Outsourcing is the way of life for the manufacturing industry. Some industry will not survive without outsourcing option. AS we all now that there are significant benefits that come with outsourcing, there are also risks and challenges for OEMs to consider.

Following issues should be considered when making decisions about outsourcing and eliminating the production of a key sub assembly for products manufactured by a company.

First and for most criteria is to accept or reject Outsourcing products or services should .

Accept or Reject?

If incremental cost savings plus opportunity costs are less than incremental costs, reject the special order

If incremental cost savings plus opportunity costs are greater than incremental costs, accept the special order

Regardless if the choice is to outsource or insource, a company should always consider the qualitative aspects of decisions. Qualitative issues related to outsourcing include:

Selecting Right Contract Manufacturer

This is very Important Part. Success of Outsourcing depands upon the Selection of Right Contract Manufacturer. Prior to starting any sourcing project, fully envision your idea of a successful contract manufacturing relationship. Before making any decisions, spend time to develop a clear set of selection criteria, understand your short-term and long-term requirements, and cast a wide net to evaluate multiple options

Concentrate on visibility to product pricing structure

CMs must provide an accurate breakdown of cost to a detailed level that specifies material cost, cost of acquisition , labor, manufacturing overhead, and profit or gross margin. So the management can identify the Exact cost of Outsourcing

Attention to NON Price issue

As we all know that price is the prime factor but there are also NON Price issue which should be considered. what period of time are your products covered? What is the cost structure for repairing products that are outside of warranty? Is the inventory for warranty repairs at a different location and under a different cost structure? How do quality-related metrics such as yield and part-per-million failure rates play into your total cost of ownership and other issues are

Transportation,

duties,

tariffs,

prototyping costs,

RMA (return material authorization)