Executive Briefings

Secrets to Success in Outsourced Manufacturing

Procurement will always be about cost, but there are other key factors that must also be considered, if a company and its manufacturing partners are to derive full value from buyer-supplier relationships, says Barry Blake, research analyst with Gartner.

Depending on their level of maturity, companies might take varying paths when developing external manufacturing networks, says Blake. For some, the decision comes down to financial considerations, with little attention paid to deeper levels of partnering. More advanced companies will begin the process at the design phase, then consider the full range of costs that are associated with the making of a particular product.

All of that up-front homework makes the rest of the process much easier, Blake says. Having engaged in a detailed "make-versus-buy" analysis, a company can enter into a supplier partnership armed with all of the relevant information about prices and the best vendor for the job. In the process, both original equipment manufacturer and contract manufacturer reduce the possibility of miscommunication.

Keeping track of the relationship on an ongoing basis is equally critical. The two parties need to establish a "bidirectional strategy," measuring one another's performance, Blake says.

Contract manufacturers today are placing greater emphasis on operational excellence, he says. They're more closely attuned to the importance of product innovation, as part of a push to better understand the needs of their customers. Says Blake: "They're trying to move up the value chain."

The relative leverage of each party is always a sensitive subject. A large OEM or contract manufacturer might be tempted to assert its power at the expense of a partner, or show little interest in the other's priorities. Careful negotiations at the outset are needed to address critical issues of cost, quality and lead time. In the end, Blake says, the two sides often will find that they have the same business needs. "They should be able to align no matter what the size."

The biggest challenge in an outsourced manufacturing relationship involves the alignment of supply with customer demand. Some far-seeing companies are sharing weekly updates of shifts in demand, along with design changes. "They have to be hyper-reactive," says Blake.

To view video in its entirety, click here

Procurement will always be about cost, but there are other key factors that must also be considered, if a company and its manufacturing partners are to derive full value from buyer-supplier relationships, says Barry Blake, research analyst with Gartner.

Depending on their level of maturity, companies might take varying paths when developing external manufacturing networks, says Blake. For some, the decision comes down to financial considerations, with little attention paid to deeper levels of partnering. More advanced companies will begin the process at the design phase, then consider the full range of costs that are associated with the making of a particular product.

All of that up-front homework makes the rest of the process much easier, Blake says. Having engaged in a detailed "make-versus-buy" analysis, a company can enter into a supplier partnership armed with all of the relevant information about prices and the best vendor for the job. In the process, both original equipment manufacturer and contract manufacturer reduce the possibility of miscommunication.

Keeping track of the relationship on an ongoing basis is equally critical. The two parties need to establish a "bidirectional strategy," measuring one another's performance, Blake says.

Contract manufacturers today are placing greater emphasis on operational excellence, he says. They're more closely attuned to the importance of product innovation, as part of a push to better understand the needs of their customers. Says Blake: "They're trying to move up the value chain."

The relative leverage of each party is always a sensitive subject. A large OEM or contract manufacturer might be tempted to assert its power at the expense of a partner, or show little interest in the other's priorities. Careful negotiations at the outset are needed to address critical issues of cost, quality and lead time. In the end, Blake says, the two sides often will find that they have the same business needs. "They should be able to align no matter what the size."

The biggest challenge in an outsourced manufacturing relationship involves the alignment of supply with customer demand. Some far-seeing companies are sharing weekly updates of shifts in demand, along with design changes. "They have to be hyper-reactive," says Blake.

To view video in its entirety, click here