Want to scale your business quickly? Or is your business outgrowing you, leaving you scrambling to satisfy all the customers. Either way, outsource manufacturing can work for your business.
What Is Outsource Manufacturing?
Outsource manufacturing is also known as contract manufacturing. Simply put, it is the process of contracting manufacturing of goods or services to another company.
The majority of outsource manufacturing occurs in countries where labor costs and manufacturing overheads are lower.
Why Do Companies Outsource?
Cost is often the primary driver. Outstanding can deliver significant savings by reducing labor and operational costs. It is often cheaper to contract with a third-party manufacturer than to produce it in-house.
Aside from cost, many companies are facing manufacturing challenges. These include training and retaining skilled workers in your company, as well as procuring specialized equipment or capabilities.
By outsourcing manufacturing, companies can focus their resources on their core competencies.
5 Popular Companies That Outsource Manufacturing
Some renowned corporations wouldn’t even be where they are today without outsourcing. Outsource manufacturing is a common practice among businesses of all sizes. And the best news is that it can be used to procure nearly anything!
Below are 5 examples of large corporations that are successfully outsourcing their manufacturing.
Apple: Consumer Electronics
Apple is one of the biggest companies in the world by market capitalization. There’s no doubt that Apple is a true innovator in personal technology. But much of its success also stems from relying on its trusted suppliers from procurement, manufacturing and assembly of its many iPhones, iPads, MacBooks, Apple Watch and other popular products.
By outsourcing supply-chain and assembly operations, Apple can focus on what it does best – designing the great products of tomorrow.
IKEA is the world’s largest furniture retailer. And it is a global destination for home furnishing and various home accessories.
While most IKEA products are designed in Sweden, the production is outsourced to other manufacturers. This allows IKEA to expand into new markets and tap on manufacturing innovations from its various suppliers
Nvidia tops the list in overall semiconductor sales, whose chips are used in a variety of electronics, including digital cameras and smartphones. But they don’t make the chips themselves. Instead, they outsource the manufacturing work to others and only focus on selling.
One of the reasons is due to the costs to keep up with the technology for chip manufacturing, which can run up to a few billion per year. Through outsourcing manufacturing, they don’t have to worry about the capital expenditures.
Nike: Sports Apparel
Nike is one of the largest sportswear companies that outsources the production of its clothes, shoes as well as other sports accessories and equipment to overseas outsource manufacturers.
In fact, this sportswear giant has no manufacturing plants of their own. They maintain the high product quality by conducting stringent quality checks on these factories.
H&M: Fast Fashion
Hennes & Mauritz, better known as H&M, is one of the most recognizable brands in the fashion industry. In the fast fashion market, clothing trends are produced in stores with the lowest possible lead-times.
H&M has scaled up its operations to more than 5,000 stores worldwide by a fully outsourced manufacturing strategy. It does not own any production facilities and only has production offices to communicate with their outsourcing suppliers.
What To Take Note Of Before You Outsource Manufacturing
Before you get too excited and jump on this, there are a few things to keep in mind when considering outsourcing manufacturing.
Firstly, you should understand the risks of engaging a third-party manufacturer. Secondly, you should make sure that you have a contract in place to protect your interest and define the roles and responsibilities of each party. And thirdly, you need to choose a reputable and reliable outsource manufacturer that you can work long-term with.
Lastly, when working with an outsource manufacturer from another country, it is advised to check on the tax rates for different industries and as well as the associated regulations.
The Future of Outsourcing Manufacturing
Outsourcing manufacturing is overall a great way to improve your bottom line and free up internal resources. It is particularly important to do your homework and choose a reputable partner that you can trust.
Outsource manufacturing is now available to businesses of all sizes. New companies can now break into industries, which was previously too expensive due to labor costs. Minimum order quantity (MOQ) requirements are getting lower and do not take high amounts of capital to startup.
Companies that take up this strategy will inevitably boost profits and pass down the lower costs to consumers.