The advantages of contract manufacturing, commonly known as outsourcing, are many and substantial. A company reduces overhead when it does not have to build and maintain its own facilities or train and employ its own workforce. The company can move production to a country where raw materials and labor are cheaper, and where competition for the contract within that country helps to reduce costs even further. However, there are challenges to contract manufacturing which, if not managed properly, can defeat the purpose entirely. Therefore, before committing to an outsourcing plan, you should understand the risks and develop strategies for mitigating those risks.
Below are the leading issues for outsourcing along with the solutions that Umac-HMT offers:
- Supply chain — As we are currently witnessing with the COVID-19 outbreak, outside factors can disrupt business operations and interrupt supply chains. While a pandemic is unpredictable and rare, you can and should plan for annual work slowdowns and stoppages for cultural events. It’s also important to be aware of any political or labor unrest that could erupt in the country you’ve selected. Finally, you should assess whether the raw materials are going to be available, whether the country has the infrastructure to get materials from point A to point B, and if a facility has the capacity to complete your order. Having a backup plan in the event of an interruption is essential.
- Quality control — Everyone wants to save on the cost of production, but not at the expense of quality. Quality materials, trained and capable labor, and efficient production processes are necessary for creating a finished product you are proud to market. Choosing a facility with effective controls at all stages of production is vital. Quality control is especially critical when you are introducing a new product.
- Distance from production process — When you are an ocean or a continent away from the locus of production, you lack moment to moment knowledge of what is happening on site. You may only have a general understanding of production techniques. It’s imperative that you can trust the managers who are overseeing production.
- Risks to intellectual property — Whenever you outsource manufacture, you have to hand over your product specifications to someone outside your company. This creates a security problem that can lead to counterfeiting in violation of your intellectual property rights. Two strategies are imperative. First, you have to understand that a patent in your home country won’t help you, since all patents are regional. Therefore, you must patent your product within the region it will be manufactured. Secondly, if your invention requires discrete components, you might consider outsourcing production to separate facilities, so that neither will possess the full specifications. Additionally, you must secure appropriate legal agreements concerning the use of your IP. Naturally, you can feel more confident in such agreements if you or someone you trust has a long-standing relationship with the supplier.
- Communication — Communication across great distances is a challenge under the best of circumstances. But when there are differences in languages and customs, articulating your needs, arriving at an understanding, and ensuring openness throughout the process are exponentially harder. Poor communication can result in deviations from your expectations, delays, and substandard quality. Anyone doing business with a foreign manufacture must have a plan in place to bridge the barrier of language and customs.
- Increased liability — When the quality of a product drops, consumers can be put at risk. Each year, tens of thousands of consumers are injured or killed by defective products, including adulterated drugs, exploding batteries, lead-tainted toys, collapsing furniture and flammable clothing, to name just a few. When a defective product harms a consumer, strict liability attaches to the company that placed the product on the market. You can go after the manufacturer, but if you didn’t address the issue of liability appropriately in your contract, you’re going to have a very difficult time, especially as a plaintiff suing in a foreign country. And, even if you prevail against the manufacturer, your company’s reputation could be irreparably tarnished.
Umac-HMT helps companies avoid pitfalls by providing detailed guidance and reliable processes, and by connecting them to vetted, reliable suppliers with a reputation for quality work. Our in-country product managers ensure quality control through every step of the process. Umac-HMT takes the worry out of overseas manufacture, so your company can prosper and grow.
