Over time, manufacturers continue to shift toward an increasingly specialized environment especially as technology further evolves and develops. OEMs may find themselves asking “should I execute this segment of production in-house, or outsource this step to a specialist?”. Outsourcing, or sourcing, is simply the transfer of a business activity to a third-party service provider. Many production activities can be, and often are, outsourced such as product assembly, kitting, and packaging.
The advantages of sourcing can be significant and may include cost reductions, increased efficiency, and enhanced speed to market. Additionally, outsourcing frees OEMs to focus on the core business competencies and strategic vision - which often do not include post-production services such as assembly or packaging. However, it should be noted that manufacturers always give up some degree of control when outsourcing an activity, and, thus, sourcing is not always the right business decision. Below is a summary of the most common advantages and hurdles associated with outsourcing.
Advantages of Sourcing
There are many benefits to outsourcing a specific business activity. In many cases, when partnered with the right third-party provider, sourcing provides OEMs with a strong competitive advantage and the other tangible benefits below.
Lower cost: one of the key drivers for outsourcing is the expected cost reductions, and thus, competitive advantage. The key cost benefits are typically from lower labor, operating, and overhead expenses since in-house personnel are no longer needed to perform the sourced service including any necessary product inspection and testing steps. Some OEMs also experience a decrease in inventory costs due to a more optimized supply chain. Additionally, there may be raw material, logistics, storage, and packaging cost reductions as third parties have well-established supplier networks, often enabling them to procure materials more quickly and economically than OEMs.
Increased efficiency: selecting a third party with experience and expertise in the service you are outsourcing typically results in higher productivity and efficiency than performing the service in-house.
Decrease time to market: when services such as assembly are sourced to a third party, OEMs often realize a reduction in the time required to complete the final product, improving the overall speed to market!
Improve quality: product quality often improves due to leveraging the third party’s established and vetted best practices, processes, and expertise for the given service.
Greater volume flexibility: sourcing services such as kitting and assembly allows business flexibility and a nimbler response to market or demand fluctuations, whereas OEMs that solely perform all the work in-house may be unable to fill an unexpected increase in product demand due to manpower, inventory or other internal constraints.
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Hurdles of Sourcing
After reading all of the advantages, you may be thinking sourcing is an excellent solution. It often is, but there are also hurdles and growing pains associated with outsourcing that should be well understood before entering into a contract with a third-party provider. Outsourcing involves handing over direct control of a business activity to a third party, and thus, comes with the potential challenges below. It should be noted that these challenges can be managed and become non-issues when OEMs contract with the right sourcing partner.
Loss of control: once sourced, OEMs rely on the third party to meet the agreed-upon deliverables. Additionally, financial risks such as bankruptcy of the third party are out of the OEMs control but, of course, could have huge business implications. Crescent Industries has been managing OEMs projects and full assemblies for over 50+ years and continues to invest back into our technology, efficiencies, and people.
Loss of business knowledge or expertise: OEMs must determine if they are comfortable with losing the knowledge that is being outsourced, and no longer retaining that skill set in-house. Crescent Industries continues to be transparent with its clients and never withholds information or technology about manufacturing their product.
Confidentiality: There is a higher risk of losing proprietary or sensitive data once a third party is involved. Crescent Industries has strict policies regarding NDA’s and OEMs intellectual property, their reputation means everything to them.
Management of change challenges: From design changes to production schedules, managing changes will likely be more difficult once a third-party is engaged. Crescent Industries has a Program Management Office for all new projects for increased efficiency, speed to market, and product launch.
Limited focus: the third-party will likely have other customers, so you may not have their undivided attention or focus. Crescent Industries treats all customers equally with internal department structures making sure all deliverables are met with fast response times to all communication.
Crescent’s Assembly and Value Add Capabilities
Crescent is your partner for all your full assembly and value add needs! More than just a supplier, we’re here to provide the most comprehensive kitting, assembly and value add solutions to our customers. By investing so heavily into our post-molding capabilities, we have the ability to be a single source partner for our customers and offer competitive pricing by taking some of the workload off their plate.
Whether our customers are completing assembly in-house or sending products to a different assembly supplier, our expertise cuts down lead time and allows the option for just-in-time delivery of your fully assembly products. Below is a summary of Crescent’s post-molding services.
· Device assembly · Ultra-sonic welding · Cap-lining
· Product packaging · EMI or RFI shielding · Annealing
· CNC machining · Solvent or UV bonding · Vacuum/pressure testing
· Laser engraving · Heat-staking inserts · Sterilization ready
· Pad printing · Ultra-sonic cleaning · Silk screening
Crescent Industries has an extremely knowledgeable team to assist with all of your assembly, kitting, and other value add services – contact us below to learn how we can assist with your project!
