work for you. There are a number of reasons why this can be so from transportation to lack of skilled employees. It is important to understand that if you are going to be outsourcing part of a product rather then the entire thing. there are certain things that you should consider before you decide to outsource. However. If you are unable to contact individual companies there are businesses that specialize in finding the right outsourcing manufacturer. This will help to protect the reputation of your company and it will ensure that your company will remain successful for many years. Once you have decided what products or parts of products will be outsourced then you will need to look closely at the entire manufacturing process. • Decide which company you will outsource to-At this point in the process you will begin contacting companies that may be able to do the outsourced manufacturing for you. that you are only looking at them in terms of whether or not you can save money by having them made somewhere else. you should keep in mind that they will charge a fee for this 17 . You will need to do a cost analysis of your product to determine if outsourcing will be right for you. It is important to understand that outsourcing does not save money for all businesses. You will need to know what is involved in the process and what will be required of your company.

is going to be profitable. and increasing profitability. or because there are better methods. Determine if outsourcing will be good for your company. Many manufacturers choose to the beginning to have one product outsourced and then see if it will work for their business. Many manufacturers find that they can save considerable cash by outsourcing a portion of their products. With manufacturing businesses. The bottom line is that saving money in a bad economy can sometimes mean the difference between staying in business. to figure out if you will be benefiting from it or not.service so you may want to consider doing this yourself. you can enact to save money. It is important to keep in mind that not all businesses. than if you outsourced the entire product. you will need to examine your manufacturing processes. Keep in mind that price should not be the determining factor as you want to choose a manufacturing company that will make the product to the highest quality of standards . There are many reasons for this such as it can be too hard to get the materials needed in another location. many manufacturers are choosing to outsource their manufacturing overseas. Determine which process will be used-You will to need to research the process that is involved in outsourcing your manufacturing. You will need to look closely at your manufacturing process to see if outsourcing some of your products. Keep in mind that if you are only going to be outsourcing a portion of a product. At this point you will also need to find out the best place to outsource your product to. the rules are going to be a bit different. HOW TO OUTSOURCE YOUR MANUFACTURING AND CUT COSTS In today's economy. to see exactly which ones would save you the most money by. such as if it is cheaper to go overseas or to stay local. 18 . or just a part of a product. You will have to understand exactly what is specifically involved in the process and what is going to be required of your business. You will need to go through the various products that your business manufactures. in order to outsource a specific product. most businesses are looking for different ways to cut down on their overall costs. Cutting down on overall costs simply means you are saving money. can save money by outsourcing their manufacturing. having them outsourced. You will also need to determine how much it is going to cost to manufacture the product some where else. Remember that in order to determine if outsourcing a product is going to be beneficial. Determine exactly what products you will want to outsource. Today. Here is what you need to know about how to outsource your manufacturing and cut costs. this is especially true for manufacturers. one of their biggest costs is the manufacturing all of their products in one location. and having your business fail. If you decide to contact outsourcing manufacturing companies yourself it is crucial to get all of the details in writing concerning what they can offer you and how much it will cost. and then have it shipped to your location.

If your customers are taking the brunt of your money-saving strategy. Third-party manufacturing has its benefits. thirdparty manufacturing is definitely the way to go. Establishing a contract will be one of the hardest parts as you need to try and limit your liability when it comes to the product. You will want to find out how much each of them will charge for manufacturing your products. Just because third-party services can provide you with something for cheaper doesn't mean they are necessarily better. as well as the one that will provide you with the most benefits and the highest quality product. You are in charge of the product design but the actual engineering and manufacturing of the product is left up to the manufacturing company. you will gain exposure to a new audience and potential customer base in the manufacturing industry. you will suffer from customer fallout. you may need to consider third-party manufacturing. You will then contact the businesses that specialize in outsourcing manufacturing because they will be able to help you know where to go. When you are working with multiple companies to produce your products. Third party manufacturing is a great way to cut costs and to reduce the burden on your company. and ask them for some basic information. and which ones you should stay away from. so that you can know what to expect in the future. they should also be liable for product defects and the costs to send new products to the customers. MANUFACTURING YOUR OWN PRODUCTS OR USING THIRD PARTY Cutting costs and providing customers with the best products possible is always a concern for manufacturing plants. Since another manufacturer is in charge of producing them.Determine which outsourcing manufacturers are viable candidates. Keep in mind that you will need to pay them a fee for their services. After narrowing down the field you will then contact the companies. Word of mouth marketing is a great way to let people know about your business and you can use your new contacts in the manufacturing industry to meet new customers and generate more clients. Once you make the final selection make sure that you sign a written agreement that you both agree with. The industry you work in will provide you with the benefits or challenges. They should also be able to give you advice on which companies will work best for you. Whenever you are thinking about expanding or you are dealing with an influx of orders. The other nice thing about third-party is the networking possibilities. or who to contact. that you are considering using. they are not going to be satisfied which will in turn leave you unsatisfied and potentially out of business. to outsource your manufacturing. If you are trying to reduce the amount of money you spend on manufacturing processes. If your customers are seeking quality customer service and they call your hotline only to have a frustrating experience due to language barriers. but it also comes with its fair share of problems as well. The providers will eliminate the stress you may 19 . so you should consider looking into doing this yourself. You will want to choose the company that can help you cut down on your costs the most.

50 20 . Your commission rate will not be as high as they could if you were to sell them on your own but you will still earn a nice consistent contract for your business.00 $8. you can actually provide specific rules for how they can go about selling the products. they are also available in the form of third-party resellers. The nice thing about resellers is how much control you have with them. If you want to save money and boost production. MAKE/BUY STUDIES Finding True In-house Costs is not Easy!     Costs of Overhead Costs of Quality Operational Costs Capital Costs FULL COST ANALYSIS INSOURCE Variable Cost Variable + Manufacturing Overhead Variable + Manufacturing Overhead + Corporate Overhead $ 5. This allows each customer to have the same interaction with your company even if these individuals are not actually hired by the company.00 OUTSOURCE ------------------- $10.00 $7. Unlike the third-party manufacturing plants. These companies can also reduce the burden you may feel to boost your sales numbers as they will order a set number of products and focus on selling feeling and they will make it easier for your company to produce the products it needs in a timely and efficient manner. third-party manufacturing is the way to go. Not only can you find third-party companies to produce and ship out products for you.

These companies are finding that choosing a strictly manufacturing company to develop their products helps considerably with their profit margin. hair care and personal hygiene).CHOOSING A CONTRACT MANUFACTURER A firm that specializes in manufacturing components or products for another "hiring" firm is known as a contract manufacturer. Companies are finding that using contract manufacturing in an international context. medical. and automotive fields. labor. Contract manufacturing also has extended internationally. cellular phones and personal care products (cosmetics. There are many industries that utilize this process. There are many different and varied components and complete products that are made using contract manufacturers. aluminum die casting. In a contract manufacturing business agreement. computer. It falls to the contract manufacturer to oversee production and bring the product to market for the contract price. and material costs. the hiring firm will select a contract manufacturer who then will begin the actual manufacturing of the components or product. This type of manufacturing can include many different types of production including but not limited to: CNC machining. This especially give the hiring company (owning the product) more flexibility in meeting shifting consumer demands. Some of the largest and most profitable companies use contract manufacturing as an alternative to operating and maintaining their own factories. thereby establishing a foreign subsidiary as a contract manufacturer can have favorable tax benefits for the hiring/ parent company. the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the cost of manufacturing the parts based on processes. computers. grinding. tooling. Contract manufacturing can be used for anything from single components to a complete product. energy. gears. and forging. Typically a hiring firm request quotes from multiple contract manufacturers. personal care. Some of these products are: printers. When the bidding process is complete. This is done to help the parent company minimize their capital spending and often results in being able to shorten the time it takes to fully a develop a product on their own. The amount of profitability depending upon the activities of the contract manufacturer. 21 . especially the aerospace. While this type of manufacturing was once only the domain of technology companies it has spread into many other areas including pharmaceutical and cosmetic companies. chemical development. broaching. Many companies today are finding that in order to stay profitable and move a product quickly they must choose a contract manufacturer. allowing them to reduce overall tax liabilities and increase profits. defense. The contract manufacturer literally acts as the hiring firm's factory. But for these benefits to be realized it is essential for a firm that is outsourcing to choose a contract manufacturer that is best suited to its needs. semiconductor. complex assembly. producing and shipping units of the design on behalf of the hiring firm. Contract manufacturers are set up to produce large numbers of products in the most cost and time efficient way possible.

you are most likely going to outsource at least one thing. Before entering into any working relationship with a manufacturing supplier you need to get to know more about them to make sure they will be able to supply what you want and when you want it.IMPORTANT THINGS TO KNOW ABOUT MANUFACTURING SUPPLIERS There are plenty of important things to know about manufacturing suppliers. but it can be a danger to your company as well. However the cost of having toys and other things manufactured overseas may be significantly less due to salaries of the workers. It is important to know how well the manufacturing suppliers parts or supplies can handle what you need those parts or supplies for. causing you to pay less per unit that you will in the States. In overseas countries the value of the dollar may be much higher. One 22 . One of the many important things to know about manufacturing suppliers is when to expect the product you are outsourcing to them. making it hard for your customers to get the support and help they need. Overseas outsourcing can cause a lot of frustration to your customers as many of the call centers overseas have very thick accents. If you are putting the manufacturing suppliers' parts into your products you will want supplies that can stand up to scrutiny and help your product to shine. You need to know as much as you can about the manufacturing supplier and their products in order for you to make an informed decision about who to outsource to or to buy any supplies from. Important things to know about manufacturing suppliers can have more to do with the supplier then with your company. No matter what type of supplier you have you want to have a good working relationship with them. Here are some important things to know about manufacturing suppliers to gain a good working relationship with them. WORKING WITH OVERSEAS MANUFACTURERS Outsourcing your manufacturing can cut costs. You will be working with your manufacturing supplier for years to come so the more you know ahead of time the better. Your manufacturing supplier can be someone that you outsource too in order to help you make a finished product or your manufacturing supplier can also be someone who supplies you with materials to build your product. This can be done in interviews with other personnel from the manufacturing supplier. Not all manufacturing suppliers will have the same quality of product. Along with doing research into the manufacturing supplier you are looking at you should also look at the products they make and the reputation that those products have. Most companies outsource at least one thing whether that is the actual production of your products or payroll services. Knowing the turn around time will help you with making your product and marketing it. You should know what their turn around times are or how long it will take you to get the supplies from the manufacturing supplier to your company.

Since it takes a lot of people to run a manufacturing plant. If you are outsourcing your call center. which is why so many companies outsource a lot of things. This way you can manage the changes in a timely manner and you will be able to manner your business while you are adjusting to the changes of growth. leaving both them and the employee frustrated. especially if they are interacting with your customers. Staffing is another cost you can avoid when you are dealing with overseas manufacturers. Having a complex industry may lead you to seriously consider using overseas manufacturers that are industry specific. you need to consider outsourcing your production even if it is only for a few weeks or months. This is another big cost savings to your company bit you still risk dealing with the customer fall out that may come as a result of your inability to provide your customers with solid products that are free of defects and other problems. Product defects and recalls must be paid out of the pocket from your manufacturing plant. you don't have to worry about finding these employees to run the machines and to run the company. Outsourcing to companies that are not industry specific can cause problems for you and your customers. These automated services allow many of your customers to have their simple needs met but you will be responsible for providing some customer service agents that can handle additional needs that cannot be handled with the automated system. One of the biggest reasons to use outsourcing is because of the ability to avoid the cost of purchasing manufacturing equipment along with the raw goods you need to create the products. A lot of companies have switched to automated call service centers. Many times the people manufacturing your products or talking to your customers will have no knowledge about your company and your industry whatsoever. 23 . It can be stressful and frustrating for businesses to deal with the employees that work at the manufacturing plant.common rule people follow is leasing what depreciates. If you are in a growth spurt. This cost savings is huge for your business as you also reduce your liability issues that are common for manufacturing plants and employee injuries. Many companies consider using overseas manufacturers and outsourcing when they are expecting an influx of orders. you are able save yourself money on these costs and also on the maintenance of these machines. This is a great way to strengthen your cash reserves and to put the responsibility of your manufacturing processes on another company that will need to deal with the liability issues. Overseas manufacturers are not right for everyone. When you do so. you need to be extremely picky and consider the needs of your customers. Always consider the type of industry you are in and the customers you are working with.

then the word "outsourcing" is extremely familiar to you. Executive Level support in client organization. For others it may be a some what foreign term so let's begin by explain what it means to "outsource" in manufacturing.OUTSOURCING YOUR MANUFACTURING PROS AND CONS If you are in the manufacturing business. When you hire only what you need. Pros to outsourcing in manufacturing      Specializing in what they do best is a great benefit of outsourcing. Outsourcing can also give you a small advantage when trying to win customers. which is why outsourcing can be a huge advantage to them. It becomes even trickier when the companies take their outsourcing to other foreign countries because of language barriers. as it becomes part of the industry. It is not unusual for companies to outsource regularly. you pay for only what you need. or a group that is not associated with the business in any way. let's take a look at the pros and cons to outsourcing your manufacturing plant. Outsourcing allows you to hire the right person for the right job and may give you some new ideas into your business as it presents an unbiased perspective. the outsource "service" that is provided to the company is usually done by a third party provider. This is extremely important in large manufacturing plants who want to increase the quality of their products. and cultural and time zone differences. Communication efforts from management to employees. Every manufacturing business is looking to decrease their costs which is exactly what outsourcing can do for you. Outsourcing can help companies be more efficient and cost effective. A person. Outsourcing is contracting with another company or person to do a particular job or function for you. With all that in mind and a little more knowledge in outsourcing. If you have "specialist" within your company that can increase quality and cost who wouldn't want to have you on their team? 24 . Outsourcing usually encompasses four stages: 1. Outsourcing can allow business owners the freedom to focus on what they need to in order to keep their business running smoothly. Any smart business will hire independent consultants or outsource critical functions within their business. Business owners cannot do everything all at once and becomes very ineffective. Strategic thinking Evaluation and selection Contract development Outsourcing management Outsourcing also depends on three main factors to be successful. Generally speaking. and the client's ability to manage its providers. 2. 4. and other project bids. 3.

This is extremely important if you are working with manufacturing companies that are overseas. Knowing all the information is the best way to begin the process. Find out how much experience the company has with their overseas exporting. Exporting products is expensive. Often times with outsourcing there are conflicts of interest and issues with confidentiality. costing you more money. it can lead to manufacturing defects and other problems. When quality control is not implemented within a plant. You could lose money on your outsourcing investment. Although some may argue that outsourcing can give you an edge over other companies. They have different safety standards in other countries so you will need to check up on the manufacturing plant before you hire them. Quality control helps you avoid expensive lawsuits and other things by taking steps to prevent problems and eliminate them before they become a burden and a waste on your company. If you are choosing to work with a company that will manufacture your products. 25 . but when you outsource you run the risk of having less control over what happens and less loyalty from those you have hired. Sometimes employees feel less important and the quality of work can suffer. Every business investment has some risk and there is no guarantee that outsourcing is going to produce the quality you want. you need to also find out how they implement quality control. HOW TO ENSURE QUALITY CONTROL When you are producing products or outsourcing your products to another company. Check references to see if their previous clients have been happy with their services and delivery of the products. and could end up costing more money because of labor. and the job might take a lot longer than planned. Product recalls are incredibly expensive for your business and could damage your company's reputation for life. The desire to "get the job done" may be lower than what you wish it to be. Business employees to some degree or another are fairly loyal to a company. Quality control simply means you will set a standard for where your products need to be at and then strive hard to meet those expectations. It is always a good idea to have confidentiality agreements to steer clear of this problem. others might argue that it takes away your competitive edge. are they planning to work the shipping costs into the total production costs or are they going to send you a separate bill for the manufacturing and shipping costs. you need to make sure there is a high level of quality control.Cons to outsourcing in manufacturing      Upsetting employees may be one of the major disadvantages to outsourcing. The decision is ultimately yours when it comes to outsourcing your manufacturing plant.

Have your manufacturing equipment tested often to make sure everything is running correctly and to prevent problems from happening. Most plants will build in an 3% error ratio and they will credit you or provide you with new products that meet this ratio. Companies also outsource parts of their business because they do not have the capabilities of doing that part of business themselves.When you are dealing with overseas plants. All of the reduction in costs leads to a reduction in the price of the product. You need to make sure your employees are properly trained on their job responsibilities. It can be a bit of a challenge as the representatives with the company may not be fluent in English and they may not understand all of the demands you are asking for. Obtain quotes from multiple companies and obtain quotes. HOW TO OUTSOURCE YOUR MANUFACTURING PROCESS Because of the high cost of doing business in the United States many companies are outsourcing more and more of their business to other countries. you need to make sure you keep the lines of communication open. If you are outsourcing the manufacturing of your products. report it in a timely manner so you can return it and have it replaced. Foreign language barriers can cause a number of issues for you with your product production. Be careful of the price when you obtain the quote from the different manufacturing plants. Improper training can lead to mistakes within the manufacturing process and this will cause you to have expensive product recalls. You also need to meet with them to find out what type of control you will have and what your involvement will be with the company. This is great for companies because the lower the cost of goods the more of a profit the company will make on their finished products. This is the best way to make sure the manufacturing equipment isn't producing product defects. such as payroll. The reason for this is that in other countries the cost of living is less which means that wages are less and many times the prices of materials are a lot less. Ask the manufacturing plant to consider implementing it so you can find out that the people that are producing your products are staying safe. Outsourcing to manufacturing plants can be hard since you lose some of the control. Always inspect the products carefully and test them for quality. While the lower cost is a huge factor in outsourcing that is not the only reason that companies outsource. If you notice a problem. 26 . But yet another reason that companies outsource is because they can not meet the demand for the product by themselves and in order to keep up with the demand they need to make more of the product. Have they implementing safety standards? What are they doing to make sure their employees are staying safe? A great method to implement is known as Behavioral based safety. Some of them may offer a low price but you will get what you pay for and they may not have a high standard for quality control. it also comes down to your employees. you always need to check the finished goods for quality. Quality control not only starts with the machinery and equipment you have and making sure everything woks correctly.

and timeliness may be used to monitor outsourcing performance. MEASURE AND EVALUATE MANUFACTURING OUTSOURCING The following provide some simple ideas on how manufacturing outsourcing arrangements might be assessed: Metrics relating to costs. Will outsourcing help you cut costs and raise profits. According to the Aberdeen Group. quality.For example Company A manufactures mother boards for computers and Company B manufacturers CD-Drives for computers. will contract with both Company A and Company B to buy there products so that they can manufacture a whole computer to sell to the consumers. Both of those companies have a great manufacturing process for what they are making but don't have all of the parts to put the computer together. Part of this will depend on what type of product you are manufacturing. Company C. Step four: Now you can contact some companies that specialize in outsourcing manufacturing to other companies or you can locate the companies yourself to see what they have to offer. Step three: Now you are going to have to do some research on outsourcing. Just because you are outsourcing doesn't mean that you have to go to another country. Doing this research you are going to have to see what place is the best place to outsource to. In this case outsourcing works out for the best for all of the companies involved. this is where Company C comes in. Some jobs can be outsourced locally while other jobs are best outsourced overseas. Do you want to outsource all of your manufacturing or just parts of it? Take a look at your manufacturing process to see which way will be the best for your company. ―best in class‖ manufacturing organizations monitor the following five key areas:   scrap or yield supply chain inventory 27 . In the agreement you are going to want to make the terms and conditions clear so that you both now what to expect. Step two: Now that you have decided that outsourcing is right for your company you are going to need to decide what you are going to want to outsource. or will outsourcing help you lower the total cost of your product so more people can buy it. Here are some steps you should follow to outsource your manufacturing process: Step one: The first thing you need to do is determine if outsourcing your manufacturing process is going to be beneficial for your company. which manufactures computers.

Supplier Risk Management  Percentage of supplier business. Quality control. i.e. Incoming orders. i. and provides an indication of the risks involved.e. 5. Reorders. Service Measures 1. i. or machine hours of downtime. number of life test failures. or average run size. Supplier quality performance. overdue items in work in progress. or customer perception index.e. i. i. or paid labor hours per 1000 units. the number of reorders to make up incomplete orders. or earned hours per 1000 units. rush orders per period. Throughput costs. The following are potential operational measures: 1. numbers in parts per million of rejected incoming parts. i. Average number of faults. 6. This measure seeks to establish how dependant a supplier might be upon the client‘s business. i. average lead-time by product family. 4. throughput costs per hour of manufacturing time.e. percentage of deliveries received on time. 2.e. incoming orders per period. i. 2.e. Quality Measures     Customer feedback. Unit throughput. i.e. Productivity Measures     Throughput versus cost. or the number of customer complaints. i. or pounds of scrap at a given location. On-time delivery. 3. Lead time. 5. or units produced per hour.e. numbers of debtor days recorded. Financial Measures   Stock days.e. i. throughput divided by total production and materials costs.e. i.e. 3. This is a measure of the level of a supplier‘s revenues that are derived from the client organization.e. revenue spent as a percentage of total supplier revenue. i.e. units produced per working day. Urgent orders. Overdue products.e. or overdue items in shipping. i. Overruns. i. the percentage of quality feedback reports from customers that indicate errors on shipment. 28 . or overdue incoming trucks.e. overrun units to non-valued inventory. percentage of faults found at final test.e.e. or units produced per shift. 4. numbers of days‘ worth of stock held. i. Debtor days. and overall time to market. i. jobs completed per period. Production. i.e. 7.   factory throughput manufacturing cycle time.

cost of goods sold (COGS). order fulfillment and logistics can also be handed over to a contract manufacturer (CM).  Percentage of supplier choice. This measures the spread of suppliers available to provide a given product of material. contractual agreements. finalized your key contract terms and agreed to how your products will be priced — now and in the future. a single CM — and starts discussing business without having a clear understanding of the appropriate selection criteria. Even if you are not planning on embarking on any new relationships. An OEM selects a handful of contract manufacturers — or worse yet. This will reduce the likelihood of a hasty selection process when the need arises.e. Placing manufacturing activities in the hands of a manufacturing partner makes it increasingly important to manage tasks through documented business processes. quality. i. Before making any decisions. In each case. and time-to-market can be easily measured. Outsourcing. understand your short-term and long-term requirements. validate your existing solution from time to time to ensure ongoing alignment with the direction of your business or product roadmap. and software tools. Original equipment manufacturers (OEMs) can not only offload manufacturing but tasks like materials management. we have observed seven common pitfalls that impact manufacturing outsourcing success. Outsourcing penetration. by definition. at a minimum. we will offer more insight on these seven most common outsourcing mistakes and steps that can be taken to address them. i. Refrain from awarding business until you have. Develop a clear plan and follow a methodical process until you have narrowed down your choices to at least two finalists. MANUFACTURING OUTSOURCING: 6 COMMON PITFALLS TO AVOID Outsourcing is a way of life for electronic manufacturers and many would not survive the marketplace without this option. This is a measure that provides an indication of the degree of reliance on sub-contract agencies. Through our years of experience in working with electronics OEMs and CMs. number of tasks or processes outsourced as a percentage of total tasks or processes. 1.e. spend time to develop a clear set of selection criteria. chosen supplier/available suppliers. and cast a wide net to evaluate multiple options. and levels of competition. the impact on revenue. Selecting the Wrong Contract Manufacturer (CM) Working with the wrong CM is at the root of many problems that we observe in outsourcing. there are also risks and challenges for OEMs to consider. leads to loss of control. Despite the significant benefits that come with outsourcing. design and testing. availability. It indicates risk. In this whitepaper. Without building new processes and infrastructure to support this supply chain approach the benefits of outsourcing will be offset by newly introduced costs and risks. 29 . inventory levels.

labor. Product specifications are provided via electronic or paper means. Using a Quote-and-Go Approach The first formal exchange between an OEM and CM is typically the submission of a request for quotation (RFQ). test. Added to the acquisition price are a host of factors that can drive your cost up or down depending on how well you structure your agreement with your CMs. what ―inventory turns‖ were assumed during the quoting process? How is the CM using vendor managed inventory? How do they handle Kanban. and profit or gross margin. or by a more modern approach? At what point in the supply chain does the ownership of the finished goods inventory transfer? Are all transportation costs such as freight. and buffers? How is the purchasing order policy being managed: through the traditional ABC categories. or will they be invoiced separately? All of these can have a noticeable impact on your product price. In our opinion. But without clear visibility to the cost breakdown. Lack of visibility to product pricing structure. cost of acquisition (or material mark-up). and the output is a product price that is sent back to the OEM in order to make a decision. or what cost improvement opportunities there may be in the future? Unknown details regarding the supply chain model. and duties included. CMs go through their quotation process. your CM quote can increase or decrease substantially. For example. how can you know what assumptions were used in quoting your product. manufacturing overhead. No attention to non-price issues. taxes. As an example. there are four potential problems with this ―quote-andgo‖ approach: Component pricing ambiguities. engineering change order (ECO) management. Unless you have had the early discussions upfront on what your supply chain model will look like. what role has volume played in the pricing received from the component suppliers? How will purchase price variances be managed? Which component suppliers have been contacted to obtain pricing? What minimum order quantities apply to each component? Have any approved vendor list (AVL) or approved manufacturer list (AML) substitutions been made? Does the component pricing used in the CM quotation assume any onetime purchases from brokers? The best way to catch misquotes and inadvertent errors is to get the detail and look for discrepancies.2. Some CMs are hesitant to provide an accurate breakdown of cost to a detailed level that specifies material cost. and for what period of time are your products covered? What is the cost structure for repairing products that are outside of warranty? Is the inventory for warranty repairs at a different location and under a different cost structure? How do quality-related metrics such 30 . What is the scope of your CM‘s warranty. The OEM and sometimes even the CM do not clearly understand what assumptions are built into the pricing quotes. including bin sizing.

engineering services. Finally. Broken Environmental Compliance Management Although OEMs are required to take ownership for their products‘ environmental compliance and drive it throughout the supply chain. 3. prototyping costs. tariffs. a contract negotiation and signature process itself serves as a vehicle to pull in senior level managers from both sides to build relationships. First. document. The large dollar purchases associated with manufacturing outsourcing put your CM relationships on the radar screen for any financial auditor. and manage the compliance of your product. and determine when and how the change impacts their specific tasks. yield and part-per-million failure rates play into your total cost of ownership? Transportation. Continuous design revisions. Typically this includes an 31 . a well-structured contract forces discussion on important business terms that would otherwise be overlooked. 5. The challenge with communicating product changes to a CM during NPI is not so much the volume of data. Second. Take the time to ensure that there is one complete and revision-controlled BOM that is shared in real-time with the CM. This complexity increases drastically in an outsourcing model.compliance. Negotiating a Weak Contract or No Contract At All Although contracts are tedious to negotiate. implement the necessary controls. assess the scope of the change. and RMA (return material authorization) services are among critical cost factors that are often overlooked. 4. corporate governance requirements such as Sarbanes-Oxley necessitate that companies apply much more rigor than before in reporting their financial numbers. you must assess. Set up a formal process to control the CM‘s use of substitutes on the BOM. perform a risk assessment on all outsourced activities to identify failure modes. there are three key reasons why they are now more critical than ever before. Once your internal data management structure has been established. and include the documentation to generate an audit trail. Inadequate Change Management Processes and Infrastructure Managing change within a company is a complex challenge that requires careful coordination. as the OEM and CM are following different but interlocked business processes and making use of different information systems. they often don‘t take the time to do so in enough depth. In the absence of a contract. and updated AVL/AML information all require the CM to react and often deviate from previously made implementation plans. but rather the frequency and complexity of change. A cavalier approach to these regulations and the assumption that the CM ―has it covered‖ puts you on the path to failure and your company at risk of non. It requires people to pay attention. new manufacturing process instructions. rarely do companies get into a detailed discussion of ―what if‖ scenarios until crises occur. As the owner of the design. You will need these relationships from time to time as you navigate through the impact of fluctuating business conditions. or pay your CM or other outside resources to do this for you.

As you build your offshore partnership. once a product is in production. and repair tools. including solder paste. your cost model should encapsulate not only the price you pay for the product. repair inventory. develop a cost model that focuses on the total cost of offshore sourcing rather than the purchase price alone. Implement controls around the repair of product that was built after July 2006. As the numbers flow in. paying special attention to swap-pools. and phase in the change. There is no doubt that the lower cost of labor and overhead in Asian countries such as China. The cost of supply buffers that you will need to put in place at various points in the supply chain in order to respond to demand upsides. It is essential to put in place the appropriate tools to collaborate effectively across time and language barriers. such as XRF testing equipment. Figure 2 presents an overview of some of the frameworks. You may not have the option to pick up the phone to explain a product change or to drive across town to pick up the initial prototypes. and The overhead required to manage an offshore manufacturing partner. After carefully examining the content 32 . and an ECO process to approve. but also:     The transportation strategy (air versus ocean) that you will employ based on your product lead time and demand profile. Outsourcing is the process of establishing and managing a contractual relationship with an external supplier for the provision of capacity that has previously been provided in-house (Momme. the cost of carrying inventory due to an extended lead time. OUTSOURCING MANUFACTURING PROCESS FRAMEWORK In this section we describe the outsourcing process framework and enlist the key activities and issues embedded in each of the phases of the process. document. and. at incoming inspection for high-risk parts. 2001). especially for OEMs that have a low mix of products with very high change request process. Ignoring the Hidden Costs of Going Offshore Transferring production offshore is not for everyone. and that sell — or expect to sell — their products in the region in which they are manufactured. Include material substance testing. there are only few frameworks depicting the actual stages and the layout of the overall process of outsourcing. Malaysia. for managing the myriad of changes that are inevitable in fast-moving product development environments. In other words. In the case of ocean freight. and Taiwan makes offshore manufacturing attractive. 6. In spite of an impressive research intensity of the outsourcing process. This will become essential in the NPI phase of new products. keep in mind the time zone and communication challenges that are inherent in this new relationship. and the disciplined processes to ensure that hand-offs and changes are clearly communicated.

the term ―outsourcing framework‖ used in this thesis denotes any kind of structure that supports outsourcing decisions and outsourcing projects and the term ―outsourcing process‖ is used to denote an outsourcing framework consisting of specific phases 33 .of the stages of each of the proposed outsourcing process frameworks we have aligned the frameworks and grouped the stages into the following sequence: preparation. Cyclic and holistic characteristic of the outsourcing process management is stemmed in the evolutionary economics (Nelson and Winter. 1997). 2006) Each of the stages has to provide an answer on various questions. vendor(s) selection. transition. 2002). A decision process can be defined as a flow of actions to transform input into a decision (Moses. 1982). Decision making is about weighing all possible pros and cons and displaying scenarios of what effects a certain decision alternative will bring. By having a structured approach the decision makers get helped by the activities included in the process to take a cross-functional view on the outsourcing decision (Moses. thus emphasizing the complexity of the outsourcing process and arguing for a need that it has to be managed carefully throughout all of its life cycle (See Figure 2). However. and capabilities (Kale et al. 2000).. A process also provides a structure for the decision making and the carrying out of the decision. 2009). Therefore. The evolutionary economic theory is in the core of process theories. It has received significant application in exploring firm‘s learning characteristics for improving performance (Simonin. The purpose of using an outsourcing process is to make the most advantageous decision for the company as a whole. Outsourcing Manufacturing Frameworks Before physical transfer. the existing literature about outsourcing decision making has not only focused on decision processes. managing relationship and reconsideration (See Figure 2). 2009). Through the cross-functional view the decision makers can evaluate the effects of a decision alternative for different parts of the company. in some cases other forms of structures for decision making have been developed.. creating value (Anand and Khanna. the focus of the outsourcing process is on decision making. Figure 2 – Framework for the process of outsourcing (Source: Perunovic et al.

and frameworks with an operational approach where a suitable production activity or product has already been identified (De Boer et al. Thereafter. In the frameworks presented below it is seen that the first phases of the existing frameworks aim to prepare the decision making by analysing the present situation based on the company‘s overall or production strategies. Analysis of company. Franceschini et al. It can be distinguished between frameworks. Wasner.g. 2003). ZENG FRAMEWORK The Zeng (2003) framework aims to combine global sourcing processes with logistics and is based on literature studies and a case study..g. Zeng. 2000. 2006. The frameworks that end before physical transfer are not suitable from a perspective of how to ensure materials supply as these do not include the physical transfer and steady state where actual materials supply takes place. Core activities b. Technical assessment c. customer and competitors c. Other frameworks go further and include supplier evaluations to identify suitable suppliers. 1999).. Probert. physical transfer and relationship management after physical transfer (e. Estimate of economic and operating benefits 3. Negotiation b. 2002. 2003. The Zeng (2003) framework includes the whole outsourcing process from identification of core activities to after transfer. Savings identification 34 . cost calculations follow where some frameworks end their processes (e. Platts et al. Sourcing strategy 2. Evaluation a. contract negotiations. Supplier selection and development a. similarities and content. focusing on developing strategies prescribing a comprehensive top-down analysis of production activities or products in order to identify those most suitable for outsourcing. Pre-screening c.. It has five steps: 1. 2000).and specific activities in order to make outsourcing decisions. Momme and Hvolby. 1996. in most cases. Selection criteria b. McIvor. This section introduces a variety of outsourcing frameworks and processes to show their differences. Investigation and tendering a.

Progress report 5. Monitoring of suppliers‘ performance b. a stratification of activities is created. (2003) present a framework that aims at developing a generic outsourcing framework in accordance with total quality management principles. Measurement of actual performance d. strategy and schedule b. Maintaining a dynamic and flexible procurement process. MOMME AND HVOLBY FRAMEWORK The framework by Momme and Hvolby (2002) aims at linking operational and tactical considerations to strategic planning by combining core competence thinking with an outsourcing process. Momme and Hvolby (2002) introduce an outsourcing decision process in six phases and include activities to be executed during the phases: 1. Performance measurement and continuous improvements a. Franceschini et al. SWOT analysis c. and finally. Strategic analysis b. helps the outsourcing company evaluate its processes. internal benchmarking. Steps two through four consist of an external benchmarking with the aim of supplier selection. Agreement on supply and logistics terms c. possible relationships with suppliers are identified. Team. Competence analysis a. analyse their efficiency and evaluate what to outsource. Relationship analysis c. Implementation a. followed by contract negotiations and finally managing the outsourcing process. Implementation schedule 4. Continuous improvement opportunities d. it is based on literature studies and a case study. The framework consists of four steps. The framework was developed from a case study of a strategic outsourcing programme used by Aalborg Industries.d. Core/non-core competence mapping 35 . A company-specific core competence definition is made. The first step.

we have identified a handful of key areas in which OEMs need to play an active role and retain control of fundamental attributes that can differentiate between success and failure. They are:  Key component supplier relationships Keep your strategic. Adapting organisation to supplier performance 5. Project execution and transfer a. information and monitoring systems 6. This requires that you have the appropriate resources and expertise to engage in technology roadmap exchanges. you gain efficiencies that you may not achieve by manufacturing in house. In our practice. Assessment and approval a. Contract negotiation 4. But it is also important to realize that in this process. high value component relationships close to your chest. Your CM should be considered 36 . and price negotiations. Managing relationship a. supply buffer programs. you can lose control over factors that are critical to your success. Defining critical assessment criteria b. Supplier assessment 3.2. forecast sharing. Establishing communication. Establishing basis for supplier integration b. Defining workflow interfaces c. This simplistic view has a direct impact on your operational – and financial – performance as a company. Many companies erroneously view the outsourced manufacturing relationship as a traditional buy-sell relationship rather than an extension of their own business. Contract termination WHAT TO CONTROL IN MANUFACTURING OUTSOURCING By Bijan Dastmalchi In outsourcing the manufacture of your products.

RoHS).  Environmental compliance While your contract manufacturer will play a key role in your environmental compliance (e. requiring you to have a program to measure and mitigate this risk. it is your brand name on the line. This should also impact how much mark-up you pay on these components vs. You should have clear visibility to what is happening on the production line and what corrective actions are being implemented when problems occur. More progressive metrics like Inventory Exposure. you need to have a solid foundation in place for managing change.only as a point of sale. and higher recovery costs. the ownership falls on your shoulders.  Inventory exposure Inventory within your four walls is only a small subset of the inventory that you need to worry about. resulting in dissatisfied customers. In fact.  In-process quality management Quality problems that are not caught on the manufacturing line show up in the field or in your factory. and quality-as-shipped. Supply Mis-Alignments.g. it is even more critical for you to have metrics that help you discover risks in your supply chain long before they create problems. other off-the-shelf components that are completely managed by your CM. and In-Process Yields can give you information to proactively address risks. 37 . it is important for you to fully validate the robustness of your CM‘s manufacturing process because in the final analysis. You should make sure that there is a solid rationale behind your buffers. shortage reports. a tarnished reputation. You may be exposed to a significant amount of inventory from your contract manufacturer and further upstream in your supply chain. as well as a process for re-setting the buffers as business conditions change.  Product lifecycle management With product life cycles shrinking and abrupt changes in product introduction and obsolescence activity. Also.  Supply buffer programs The biggest problem with supply buffer (or flexibility) programs is that they become stale over time.  Early warning metrics While it is nice to have post-performance metrics like inventory turns. changes to your bill of materials require robust business processes and tools to minimize supply chain risk during these transitions. with little to no impact on affecting these strategic relationships.

lower labor costs and better software licenses. 2004) Manufacturing outsourcing has been occurring for decades and has using affected the other business sectors in the past. and that work was outsourced to England (Kelly. Here are some of the main advantages: Lower costs and quality concerns: It is possible to achieve high-quality systems at a lower price through economics of scale. 2004). functional testing. Kallender. Dell Computers focuses on the few aspects it performs well and outsources the rest of its responsibilities (Woody. Companies today want to make use of the outsourcing advantage in order to progress and stay abreast of the competition. etc. and the relative weight you put on product reliability. RESEARCH PAPER ON MANUFACTURING OUTSOURCING AND ITS EFFECTS ON BUSINESS (Overby. most successful companies also beginning not only to outsource unskilled manual labor tasks but also white-collar tasks. There are many reasons that a firm might outsource some or all of its information system services.). America outsourced tasks of building covered wagon covers and clipper ships' sails to workers in Scotland. Since the wages and 38 . 2004). In the early years in North American History. England's textile industry became so efficient in the 1830s that eventually Indian manufacturers couldn't compete. So. human resource services and information technology services. The list above is not exhaustive. In today's world. Testing CMs build products for a variety of OEM companies and it is unreasonable to expect that they will have an intimate knowledge of your customers. the plan might include occasional product stress testing or out-of-box audit. This is the reason why more and more companies irrespective of certain failures are entering the race of outsourcing. the operating environment for your products. There is too much at stake and you will benefit by maintaining control over certain aspects of the business. Your product engineering team should review test results on a regular basis to look for issues that may need attention. The CM will execute to it. with raw material were imported from India. Also corporations are beginning to outsource more highly skilled positions such as financial services. but these are the areas where we have seen the greatest opportunity and/or risk for the OEM. Companies like Dell Computers and Cisco Systems rely on their suppliers to do their development work. There are many benefits that come from manufacturing outsourcing. But an OEM to CM relationship should not be treated with a typical buy-sell mentality. corporations became profitable by outsourcing tasks to foreign markets. you have to take the lead on product quality and reliability testing. Since cheap manual labour was available overseas. better management of hardware. but you have to set the stage with a strong test plan and by having the product engineering resources to follow-up on trends and issues. Canadian Heritage. In addition to the normal product testing (ICT.

2005).. Outsourcing leads to tighter relations between strategy and IT. and one must not overlook the disadvantages of outsourcing. This in turn reduces costs and improves productivity which allows companies to save on operational costs. In addition to its low cost of living and wage standards. are often liable to flow to India. The current employees in the company that outsourcers may feel threatened due to outsourcing and may not work as useful as before. Here are some of the main disadvantages: Loss of jobs and its effects: Outsourcing results in loss of jobs in first world nations that cause employees to respond negatively from the fear of losing their job and thus affecting their quality of work. Outsourcing frees up human resources and allows the company to be more flexible for future changes and avoids potential internal problems as they become the responsibility of the outside firm. For every advantage there is always a related disadvantage. Also employees are more willing to work overtime or finish work at home in places like China where as its lower in North America. Outsourcing contract failure costs can be considerable and can be very complicated to turn around. In fact most companies can cut their operating costs to half by outsourcing." Gates said (Kallender. it makes economic sense to produce products or provide services where the labor cost is lower. . Simplifying and downsizing: Organizations under competitive pressure attempt to focus on their core competencies by cutting huge costs through outsourcing while their non-core operations are looked over by a specialized foreign firm. such as centers and back-office functions are much higher in outsourcing destinations like India than in North America since call center turnover is generally pretty high and motivation is very low. The availability of a highly motivated workforce: Business process outsourcing is also not just about cutting costs. 2004). Knowledge which usually flows slowly can flow freely. Outsourcing can also unlock organizational structures which provide better mechanism for costing user requests. These jobs. "The number of students in engineering and IT is going down. including call centers and software programming (Canadian Heritage. The attitude of people in the developed countries against companies that outsource is not that great and the domestic IT intellectual property resources have been decreasing because of the fear of outsourcing. which require English speakers. These disadvantages are the reasons why companies should thoroughly do their research and think twice before outsourcing. This allows a company to stay ahead of its competition by providing better service and better customer satisfaction.. Staying ahead means setting a very high bar. 2004). and a company has more access to outside technology. 39 . The willingness to work in certain areas. has a huge highly educated workforce that speaks English fluently. outsourcing destinations such as of the workforce in outsourcing destinations like India and China are low. Since all corporations are pursuing low cost and high return on investment. outsourcing makes it possible to attain high quality information systems at very low rates. prioritizing technology initiatives and controlling expenditures (Canadian Heritage. Loss of generated talent within an organization is another problem which is a result of job loss.

2005). The company will eventually reach a point where a decision between inexpensive labor and loss of communication needs to be made (Yee. rent and additional costs like training fees and transportation (MacMillan. lack of communication between the company and their supplier may possibly lead to major losses. The tasks were easily defined. The total cost of outsourcing includes regular costs such as wage. and both CIO's wanted to outsource in order to gain access to technology expertise. and research paper writing help. 2004). In order to be successful. companies tend to miscalculate the potential hidden costs of outsourcing which includes legal costs of putting together a contract between companies and time spent on coordinating the contracts. If you require a high quality writing service that is 40 . "to deal with variable demand for certain IT EssayEmpire offers you the best custom essay writing services. a business model to needs to be developed to determine the true cost of doing business.Outsourcing hinders the growth of an employee by relieving him from the experience which he could have gained by handling various issues himself then by passing it over an external party. Competitors can also be using the same Foreign Service provider which could potentially cause leakage of valuable information. Customers in developed nations can get annoyed if they find out their personal details (bank. Cultural conflicts: The firm and its supplier may develop problems with communications because of language and culture barriers. This happens since it is harder to manage the outsourcing service provider when compared one's own employees. credit-cards etc) are in foreigner hands instead of domestic hands (Canadian Heritage. Hidden costs: When outsourcing. along with term paper. What is accepted in one culture maybe different in another. confidential information such as salary will be known to the outsourcing service provider. Loss of control: Outsourcing also results in the loss of control of business operations to the Foreign Service provider. If your company is outsourcing important business processes such as payroll. 2004). Therefore one must be very careful in choosing which business process to outsource and which one not. Our company employs professional essay writers who are fully qualified in a variety of academic fields. Security and confidentiality: Another disadvantage is that outsourcing can also prove to be a threat to the security and confidentiality of issues of a company.. Many businesses are suspicious of outsourcing because they're concerned about handing over key business functions to an outside business over which they have no control over. Since is no proper alternative for a face-to-face meeting. thesis paper. Cinergy and JM Family achieved success by outsourcing processes that had clear business rules. Many organizations that have benefiting immensely because of outsourcing and the success stories keep increasing. Overall costs become underestimated since hidden and missed out costs of outsourcing are usually hard to predict. causing worker and management related problems.

the life sciences manufacturer and its service provider must align their goals and communicate them clearly (internally and externally). Most will find that they can take some simple steps to make the relationships more rewarding for themselves and their contract manufacturing outsourcing partners. performance oversight and consistent standards for dealing with service providers. Based on Gartner inquiry. intent alone will not ensure success. depending on the company structure. However. geography. 41 . EssayEmpire is the perfect place for all your needs. as well as too many people involved in outsourcing management. In addition. because contracts often need to be renegotiated for each project. However. Each part of the organisation may have multiple independent and possibly redundant outsourcing relationships.capable of writing authentic essays. you don't need to look any further. Putting an outsourcing office in place for co-ordinated process management and oversight will improve service provider performance. If you need high quality Research Paper on Outsourcing and its Effects on Business at affordable prices please use our essay writing services offered by EssayEmpire. so before deciding to outsource. expertise area or project basis. establish definitive processes for working together and create performance metrics that are evaluated over time. This takes much work. The result is that they waste time and money. many companies suffer from a lack of project management discipline. term papers or research papers because you simply don't have the time or resources to do them yourself or maybe they seem too complicated and time consuming. be sure to evaluate preparedness for taking on this responsibility. Outsourcing contracts are developed based on division. non-valueadded steps and process latency (see Figure 1). They also miss out the potential to leverage the size of the company and the number of projects they manage by spreading their business across too many service providers. Life sciences manufacturers with outsourcing experience will want to take a long. KNOW HOW TO IMPROVE OUTSOURCING SUCESS THE ORGANIZATION’S MANUFACTURING Outsourcing relationships work best when all parties have a common perspective on partnering and are committed to making the contract work. hard look at the effectiveness of the relationships they have in place. most life sciences manufacturers have multiple outsourcing agreements in place with a variety of contract manufacturing service providers. Companies that improve their internal structure for dealing with outsourcing service providers see a significant reduction in the time it takes to get a process up and running because they are able to reduce the number of handoffs. It will enable the use of standardised processes for production activities and business functions such as contract negotiation.

there are still many cases where a company 42 . much is being written about bringing manufacturing back in-house.Gartner Manufacturing Industry Advisory Services Life sciences manufacturers that consider themselves outsourcing experts may want to move their relationships to the next level and collaborate with their outsourcing partner to dramatically improve established processes. vice president. Recently.Figure 1: Current State versus Preferred State A report by C a r o l R o z w e l l Vice President & Distinguished Analyst. Riverwood) The trend to outsource manufacturing has been going strong for two decades. SIX SITUATIONS: WHERE MANUFACTURING IS BEST LEFT IN-HOUSE. Life Sciences Division. This discussion often seems to focus on inflation in China. and significant wage and operating cost differentials between developed and developing economies will continue to exist for a very long time. 10. Nevertheless. 2012 Jeff Wallingford. In the developed Western economies. These companies will want to ensure they have the role of relationship manager well defined and that the people selected to perform this role are practised in leading virtual teams populated with remote workers. (Apr. Supply Chain Strategy. The world will not soon become less global. But reasoning based on parochialism and wishful thinking will not change the economic motivation of an individual firm. or a political desire to protect manufacturing jobs at home. it has been popular to speculate on whether this trend has gone too far.

but only when these cases truly apply: A company's manufacturing process is the source of its competitive advantage. or expertise. common overhead. you will lose your competitive advantage. Supply chain bottlenecks can be an opportunity to create strategic advantage by taking those sources away from potential competitors. A firm does something in a unique way and does not want competitors to know how to do it. The heater wire had unique braided insulation. If you stand still while others move forward. Even if the firm chooses to use just a single outsourced manufacturing supplier. There is no opportunity for the service provider to leverage their fixed capital.should not be outsourced. To capture a limited and critical resource or channel. I once worked for a company that made inductive heaters. and leverage their overhead and experience across many customers. they need access to other providers in the market to quote competitively or they risk operating in an inefficient manner or even being held captive. then outsourcing is unlikely to provide the value you expect. an outsourced supplier can improve utilization. By aggregating the demand. It is not hard to mix sugar and flavors into soda syrup. If you believe your company's manufacturing process provides a true competitive advantage. Trade secrets -. Always remember the original economic proposition that enabled manufacturing outsourcing to become widespread in the first place. where the ability to manufacture smaller and smaller geometries directly affects product performance. While it was otherwise an easy part to outsource.may benefit by choosing in-house manufacturing over outsourcing -. 43 . we bought all the equipment from our supplier and made our own wire in order to prevent competitors from selling replacement heaters using the same wire. there is a critical strategic implication: You must continue to advance the art and lead the technology curve for that manufacturing process. you have to reconsider your strategy. If the work you want to outsource doesn't have processes or materials in common with what the outsourced provider is doing today. Keep in mind that just because we do it our own way does not mean it is the same thing as a trade secret that provides competitive advantage.if they are really a source of sustainable competitive advantage -. One example of this case is microprocessors. A competitive market for the specific manufacturing service does not exist. increase buying power. specific purchasing power. At the point that process innovation is more likely to come from outside your company than inside. but Coca-Cola is not likely to outsource it.

OUTSOURCE THE MANUFACTURING EXAMPLES Why Toyota Outsource Japanese companies such as Toyota. 44 . seat. negotiating. A viable option to eliminate poor management in exchange of quality management is through outsourcing of functional areas into suppliers. The third reason is to focus on strategy and core functions while also avoiding heavy investments. outsourcing does not absolve Toyota or responsibility. Toyota is known to have outsourced engines as well as software and hardware. The primary reason why Toyota outsources is that Toyota is a master of cost reduction internally and expects its suppliers to master this discipline as well. redundancycapable and maintenance of outsourcer‘s control over processes though this process can result to a non-existence of end-to-end management. Manufacturing outsourcing is not going away. acquiring increased market share requires a support mechanism for function overloads. a relative degree of pressure will also be alleviated. The tactical part of function-distribution would enable the management to focus on strategy-related issues like market positioning and product development in return. Sometimes. but the transaction cost is greater than any potential savings or benefit.the expenses and risks associated with such things as finding suppliers. etc of their cars. The second reason why Toyota outsources is to further improve quality management. Toyota makes use of functional outsourcing which is thrusting of certain services towards partners or providers. The advantages of functional outsourcing for Toyota are superior leveraging of market. but the choice to outsource should be both a thoughtful economic decision and most importantly a strategic decision. Moreover. radio. Toyota though understands that customers are expecting reliable quality regardless of who makes the engine. quoting. outsource over 70% of their vehicle content.It is too costly to outsource the manufacturing process because of the additional costs driven by outsourcing. Through this process. verifying performance and managing the suppliers on an ongoing basis. Converting fixed costs into variable costs as well as driving the performance ratios improved the profitability per person and the business as a whole. unlike American companies. outsourcing a manufacturing process would otherwise make sense when considering manufacturing strategy and direct purchase price. The result would be sufficient control over the operation. Everything that gets sourced outside the firm drives transaction costs -. Nevertheless.

too. adding. These sites often manage the payments. Hyundai`s automotive semiconductors used to be developed by Hyundai Autron. The cuts can range from 4 percent to 15 percent. but the latter will now focus on ―customized design‖ while increasing efficiency by outsourcing production Hyundai Motor Group will design automotive semiconductors by itself but has decided to outsource their production.‖ PAKISTAN RANKS AMONG TOP OUTSOURCING DESTINATIONS Menlo Park.S.75 billion U. 45 . efficiency will go down and it could impact the credibility of our products. ―Foreign companies such as Infineon and Freescale are competitive in production and they can be our options.‖ ―Hyundai Motor Company has accumulated years of technological know-how in the automotive semiconductor sector through its partnership with Infineon. Apple designed the iPhone but outsourced production to Taiwan‘s Foxconn. ―Our ultimate goal is to have all electronic technologies related to automobiles. dollars) per year for the purchase of automotive semiconductors. California based Desk has ranked the Philippines and Pakistan as the top two outsourcing manufacturing destinations in terms of growth. including Elance.4 percent of such chips from outside the country. Desk helps its clients with tools.Hyundai Motor to outsource auto semiconductor production Hyundai Motor Group has taken the initiative in making semiconductors (integrated circuits) for vehicles in Korea to replace imports by deciding to outsource chip production to Samsung Electronics and Hynix Semiconductor. and are in process of developing dozens of semiconductors. Korean automakers import 98.‖ Yang said. The industry estimates that Hyundai Motor Group has a budget of 2 trillion won (1. We successfully used them for headlight control systems. ―If we assemble existing products (designed by chipmakers). Other companies in its category. adding. This is what Apple does. technologies and services to hire and manage remote work teams. and make money by charging membership fees and/or take a cut of the payment. ―In Korea.‖ Yang said. a new vehicle semiconductor maker.‖ The group has imported semiconductors from foreign companies including Infineon. Samsung Electronics and Hynix are highly interested in automotive semiconductors. value for money and customer feedback. The conglomerate can focus on R&D without making a huge capex investment for semiconductors. Guru and RentACoder. create marketplaces in which employers and freelancers can contact one another.

In addition. First. which make Pakistan an attractive outsourcing destination. the study found that organizations with different levels of success at manufacturing outsourcing identified different factors as problems in the outsourcing project. This project is limited across a wide range of business sectors and organizations sizes. Canada (121%). second only to the Philippines (789%) on a list of seven top locations that include US (260%). However. India (113%). It seems to indicate that more and more North American companies are showing preference for outsourcing close to home. which is susceptible to both misinterpretation and common method variance. In addition to Desk's view of Pakistan as a preferred outsourcing destination. The growths of outsourcing within the US and Canada as well as the high customer satisfaction data for North America are particularly noteworthy. 46 . a many researchers survey methodology was also used. These factors need to be explored in more depth to identify those that must be managed to ensure the highest level of success of an outsourcing project. how these were successfully implemented. Pakistan ranks number one in value for money for developers and data entry and number two overall behind the Philippines where the cost of answering calls is about half of the cost in Pakistan. more must be learned about the specific changes made to human resources. the study indicates that in many cases. while telecommunication costs are also lower as compared to any other offshore locations. in its 2008 report ‗Analysis of Pakistan as an Offshore Service Location‘ said the major factor behind upgrading Pakistan to first tier status for outsourcing is the lower salaries and better infrastructure advantages than other offshore destinations. one of the primary risks to firms is the effect of manufacturing outsourcing on employee morale and performance. Gartner.‖ LIMITATIONS This exploratory empirical investigation into manufacturing outsourcing provides tentative avenues for increasing the probability of success of outsourcing projects and raises many issues for further study of the outsourcing phenomenon. ―The salaries of IT professionals in Pakistan are approximately 30% lower than those in India. Pakistan experienced 328% growth in its outsourcing business in 2007-8.According to Desk. the Ukraine (77%) and Russia (43%). Despite these limitations the research contributes to developing an understanding of outsourcing in identifying areas that need further research. and how they contributed to the outsourcing effort. Pakistan is well ahead of India and just behind the number 1 ranked United States in customer satisfaction. Second.

There are two common mistakes Gartner sees in the execution of manufacturing outsourcing contracts. such as low-cost manufacturing. should be considered along with market types such as commodity/price-driven. The first is when the manufacturer outsources a process with the intention of having it performed more efficiently and cost-effectively. value added/rapid response or technological/innovative markets. Life sciences manufacturers can help themselves to achieve more successful outsourcing arrangements by following several recommendations:  Consider strategic drivers and market types.        47 . but then fails to relinquish control of the process. market growth or research and development. then an efficiency relationship is the one for you. Consider the product complexity and volumes required in relation to the intended outsourcing location. The ownership of materials classification criterion to units that outsource transformation activities to either domestic or foreign manufacturing service providers. whereas other combinations have a greater spread of possible locations. Limited numbers of locations are likely to be suited to highvolume/high-complexity production. Analyse the total cost of outsourcing. Strategic drivers.RECOMMENDATIONS Carefully examine and explicitly articulate what you are seeking from the outsourcing provider Relationship. so that the company leverages lessons and feedback from established relationships. now and in the future. forcing the service provider to create custom procedures that end up raising its costs. If improving production processes and product quality are more important. The second is when the company requests more comprehensive production management support and hopes to benefit from the outsourcer‘s experience and process acumen. A unit that outsources transformation but owns inputs is a manufacturer and a unit that outsources transformation and does not own inputs is treated as being engaged in trade. conduct a risk appetite analysis. then an Enhancement relationship is better suited to meeting this need. If manufacturing efficiency and cost savings are the goal. Valuable sales and distribution capabilities may be lost when handing control over to a third party. Consider establishing new marketing distribution channels when outsourcing in-house processes. when making outsourcing decisions. Ensure that there is a ―good fit‖ in terms of culture and strategy alignment with the 3PL provider. Indirect costs (such as working with suppliers from a great distance or intellectual property and currency risks) and benefits should be factored into the outsourcing decision-making processes. but then the contract is constructed on a transaction basis that is more appropriate for efficiency relationships. Prior to outsourcing. and use cross-functional teams to help understand each others‘ business. Having a clear understanding of the industry and its future direction will help you make the right outsourcing decisions. Create a dedicated outsourcing management function – the outsourcing office – to act as a focal point for learning.

since it offers the availability of needed resources without the need for new capital. and financial flexibility gained via reduced debt levels. However a more fruitful and practically useful approach could be taken if we ask questions about the dynamics in the manufacturing outsourcing processes. Outsourcing models are continuously changing along with developing markets. It is therefore important that vendors and clients work well together. This creates a need to study the outsourcing process as an evolutionary process. communicate effectively. associated with political and economic risks and supply chain management restrictions. The problem occurring in such approach is to choose between many different possible outcomes. What is important in such cases can be caught up under the term learning. Manufacturing Outsourcing is often an attractive option. Outsourcing arrangements are highly collaborative in nature. should be seriously considered when entering into outsourcing partnerships. In principle it is possible to find an optimal solution of this rather stationary problem. So we should see its all aspects before outsourcing manufacturing. and the levels of expertise available worldwide.CONCLUSION In most theories about outsourcing and specially manufacturing outsourcing processes the perspective has been focused on exploring certain issues emerging within the phases of the process. However. Risks can also be shared with the outsourcer. the manufacturing outsourcing too has its own. certain intangible costs. 48 . The idea is that the manufacturing outsourcing decision makers will take into account results of former decisions in similar cases. And a broader view of the general scheme of things in nature we should realize that just as everything has its pros and cones. and continuously monitor and improve their processes. changing price structures.

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