Why Outsource?

[ Reasons for Choosing NZONE ][ The Benefits of Outsourcing ]

The Top Ten Reasons Companies Out-source

Before you decide to "out-source" anything that you would normally do internally, it is smart to weigh up the benefits and costs associated with using a multi disciplined outside service vendor. We have drawn up a list of out-sourcing benefits related to the NZONE philosophy of providing an "Integrated Turnkey Manufacturing Solution."

1. Improve Company Focus

Out-sourcing will let your company focus on broader business issues while having operational details assumed by an outside expert. Out-sourcing is a company-shaping management tool which can lead to a clearer, more effective focus on meeting your 'customers' needs. For many companies, the single most compelling reason for out-sourcing "manufacturing / assembly" is that many of the 'how' type issues are siphoning off huge amounts of management's time and attention. Often, the resolution of these issues are stuck in middle management 'decision grid lock.' This creates financial and opportunity costs that affect the company's future.

Out-sourcing can enable your company to accelerate its growth and success through expanded investment in the areas which offer it the greatest competitive advantage.

2. Access to World-Class Capabilities

By the very nature of our specialisation, we as out-sourcing vendors can bring to your company extensive world-wide, world-class capabilities to meeting the needs of your customers. Just as our customers are out-sourcing to improve their focus, we as vendors have honed our skills so as to provide the services in which we specialise.

Often these vendor capabilities are the results of extensive investments in technology, methodologies, and people - investments made over a considerable period of time. In many cases, the vendor's capabilities include specialised industry expertise gained through working with many customers facing similar challenges. This expertise may be translated in skills, processes, or technologies uniquely capable of meeting these needs.

3. Accelerate Re-engineering Benefits

Out-sourcing is often a by-product of another powerful management tool - business process re-engineering.

Re-engineering is the fundamental rethinking of business processes, with the aim of seeing dramatic improvements in critical measures of performance, such as, cost, quality, service, and speed. But how are these benefits of re-engineering to be realised? And when?

By out-sourcing your manufacturing requirements your company will immediately reap anticipated benefits of re-engineering by having an outside vendor - one's that are already re-engineered to world-class standards - take over the process. There can be a lot of executive time invested in taking an internal function to world-class standards. More and more frequently, companies are deciding to out-source the function to an organisation that can immediately guarantee the improvements offered by re-engineering and assume the risks.

Out-sourcing becomes a way to realise the benefits of re-engineering today as opposed to tomorrow.

4. Share Risks

There are tremendous risks associated with the investments a company makes. When companies out-source they become more flexible, more dynamic, and better able to change themselves to meet the changing opportunities.

Markets, competition, government regulations, financial conditions, and technologies all change extremely quickly.

Keeping up with these changes, especially where each next generation requires a significant investment of resources and dollars, is very difficult and "bet your company" types of investments are all too common.

Out-sourcing is a vehicle for sharing these risks across many companies. We as out-sourcing vendors have made investments not on behalf of just one company, but on behalf of our many customers. By sharing these investments, the risks born by any single company are significantly reduced.

The result is that when companies out-source they become more flexible, more dynamic, and better able to change themselves to meet the changing opportunities.

Out-sourcing is, in effect, the management tool for becoming what is popularly called the "modular company," the "virtual corporation," or the "agile competitor."

5. Free Resources for Other Purposes

Every company has limits on the resources available to it. The constant challenge is to ensure that its limited resources are expended in the most valuable areas.

Out-sourcing permits a company to redirect its resources from non-core activities toward activities which have the greater return in serving their customers.

In many instances, some of the resources redirected through out-sourcing are people resources. By out-sourcing non-core functions, the company can redirect these people, or at least the staff slots they represent, onto greater value-adding activities. People whose energies are currently focused internally can now be focused externally - on your customer.

6. Make Capital Funds Available

Out-sourcing is a way to reduce the need to invest capital funds in non-core business functions. Instead of acquiring the resources through capital expenditures, they are contracted for on an "as used," operational expense basis.

Out-sourcing makes capital funds more available for your core business activities. It can also improve certain financial measurements within your company by eliminating the need to show return on equity from capital investments in non-core areas.

There is competition within most companies for capital funds. Deciding where to invest these funds is probably one of the most important decisions that a companies senior management is called upon to make.

For example, when a company out-sources its manufacturing and/or assembly requirements these areas no longer compete for the company's capital. Often, these types of investments have been difficult to justify when compared to areas more directly related to producing product or serving the customer.

7. Cash Infusion

Out-sourcing can sometimes involve the transfer of assets from the customer to the vendor. Equipment and facilities and licenses used in the manufacturing operations all have a value and in fact could be sold to the vendor or to third parties who are not in competition with your business. Depending on the value of these assets, this sale may result in a significant cash payment into your company.

8. Reduce and Control Operating Costs

The single most important tactical reason for out-sourcing is to reduce and control operating costs.

Access to the outside vendors lower cost structures, which may be the result of a greater economy of scale or some other advantage based on specialisation, is clearly and simply one of the most compelling tactical reasons for out-sourcing.

Additionally, companies that try to do everything themselves may incur vastly higher research, development, marketing and deployment expenses - expenses that have to be passed onto the ultimate customer. Today's customers are too sophisticated to accept the costs associated with an organisation's attempt to maintain singular control over all its resources.

9. Resources Not Available Internally

Companies out-source because they do not have access to the required resources within the company. For example, if a company is expanding its operations, especially into a new geographical markets, out-sourcing is a viable and important alternative to building the needed capability from the ground up.

Or, perhaps a major restructuring has divested the company of important manufacturing resources, or a subsidiary company has been spun-off, but the needed resources are still required by the parent company to facilitate the ongoing manufacturing process.

In these types of situations, where the required resources would otherwise need to be built from scratch, out-sourcing becomes a viable and attractive alternative. Similarly, rapid growth or expansion of operations is a strong indicator that out-sourcing may be right for your company

10. Manufacturing/Assembly Functions Difficult to Manage or Out of Control

Out-sourcing is certainly one very good option for addressing these types of problems. However, out-sourcing does not mean that your company's management can abandon or walk away from their management responsibilities nor does it work well as a knee-jerk reaction by companies in trouble. You must remember that any form of out-sourcing is a long term strategic decision.....

The reality is that when a function is viewed as "difficult to manage" or "out of control" the company needs to examine the underlying causes. If, for example, the reason is that the requirements, expectations, or needed resources are not clearly understood,(separate from not available) then out-sourcing will not improve the situation - it could well compound the problems further.

If the real problem is that the company doesn't understand its own requirements, then it certainly won't be able to communicate these to the outside provider either.

All is not lost though. Nzone can facilitate a project management roll whereby we pick up the whole manufacturing project and offer back to you a turnkey solution. Basically we listen to your needs, then we respond to them, often with questions but always with a solution based on your needs.

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