Outsourcing of Mechatronic Systems: Turning Objections into Opportunities
In mechanical engineering, prices are under enormous pressure and the required lead times continue to decrease. To maintain competitiveness in the market, it may be a smart move to (partly) change your sourcing strategy. For example, have you ever considered outsourcing your manufacturing to replace (part of) your in-house production activities? In case you actually did or do, there may be certain objections that prevent you from taking this leap. An example of such drawback is a production partner's insufficient product knowledge. Yet, these objections are not always justified. In this blog post I will explain why.
Objection 1: A lack of product knowledge
In some respects, it is true that a production partner lacks product knowledge. After all, they do not employ the specialists who have been working for your company for years, and they do not know the products inside out — but this does not mean they cannot be the partner you want them to be.
An excellent production partner owns certain means that ensure complete production knowledge is not required to manufacture a product of consistent quality that meets your standards. To clarify this a bit more, let's take a look at how MTA organized this.
The technical product documentation (TPD) is, of course, a prerequisite to producing your mechatronic module or system. However, this documentation fails to include all information, since knowledge that is only in your employees' heads is not included in the TPD. This implicit information is crucial to producing products that meet your requirements.
For this reason, MTA creates (if necessary) a document that is complementary to your TPD: a Part Function Sheet. It contains essential information that is not included in your TPD. We communicate both documents throughout the supply chain.
In addition to tackling potential bottlenecks in the supply chain, risks in the production process have to be avoided. For this purpose, we have developed the Assembly Quality System (AQS).
This system guarantees quality during every step, ranging from converting technical specifications into a uniform language for production partners, to assembly, system integration, and FAT. We record all data digitally, and we guarantee real-time monitoring and registration of quality during the assembly process — test and implementation procedures included.
It is imperative and possible for a production partner to have the right knowledge at its disposal. On the other hand, it may be an advantage when knowledge is not fully embedded into the organization.
During the process of transferring production to an external production partner, a valuable partner will consider the manufacturability of your module or system. Since the partner can assess objectively, it is relatively easy for them to propose improvements regarding materials, production technology or design. In this way, a partner takes your product to the next level.
Objection 2: Outsourcing your manufacturing is expensive
It is a common misconception that outsourcing the production of mechatronic modules or systems is expensive. It can be a cost-effective strategy when the right factors are in place.
By placing the production process in the hands of a well-managed supply chain with carefully selected suppliers and production partners, you can achieve the best cost price. This is partly due to the fact that inventory and WIP costs are lower, as you no longer have to pre-finance these costs for which the production partner takes responsibility.
Outsourcing does not only result in lower purchasing and inventory costs; it also reduces the fixed, operational costs. After all, you need fewer engineers to produce modules or systems — your current production floor space is sufficient to enable growth — and additional investment in machinery is unnecessary which results in increased profitability.
Objection 3: The quality of products can’t be sufficiently guaranteed
Actually, this objection is in line with the first one. How can product quality be guaranteed when there is a lack of knowledge?
I have already mentioned that Part Function Sheets and the Assembly Quality System ensure we have the right information at our disposal — these means also guarantee quality.
However, a good production partner establishes quality in additional ways. As module assembly is the core activity of a partner, this process should be organized as lean as possible. If this is not done properly, a production partner fails to offer the best cost price while delivering consistent quality. Cost control and quality have to go hand in hand; this is non-negotiable.
I already told you that a good production partner considers the manufacturability of your module or system — this is related to quality as well. Can it be produced more efficiently without compromising quality? A production partner has the knowledge and skills that enables them to come up with suggestions that lead to improvements.
Therefore, the objections to outsource production are not always justified. The right partner is key here; can they meet your specific needs and requirements, including the best cost price and a quality guarantee?
Outsourcing, however, is not a cost-effective strategy for every company. The profitability of this strategy depends on various factors, such as the geographical purchasing region, complexity, and product structures.
To help you determine whether outsourcing is cost-effective for your company, we have developed an outsourcing scan. After completing the scan, you will receive an indication of whether outsourcing is the right strategy for your business. All you need to do is answer 14 short questions.
Take the Scan here: