Why outsourcing manufacturing makes sense?

Outsourcing Manufacturing
Outsourcing Manufacturing
Image credits : Unitedgs

While manufacturing your product, it is important to determine exactly where you are going to manufacture the same. This acts as a primary method to layout the framework of the supply chain. Keeping in view the business requirements and the current status of the company it is determined whether the manufacturing needs to be outsourced or subjected to in-house methods. 

Some companies decide to outsource their manufacturing operations to some other organization or even a different country while other companies prefer in-house manufacturing to control things within the organisation.

But, how can you decide which will suit your organisation?

Depending upon your business type, do you think outsourcing will be better than in-house production?

In this article, we are going to discuss the benefits of outsourcing over in-house manufacturing. However, we will first understand the terms – outsourcing and in-house manufacturing and then discuss the advantages of outsourcing over in-house production processes.

A brief about outsourcing and in-house manufacturing

  • Outsourcing can be defined as the manufacturing method used by several companies, in order to decrease the cost of manufacturing; by assigning some part of the manufacturing operation to another supplier or organization instead of finishing the processes within.

  • In-house production, on the other hand, is referred to as the manufacturing processes that are performed within the organization by making use of resources and several technical methods found within the company. In the case of in-house manufacturing, the company utilizes own workforce and available time for production.

Now that we have got an overall idea about outsourcing and in-house manufacturing, let us look into why outsourcing is advantageous than in-house production.

Problems with in-house production

While performing manufacturing in-house, it is true that the company is in complete control of the whole production process from the very beginning to the end. Additionally, designing and product development methods can be conveniently accessed and handled with in-house production.

However, there are a lot of limitations associated with in-house manufacturing that make outsourcing the whole production process a huge benefit for the company. These include –

  • Increased associated costs

In-house manufacturing is accompanied by labour costs, staff salary, and other expenses that can turn out to be highly expensive for the organization. While doing in-house production, the company has to generate sufficient units that can produce the surplus amount of profit to adhere the production costs, labour costs, insurance, different utilities, property taxes, and various other requirements.

  • Staffing costs and elevated investments

In the case of in-house production, it becomes really costly and time-investing to provide the proper expertise and amount of staff required for achieving the desired product. The design and product development team get involved in the production process that halts the innovation and the efficiency of manufacturing complex products. Even if you are capable of generating efficient in-house proficiency this expertise may not be required on a perpetual basis. This increases the cost of utilizing this expertise manifold.

  • Required tools and staff-training

If you are willing to do in-house manufacturing it is pertinent to achieve the innovative and complex nature of the product by keeping up with the present technology and market demands. For this, the organization has to invest in in-house staff training and acquiring advanced technology or infrastructure. This is another drawback of in-house production that might increase the company’s expenses further.

  • Inventory issues

Developing the company’s inventory is also important to drive the production capability of an organization. So, in-in-house manufacturing, it becomes essential to upgrade the internal assets of the company. Therefore, the businesses will have to determine the outcome of investing in a certain manufacturing part before moving ahead with the development of the assets. There is always a peril of moving the inventory to particular situations in in-house production.

  • Administrative responsibilities

In-house production needs huge human resource support for handling claims made by staff, several benefit services, and licensing methods. Other responsibilities include managing property assets, staff-training, and other assistance. Only with the help of these administrative aids, a company can manufacture excellent products. Thus, these aspects can result in increased costs in in-house production.

Having understood the lacunas of in-house manufacturing let us see how outsourcing addresses these issues.

Advantages of outsourcing the manufacturing processes

  • Cost retaining

Labour costs have proved to be quite detrimental in in-house manufacturing. However, outsourcing, the costs associated with the manufacturing process can be saved by a large amount. Once you outsource the manufacturing you are no more burdened with the duty to hire the required expertise or the costs associated with bringing them onboard. The organization that you have outsourced will itself hire and handle the staff, thus reducing the labour costs and other constraints accompanied by in-house manufacturing.

  • Manufacturing flexibility and elevated work features

It can be certainly said that outsourcing helps you achieve more flexibility in manufacturing processes given that you deal with the right organization and maintain a healthy relationship with them. The contractor or the organization you have outsourced has increased capability for manufacturing. This makes it convenient for them to reciprocate to various advancements and the fluctuating market demands. In real-time increased demand, you don’t have to worry about investing in machinery or essential expertise because the organization you have outsourced is already equipped with the necessities.

  • Addressing workforce problems

Upon outsourcing the manufacturing, the contractor or the organization is fully responsible for all the maintenance activities, labour grievances, and other obligations. While payroll, workforce relations, human resource assistance, and other aspects proved to be inimical for in-house manufacturing, outsourcing, on the other hand, lets these things managed by the company you have outsourced instead of your own management team.

  • Mitigating the need for tools and staff-training

The organization you have outsourced is able to provide staff-training and necessary tools in correspondence to the developments observed in the current technology. You don’t have to be concerned with training the in-house expertise or purchasing several advanced tools. Since you have outsourced the company, it is now their responsibility to provide the required tools and equipment to get the job done.

  • Eliminating the requirement of inventory

With outsourcing, you don’t have to keep on upgrading your each and every internal asset. Additionally, there are various locations where you can find several rules and regulations related to having an extra inventory. This takes up a lot of the revenues that come up to your organization. Therefore, outsourcing manufacturing might prove to be highly cost-effective.

  • Focussing on the basics of business

With in-house production, the company has to perform additional administrative responsibilities such as human resource, labour claims, workforce training, and more. On the other hand, outsourcing will not only reduce the costs associated but also allow the company’s management team to focus on developing their fundamental expertise and core principles so as to achieve overall success in business.

Thus, we have effectively established the benefits of opting for outsourcing instead of in-house manufacturing. Below, we are going to provide you with some tips about protecting the intellectual properties and unique designs that can be saved from getting stolen.

How to protect the Intellectual Properties if you outsource?

Firstly, what do we mean by Intellectual Properties?

Intellectual Properties indicate an entity that can be in the form of a symbol or structure or any specific design. Intellectual Properties or IP is made use so as to preserve an individual’s ethereal property. Industrial Property and Copyright are two different types of Intellectual Property. Industrial Property refers to the patents developed for various inventions, materials required for the designs, geographic implications, and related trademarks. On the other hand, Copyright accords with different artistic activities like drawings relevant to the project.

There are some of the essential terms that we are going to discuss while talking upon this discuss such as –

  • Patents

Patents are basically filed so as to give the person working upon an idea, the absolute rights to the creation. This implies that no other individual can make use of this idea in creating any product or for any other purposes. A patent filing is must so as to assure the whole development procedure is completed without any obstructions. There are also instances of Open Source patents where specific licenses are made accessible to an individual who makes use of the referred idea or project. In such patent, the patent owner is not able to control the users of this patent and any further developments made by them.

  • Patent Infringement

Talking about patents, Patent Infringement comes into the picture. Patent Infringement exists where an individual or a company utilizes the idea or creation without obtaining the permission to use it. Patent Infringement can include activities like implementing the idea or selling the same to some other party. There are different types of Pattern Infringement such as –

  1. Direct Infringement – It is referred to as the situation in which something is utilized, or sold, or created without getting the license to do so from the patent holder.

  2. Indirect Infringement – It occurs when the company is held responsible for patent infringement irrespective of the fact that the organization is not the one performing patent infringement at the start.

  3. Contributory Infringement – It is referred to as a case in which a specific part that is used in building the patented product is acquired.

  4. Induced Infringement – It happens in a situation where an individual or an organization becomes a part of patent infringement by making the components available for creating the patented product.

  5. Willful Infringement – It occurs when a specific individual exhibits undivided negligence towards the patent of another person.

  6. Literal Infringement – It is said to exist when there is an open concurrence of the infringing method or component with the patented product or idea.

Learn more about how to protect your intellectual properties here.

  • Non-Disclosure Agreement

Next, we move on to understanding the importance of Non-Disclosure Agreement (NDA) in preserving the Intellectual Properties (IP). NDA is an essential document that clearly conditions the liabilities of the third person in order to make sure that the information provided or shared must remain highly confidential. In addition to the information shared, it is also given prime importance that the drawings relevant to the projects should be labelled confidential as well. The restricted disposition is reflected on a mini statement and stamped on each of the specific document and sketch.

Learn about protecting your designs & invention here.

So, finally, we would like to conclude by further emphasizing the significance of outsourcing your production processes instead of going with in-house manufacturing. Outsourcing not only saves production time and cost utilities but also helps your manufacturing activities remain updated with advanced technologies and equipment. Thus, you should practice outsourcing instead of in-house production for excellent productivity.

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