3 Cost Reduction Strategies When Outsourcing Your Operations Offshore

In the early days of outsourcing, much of the focus was on manufacturing labor costs. Specifically, the process involved comparing costs of offshore outsourcing to maintaining operations in a company’s home country.

Today, however, the story is more complex. Globalization and the internet have allowed for greater collaboration between countries anywhere on the planet. Now, there is a global market and a method for communicating across traditional linguistic and spatial barriers using technology. This very same technology has created a need for a large group of professionals in any developed or developing country such as China, South East Asian counties, and other outsourcing hubs.

Many savvy business owners, CEOs, and entrepreneurs are tapping into the advantages of offshore production to outsource their own business needs in an effort to save time and cut costs. For example, Marie Lee, Senior Vice President and CIO for Interval International, outsourced her $405 million business’s new application development work to China. Lee makes a good point about the importance of geography in comparison to the quality of service when she says, “Our selection was based on the qualities of the IT services partner and whether they met our specific criteria rather than the location of the delivery center.” Manufacturers and production oriented companies can take advantage of specializations within outsourcing hubs.

3 Strategies Every Outsourcing Plan Should Follow

1) Build and Share Your Outsourcing Playbook

Taking the leap into an outsourcing partnership can be nerve-wracking at first. Any new partnership has the potential for mixed results. However, building an “outsourcing playbook” is a great way to keep everyone on track. One of the biggest hurdles when building a new partnership is developing understanding between both parties. This is particularly the case in many outsourcing situations. With a proper “outsourcing playbook” or strategy like the one developed by a professional outsourcing company, there is a standard set before a partnership is even finalized. In short, building, sharing, and understanding your business’ outsourcing playbook is a must when seeking to successfully reduce costs while outsourcing your internal operations to a foreign organization.

2) Evaluate Your Outsourcing Partners

Another key consideration when outsourcing operations offshore is evaluating your potential partners. After all, your business is only one half of a whole. It is in your best interest to make sure that the company you choose to partner with to develop, market, and/or manufacture your products is dedicated to the same level of excellence, integrity, and core values as your company. A good industry partner does not shy away from important requests like client references or samples. In fact, a reputable outsourcing partner will expect a list of requests before entering into a partnership with your company. Once you have established that your partner is the right choice professionally and can provide your company with the proper goods and services, it is also good to make sure both teams get along. A clash of personalities can make for a tough long-term partnership. A better long-term partnership means a better path of communication and a clearer path to reduced costs.

3) Monitor KPIs

Monitoring KPIs is an important part of outsourcing for both the client and the manufacturer. Keep in mind, monitoring is not just about looking for “proof” that the partnership is not advantageous. Analyzing key performance indicators regularly is a great way to look for efficiencies that can make both parties better partners and reduce costs. For example, one KPI could be the defective rate or the rate at which items produced end up malfunctioning. If properly monitored, the analysis may yield a result that indicates the defect rate rises during a certain time of year. A good outsourcing partner would be able to research what was going on in their factory during that time of year (weather, temperature, holidays, etc) that could contribute to a higher rate of the defective product. Once the cause is determined, it can be eliminated thus dramatically reducing defective products and warranty costs.

How to Implement a Robust Outsourcing Strategy

If you’re still not sure how to implement a robust outsourcing strategy or would some help analyzing costs and benefits, contact the experts at Complete Manufacturing and Distribution.  We have three decades of experience in manufacturing and outsourcing partnerships with specializations in outsourcing strategy, marketing research, sourcing, manufacturing, and more. Lean on our Complete Manufacturing and Distribution experience to accelerate results.

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