The Ins And Outs Of Subcontracting
Subcontracting has become standard practice as many companies seek to focus on their key capabilities in the ever-ending goal to improve profits. Focusing on in-house design and handing off less profitable manufacturing to those who can profit on it has grown into a necessity for many companies. Subcontracting can make both the contractor and the contracted more profitable ? if it is handled right.
Since the need to increase profits is one of the major reasons for subcontracting, it should come as no surprise that the cost of subcontracting is an important factor. If a product can be made for less money somewhere else, why bother to make it in-house? There are other factors that should be considered before a decision is made, though, two of the most important being the speed of production and the product quality.
Most subcontracting goes to commercial houses that specialize in building a specific line of product. Commercial houses that have grown into companies accepting anyone and everyone’s outsourcing business have no experience building YOUR product. If you simply hand them the specifications for your specific product to your subcontractor and walk away you are asking for them to give you bad product back. This is especially true if your product is complex or involves very specific processing knowledge to build. They may be able to build it cheaply, but who knows better how best to build your product than you do?
It is important to have open lines of communication between the contractor and contracted companies. No matter where the two companies are located or what the product type is, this is an essential business practice. In some cases there may be a language barrier which requires translators and work above and beyond what might normally be expected in the corporate world, but this is becoming more and more common and is something that can be handled without too much difficulty. This is especially true with the technology that is now available. No matter where a contractor is, using a digital camera to take a picture of the problem part and send it to a design engineer may be the fastest way to solve a problemiacertainly faster than flying a person or an entire team to another site.
Larger companies may help smaller companies to improve different areas of their businesses, for example internal communications, benefiting both sides. If the smaller company is still filling out forms in triplicate, introducing them to basic computer usage might prove advantageous. In a more concrete example, a larger company that worked with several smaller machine shops that had only recently begun to use email bought them Microsoft Outlook and gave simple lessons to help increase productivity. This got a return that was more than worth the initial investment.
The standards that a company holds itself to are important. In some cases these may be simply internal requirements, in other cases there are industry standards such as ISO9000, Class 2 electronics, or mechanical tolerance measurements to thousandths of an inch that must be met. In rare cases a small operation may be able to successfully test these, but that is the exception rather than the rule. By helping to train the quality control staff of a small company, a larger company may still be able to subcontract to the smaller firm without worrying about quality loss. The smaller firm, on the other hand, has a staff with skills that can continue to be employed after this current subcontracting job is finished.
When subcontractors work with larger firms, they often find their inspection and testing facilities put to the test. More than occasionally, this leads to the upgrading of said facilities in order to keep up with requirements. Involvement with larger companies sometimes leads to the subcontractors choosing to add a testing capability that the larger company might lack, and with close contact between the engineers, the larger company should be aware of this new capability as soon as it is available. This allows them to not only quickly identify areas in the products being outsourced where the new testing capability will have the most impact, they can look at processes still being handled in-house and determine whether the new equipment could locate defects in them as well. Again, this is a situation that provides positive returns for both companies. The larger gets access to a new testing capability, and the smaller sees a quick return on their investment.
By approaching subcontracting correctly, it is possible for the contracting company and subcontractor to share information, experience, and equipment cost. Financials are often the primary consideration in subcontracting, but the best way to have a true long-term effect for both companies is to improve the employee skill set and the overall manufacturing process.
Filed under: Business