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"The make or buy decision of manufacturing processes goes beyond the remit of procurement. It is a strategic decision with long-term implications for any business, and should be handled as such."

Harmen van Os, PA Manufacturing Expert

Outsourcing manufacturing processes for strategic advantage

‘Make or buy’ decisions are as old as industry itself. However, in our day-to-day consulting practice we have seen fresh interest in this topic. The companies we work with are looking not only at outsourcing support functions and close-to-core processes such as maintenance, logistics and quality control. They are also considered outsourcing manufacturing processes that were traditionally considered as core. 

Outsourcing manufacturing processes goes beyond the remit of procurement. It is a strategic decision with long-term implications for any business, so it’s important to get it right. 

PA’s experience shows there are four key questions your business must ask before you take the decision to outsource manufacturing processes.

Will you retain control over core competencies?

Core competencies give your business a value-adding, sustainable and defendable position in the value chain. They exist outside the manufacturing process and typically include branding, sales channel dominance, access to raw materials, technological dominance backed up by intellectual property rights and the ability to orchestrate the value network. Outsourcing a manufacturing process can enable you to exploit these core competencies. However, if a decision to outsource would deprive you of control over core competencies, it’s unlikely to be the right move.

What do you hope to achieve by outsourcing manufacturing processes? 

Businesses often outsource manufacturing processes with the aim of making a fixed cost fully variable. In fact, (what goes wrong and makes this ‘an invalid argument’?). More realistic goals are to secure the ability to: 

  • offer greater product variety 
  • manage complexity more effectively 
  • reduce costs while accessing the innovation power of suppliers 
  • gain access to technology and flexible capacity 
  • pool investments and risks.  

Do you understand the risks of outsourcing manufacturing and can you mitigate them? 

Identifying and mitigating key risks in advance will increase the chances of a successful outcome should you decide to outsource a core process. Common reasons why outsourcing fails include:

  • insufficient interface management
  • outsourcing of non-optimised and immature processes
  • poor supply chain risk management in areas such as security of supply, safety and sustainability adherence
  • lack of financial transparency
  • an imbalance in the benefits to the parties involved.

What impact will outsourcing manufacturing processes have on your enterprise architecture?

When a business changes its ‘make or buy’ mix, the entire business and enterprise architecture must be adjusted. Has your business understood the impact of a ‘buy’ decision on key elements of the architecture such as network orchestration, process and product modularity and IT usage?

"The make or buy decision of manufacturing processes goes beyond the remit of procurement. It is a strategic decision with long-term implications for any business, and should be handled as such", Harmen van Os, PA manufacturing expert.

Through PA’s global network of offices, experts in our manufacturing practice work with clients to develop and implement their manufacturing strategy. We deliver lasting impact through our focus on cost and operational excellence, manufacturing footprint design and implementation, technology strategy and strategic ‘make or buy’ decisions. 

To receive the full article and find out how to make the right strategic decisions on outsourcing manufacturing processes, contact us now.

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Wil Schoenmakers
Consumer and manufacturing
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Tim Lawrence
Consumer and manufacturing
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