4 Strategies for Managing Outsourced Manufacturing

A lire sur: http://it.toolbox.com/blogs/inside-erp/4-strategies-for-managing-outsourced-manufacturing-59748





Industry analysts estimate that about 70–80 percent of manufacturing is outsourced. It makes sense. As organizations struggle to keep manufacturing costs in line, shorten product cycles, and stay competitive, outsourcing offers the best strategic alternative.

However, outsourced manufacturing comes with many challenges. It is a high-risk strategy that offers high-impact returns when done well. The problem is doing it well. Where most organizations fail in the outsourcing relationship is following through after the handshake takes place. The result can be disastrous, but there are a few strategies that can help when it comes to managing outsourced manufacturing.

Don't Outsource Too Soon 

Too often, a company devises a product and then begins the outsourcing before the product is even ready to begin production. Engineering is still changing and demands aren’t solid. Yet, the outsourced manufacturer is expected to get it right. They won’t. Don’t outsource manufacturing until a complete product—and product plan—is in place. Only then can an outsourced manufacturer be expected to accurately forecast production costs, time, and delivery.

Negotiate Realistic Service-- level Agreements 

Negotiated service-level agreements (SLAs) are generally where the biggest pain points are in an outsourced manufacturing relationship. Companies build an agreement with an outsourced manufacturer, but the agreement is vague and holds no real value because it establishes no valuable metrics for which monitoring can be conducted. Relationships built on vague SLAs are almost guaranteed to fail, and it will most likely be costly for both parties.

A strong SLA begins with a function requirements analysis that pinpoints all the areas that are required for an efficient outsourced relationship. This analysis should also yield key performance indicators (KPIs) that can be effectively tracked through an organization’s enterprise resource planning (ERP) system.

KPIs can include:

• Required delivery time
• Acceptable levels of defective finished goods
• Acceptable delay times
• Materials values
• Quality standards

In addition to developing metrics, the methods of measurement should be defined, the frequency with which audits are conducted should be established, and the repercussions and rewards associated with hitting or missing those metrics should be identified.

Consistently Monitor KPIs

Once a solid SLA is in place, including the KPIs that will be used to evaluate service levels, then consistent monitoring of those KPIs is essential. Too often, an organization puts KPIs in place but then fails to monitor those KPIs. When an unacceptable practice becomes part of the norm, then it’s difficult to go back and reverse that practice. However, if an organization is focused on monitoring and maintaining the metrics associated with the service level, then problems can be discovered and handled before becoming nightmares.

The value of many of today’s corporate-wide ERP systems is that they enable a clear organizational view across all departments, including those that have been outsourced. If leveraged properly, organizations can use this view to monitor outsourced manufacturing in such a way that even a small delay will flag alerts, making it possible for management to deal with potential problems before they develop. This is the true competitive advantage that organizations have been seeking—the ability to function with an outsourced manufacturer as if the manufacturing were happen in-house.

The visibility combined with the metrics collected also make managing outsourced relationships easier. Audits, when performed regularly, illuminate issues on both sides of the manufacturing relationship that could be improved. They also highlight successes, enabling all parties to learn from what’s working well and apply those lessons to areas that are less successful.

Focus on the Outcomes 

With all the metrics to be considered, it’s easy to fall into the trap of overmanaging an outsourced manufacturing relationship. Don’t make that mistake. Focus instead on the outcomes of the relationship. Are products being delivered on time, and are they consistently high-quality? If the outcomes are the focus, then the manufacturer chosen has the freedom to deliver the desired results in the most efficient manner. How they reach those results, so long as their methods don’t create compliance issues, shouldn’t be a concern.

Today’s tools, specifically the capabilities available in ERP software and applications, make outsourced manufacturing more viable and efficient than ever before. To create a great outsourced relationship, start by outsourcing only those products that are truly ready for outsourcing. Then analyze the functional requirements and build SLAs that reflect those requirements. Institute and monitor the metrics that are detailed in the SLA and focus on the end results. The outcome should be better outsourced manufacturing with high-yield, competitive results.

About the Author

Jerri Ledford has been writing about business technology for more than 20 years. Her articles, profiles, news stories, and reports have appeared in such venues as Intelligent Enterprise, Network World, Information Security Magazine, DCM Magazine, and CRM Magazine. She develops and teaches technology courses for enterprises such as Sony, HP, and CNET and is the author of 19 business technology books, includingGoogle Analytics and The SEO Bible. Jerri is a Studio B analyst.