Mass Production – outsource or in-house? How to reach best production quality?
Your product is ready for market, you’ve ironed out all the bugs to reach best production quality and you are ready to start mass manufacturing and distributing it to your eager customers.
Now the challenge is to develop an efficient manufacturing line with a reliable Quality in Manufacturing in place that can meet your capacity needs, provide the production quality your clients are going to expect and at the same time, keep costs to a minimum.
Let’s take a look at the key requirements.
- You are going to need enough capacity and a smooth manufacturing flow to meet your delivery commitments to your clients, at best possible production quality.
- Consistently high product quality means happy customers, increase market reputation and keep costly recalls and support to a minimum.
- Keeping our costs low will increase sales and strengthen our position in the market.
Should we outsource our manufacturing or set it up in-house?
We know that there are some major advantages to outsourcing, but you still need to meet your key requirements. So what are the main factors you have to consider when considering this decision?
As a rule of thumb, outsourcing is mostly relevant for mass production, i.e. hundreds or thousands of units per day. Unless there are other motivations such as target market location or government restrictions, there is very little sense in outsourcing for smaller quantities.
If an outsourced solution is chosen, you’ll need to make sure that the selected Contract manufacturer can meet both your current and future capacity needs at best production quality.
Cost of an in-house manufacturing line:
Building a factory, purchasing machinery for manufacturing and setting up a manufacturing line require a lot of money. Even if you have the money to invest in building your own manufacturing line, you will need to recruit teams, train and manage them. The complexity and large sums involved convince many companies to choose an outsourcing solution over the alternative of setting up a manufacturing line “in-house”.
The cost of the teams that manage and run the manufacturing has a direct impact on the cost of the product. In the mass manufacturing world, the cost of labor for electronic products is probably about 20%-30% of the total product cost. For other types of products (wood, metal, plastic, textile), the cost of labor will probably be about 40%-60% of the total product cost.
Labor saving is probably the number one reason for companies to decide to outsource and it’s likely that your manufacturing location will be one where wages are low.
Material cost and availability:
The material cost or “Bill Of Material” cost has a direct impact over the total product cost. In the mass manufacturing world, the Bill Of Material cost for electronic products probably represents about 70%-80% of the total product cost. The Bill Of Material cost for other product types is normally 40%-60%.
We live in a global market and material for manufacturing can be purchased from a variety of sources with different production quality. However, in many cases, the cost of material is heavily dependent on its availability at the location where manufacturing is to be carried out. If manufacturing can be located in an area where there are many vendors for our material (a competitive material market) this will:
- Maintain the price of the material at its current level and even reduce it over time.
- Allow flexibility in lead time and order quantity.
Relying on a single vendor for key product materials is not recommended. You should try your best to minimize the number of items in the bill of material that are supplied by single vendor. Be aware of the implications and risks of single sourced items.
The far east Asia (China, Vietnam, Thailand, the Philippines, etc.) is known as the “manufacturing line of the world”. This region is the most competitive in terms of cost and availability for both material and trained labor.
Quality in Manufacturing:
High and consistent product quality will strengthen your market reputation and increase the level of satisfaction in your products. That is why production control is so important. In some cases companies find it hard to achieve the required production quality level when their manufacturing line is outsourced and therefore make the choice to set up manufacturing at their own facilities.
The location of the target market:
When the target market is located in specific area (country, region, city, etc.) then potential transportation savings may outweigh the savings in labor and material costs to be gained by using an outsourced solution.
Controlling intellectual property:
Stories abound about stealing secrets and imitating products. No one can guarantee when you outsource your manufacturing activities that confidentiality will strictly be kept.
However, making a business from a product is not as simple as just copying it (especially, at sufficient production quality). It needs to be marketed, distributed and supported. In our experience, the number of cases where proprietary secrets are breached is smaller than what many people might think. That said, we strongly recommend taking preventive measures to minimize the chances for breach of propriety, such as:
- Controlling quantities.
- Marking each unit with unique ID number.
- Manufacture sensitive parts in-house.
Probably your biggest concern is going to be production quality. This might lead you to look for an in-house solution where you can control every aspect of the process.
However, if you intend to run quantities in the hundreds or thousands of units per day, and if your product is going to be introduced into a competitive market, then outsourcing your manufacturing activities is probably the right decision for you in spite of the concerns about production quality that you may still have.
Mitigating the problems of distance
There are several traditional solutions that may help maintain required quality assurance level when your manufacturing line is outsourced:
- Relocation of personnel to the country and location where the outsourced manufacturing line is been operated.
- Hire local teams.
- Hire local companies to help supervise quality.
25 years of experience and over a 100 manufacturing lines under our belt tell us that many of these traditional methods of quality control are insufficient in the long term. What may seem a simple fix a continent away, can prove difficult to implement usefully on the ground.
- Loyaltyissues with local teams hired by us. Hired teams spend their days (and sometimes their social time) with the manufacturing teams that they are supposed to be supervising. They often eat together and share the same lodging facilities. This can lead to conflicts of interest.
- Relocation of personnel to the country and location where the outsourced manufacturing line is operating is avery expensive Achieving a “western style” standard of living in developing countries is not so simple (schools for the children, appropriate neighborhood, food, transportation, etc.). This is one of the main reasons why this kind of solution may only be valid in the short term for the first phase of control over the production.
- Hiring local companies to help supervise production quality is usually good for the final inspection of goods and before shipping them to clients. These companies do not have the knowledge and the capacity to address issues related to the technology of the product and other more complex problems that may occur during production. Normally, the best feedback you can expect after a test stage is pass or fail. This type of solution is typically very expensive.
Quality in Manufacturing starts here
QualityLine lets you regain control over the production quality of your manufacturing line if it is located in your own facilities or even if it is located on the other side of the world.
The system ensures production monitoring and helps significantly improve quality, increase yield and minimize downtime incidents.
How does it work?
Testing data is automatically and continuously collected from your testing stations located on your manufacturing line, analyze and securely upload it to analytics dashboards exclusively set for you.
You get 24/7 accurate information about each unit tested. You can overview and drill down up to a single unit, conduct quick root cause analysis and improve production quality.