Because sometimes it is difficult to understand how a typical outsourcing project is carried out from start to finish, we are presenting here a point-by-point description of the process. Let’s say XYZ Company contacts The Global Connection (TGC) and says that they have a product that they think might benefit from outsourcing. A meeting is arranged and after coffee and handshakes the process begins as follows
The first step in the outsourcing process is the Needs Analysis. The
Needs Analysis is composed of the following components: Product Definition,
Quality Level, Cost Analysis, Volumes, Scheduling Considerations,
and Delivery Logistics. During this process XYZ Company educates
TGC as to what they are really trying to accomplish and they give
TGC the information needed to go on to the next step in the outsourcing
process which is Obtaining a Quote. Each component of the Needs Analysis
is important and many questions are asked to make sure that TGC completely
understands XYZ’s goals. We will briefly cover each step in
the Needs Analysis.
Product Definition- Here is where XYZ Company explains exactly what item, items, components, or finished product they want to outsource. TGC will ask specific questions about the product, specific manufacturing processes that may be needed, proprietary concerns, and materials needed to manufacture this product. Here too, TGC will try to get into the head of XYZ Company to make sure that there is a clear understanding if there are any biases as to country of manufacture. If XYZ is totally disgusted with the human rights history of the country of ‘Atlantia’ and they would not want any of their products made in that country, TGC needs to know that up front. At this time, XYZ would supply complete sets of the latest drawings, specifications, and samples of the product under consideration. The better and more complete the information supplied here, the smoother the entire process will proceed.
Quality Level- At this point in the discussions,
TGC will ask to see all the current Inspection Criteria, Specifications,
and any unique requirements of this product. It is a great help if
a member of XYZ’s Quality Control staff was available to discuss
these quality documents and to explain any history of past problems
and problem solutions. If the past manufacturing problems have been
component related or assembly related, this type of information is
valuable in making sure that these problems are not repeated with a
Cost Analysis- Once we understand the Product and Quality required, a frank discussion of what the realistic cost savings goals are for this project is necessary. Sometimes companies new to outsourcing think that if they source from a foreign country, they will only pay pennies on the dollar. This seldom, if ever happens. During this phase of the discussions, we will talk about realistic Cost Goals, Current Costs, Competitor’s pricing, and Overall Cost Expectations. TGC will not have exact knowledge of the XYZ Company product, at this point, but we have been doing this long enough that we have a good feel for the range of saving available. If the Overall Cost Expectations are reasonable, we can proceed.
Volumes- At this stage, we will discuss the production expectations
of this product. If it is a brand new product with no sales history,
we will need to have a frank discussion of sales estimates including
pilot runs, first and second year production forecasts. If it is an
established product then we will need to discuss current production
levels, production history, lot sizes and sales forecasts. If tooling
may be involved with this project, volumes help determine size and
quality of tooling to be quoted and built.
Scheduling Considerations- Next, we will go over the proposed phase in of this new product or relocated product. If XYZ Company is planning to move a product from a current domestic source, we need to look at the inventory level that XYZ should have on hand to give adequate time to set up production at a new location and get the first shipments delivered. This is critical because it is important that XYZ not run out of stock while we are trying to get a new supplier up and running. If XYZ in planning a new product rollout, it is important to know what the plan is so that we can schedule production to support their efforts. Lead times vary from supplier to supplier and country to country. It is critical that TGC fully understands the marketing goals of their clients so we can support those goals.
Delivery Logistics- The last part of the Needs Analysis is the Delivery Logistics. This portion of the process is where we discuss, importation regulations, shipping restrictions, if any, taxes, duties, custom clearance charges, and means of transportation.