The constant stress over daily operations, logistics, and other aspects of product manufacturing can put a significant strain on the leadership of an organization. That’s where outsourcing contract manufacturing for electromagnetic components comes in as a viable solution.
When a business partners with a trustworthy contract manufacturer, it can empower visionary owners, senior leadership teams, and management teams to concentrate on creative innovations.
This specific area of product manufacturing requires a trained, expert partner. Knowing which company to outsource production operations to can be a complex undertaking.
While this can be a big step, and there may be anxious undertones to the decision, the benefits often outweigh any hesitations. Approximately 84% of organizations surveyed outsourced at least some aspects of their manufacturing. Among those organizations, “one in four subcontracts out more than half of their manufacturing processes.” Some top reasons for doing so were to:
- Reduce manufacturing costs.
- Use the manufacturing expertise of third parties.
- Grow and expand rapidly.
- Increase responsiveness and agility.
- Reduce assets.
- Benefit from expertise in product design.
- Expand in a region.
It’s easy to see why so many businesses are turning to outsourced solutions for their production. There are many advantages to doing so that can free up valuable resources in a company. Still, there is plenty of confusion surrounding outsourcing solutions. We’re here to dive deeper into this concept and shed some light on the benefits.
What Is Contract Manufacturing and Outsourcing?
The concept of contract manufacturing is straightforward: A product designer or company contracts with another company capable of manufacturing the products. Then, the manufacturing company takes care of producing the products while the designer focuses on continued creative work and the sales process.
It is by far the most used manufacturing form. Companies all over the world require outsourced manufacturing solutions. From Apple to Tesla, there’s a growing demand to scale products and organizations, which means relying on third-party manufacturers for reliable and expert service.
This is an operational model with many dimensions to consider. But it can be a great way for companies to concentrate on creating and selling innovative products without having to worry about production logistics.
What Is the Difference Between Contract Manufacturing and Outsourcing?
The difference between contract manufacturing and outsourcing is minimal. Contract manufacturing is a form of outsourcing. It’s used when a company doesn’t have access to the resources needed to produce its products. Outsourcing is a tactic to redistribute resources and reduce costs.
When two organizations make a manufacturing contract, the business that builds and produces the products for the other is known as the contract manufacturer.
Is Contract Manufacturing a Form of Outsourcing?
Yes, contract manufacturing is a form of outsourcing. A company can partner with a trustworthy and reliable manufacturing business to take the strain of production off its shoulders. This frees up the company for other tasks and allows them to defer to expert third-party product manufacturers for the creation process.
What Are the Three Forms of Contract Manufacturing?
There are three different types of contract manufacturing to be aware of. Depending on the industry you do business within and the products you create, you’ll fall into one of these three categories. Knowing the difference between these three is essential when choosing a production partner because you want to make sure all expectations are as clear as possible. When everything is on the table, you’re best equipped to make an educated decision for your organization.
Here are the three forms of contract manufacturing:
1. Contract Structure
This type of contract manufacturing agreement includes private label manufacturing, manufacturing individual parts, labor or service subcontractors, and end-to-end contracts.
2. Services, Tools, and Materials
If you’re looking into outsourcing to contract manufacturers and you notice they both offer private label manufacturing, it’s essential to look at the services, tools, and materials they offer. They likely won’t be the same, and these components have some of the biggest impacts on the quality of your products.
3. Supported Industries
Certain contract manufacturers specialize in specific industries. This means you can choose a manufacturer that meets your unique needs and those of your customers.
What Is an Outsourcing Manufacturer?
Partnering with an outsourcing manufacturer means hiring another company to handle the assembly of your product parts or to build the product from the ground up.
5 Benefits of Outsourcing Contract Manufacturing
Using contract manufacturing for electronic assemblies, transformers, and inductors can improve operational efficiency and increase productivity in your organization. The daily grind of manufacturing can take an unnecessary toll on leadership teams, and removing them from that environment frees them to focus on creative projects and further operational initiatives:
- Developing new products
- Strategizing and planning for both short and long term
- Improving existing products
- Taking the initiative in new sales and marketing goals
- Improving customer satisfaction
- Increasing repeat sales
- Analyzing business opportunities (both old and new)
- Prioritizing internal team culture and team building
For leadership teams with tight schedules, the ability to focus on these areas without the pressing distractions involved with production operations and management is priceless. The result of these efforts? More time, less stress, and higher profits.
Here are the top five benefits of outsourcing manufacturing for transformers, inductors, electronic assemblies, and more.
1. Control Labor Costs
Controlling labor costs is one of the top reasons companies outsource their manufacturing. Since direct and indirect labor costs represent the single highest expense for many companies, it’s a common objective to stabilize and decrease labor costs when possible.
Employees are variable factors within your company, making it difficult to optimize productivity levels internally. That’s where a third-party manufacturing company can help increase reliability. When companies produce their products in-house, they’re subject to the variability of their employees. This doesn’t guarantee consistent output. A contract manufacturer can make things more consistent.
2. Increase Scalability
Businesses are growing at unprecedented rates, which means they’re trying to scale to meet the increasing demands. Businesses needing to scale have a thousand unanswered questions about how they’re going to fulfill the needs of their customers, and production can be a massive hurdle.
Not to mention, some businesses need the option to downsize eventually. Outsourcing your manufacturing gives you more flexibility to increase and decrease your company’s output at your own pace, without being tied down to overhead costs.
3. Lower Overhead Costs
The overhead costs associated with manufacturing your products in-house are often severely overlooked. You need workers and materials, but you don’t need to buy or lease and maintain a building, equipment, and tools if you choose to outsource your manufacturing.
Hiring a reliable contract manufacturer and having that relationship in your back pocket means lowering overhead costs.
4. Keep a Consistent and Cost-Effective Force
Hiring new employees is one of the most expensive things to do internally, and that includes manufacturing workers. With the rising demand on the job market, potential employees are more selective about who they choose to work for. This means job listings are taking longer to fill. Even if you’re lucky enough to find all the right people, you still have to invest significant time and resources into training them.
A contract manufacturer can take care of all of the headaches for you. The onboarding process typically only takes a couple of weeks, and from there, it’s all about saving your company ample time and money. Contract manufacturers can relieve the labor shortage, which means your business can make money faster.
5. Elevate with Technical Expertise and Insight
The extensive technical expertise and insight offered by a manufacturing company could be invaluable to your organization. The best manufacturers are always thinking of ways to improve and innovate within their industry. This means they’ve found creative and efficient ways to cut down on timelines, streamline the process, and create high-quality products using best-in-class materials.
Working with a good contract manufacturer means elevating the technical expertise demonstrated by your organization, which alone can make for a valuable partnership.
Disadvantages of Contract Manufacturing and Outsourcing
While there are numerous advantages to contract manufacturing and outsourcing, here are a few downsides some companies should consider:
- Limited to no control over manufacturing
- Possibility of getting stuck with the wrong partner
- Competition if your competitors attempt to hire the same manufacturers
- Displacing employees within your organization (if applicable)
- Resources within your business that go unused
- Potentially getting tangled with human and labor rights abuses
So long as you keep these potential disadvantages in mind, you’ll be able to make the most educated decision for your organization. A good manufacturing partner has all of the policies, protocols, and systems in place to mitigate potential downsides to the process.
Manufacturing and Outsourcing in Mexico
When deciding on a contract manufacturer, location is a vital component. Depending on where you’re outsourcing manufacturing operations, there are different rules, regulations, and pricing. There’s no shortage of options, but there are a few key reasons you should consider outsourcing in Mexico specifically.
Some of the world’s largest and most successful brands manufacture in Mexico, including:
- Coca-Cola
- Toyota
- IBM
- Sony
- LG
- General Motors
- Siemens
- Philips
These are just a few examples. Opting for manufacturing in Mexico makes plenty of sense once you look at the associated advantages. Here are three reasons to consider it:
- Lower investment: Even when opting for contract manufacturing over in-house operations, you still have to consider the investment cost. Outsourcing in Mexico can save you time, money, and resources, considering the lower labor costs.
- Fast startup time: There’s a reason Mexico has been a reliable manufacturer for decades now. Their experience shows in their expertise and professionalism. Production can get up and running in a matter of weeks.
- Remove the burden of regulatory compliance: Mexican contract manufacturers are responsible for all aspects of regulatory compliance. This frees up your U.S.-based organization from obligations to factory, production, labor, or product quality standards.
There are many reasons why you should consider outsourcing to Mexico, but overall the most important thing is thoroughly researching your options and choosing a trusted partner.
Contact SCHOTT Magnetics for Contract Manufacturing
SCHOTT specializes in manufacturing and designing high-quality transformers, inductors, and magnetic components tailor-made to customer specifications. Since 1951, SCHOTT has been dedicated to being a partner to our customers and much more than just a supplier.
We’re focused on electromechanical and value-added assembly. This allows us to be flexible to our customers’ needs and unique requirements. With over 70 years of experience in assisting customers with electronics contract manufacturing in both the United States and Mexico, you can rest assured you’re in good hands.
Contact SCHOTT today and learn more about what we can do for you.
