Companies Outsource for Five Major Reasons
There are five major reasons for companies outsourcing assembly work. They include: variable versus fixed overhead, not having to hire and train and fire assembly techs, just simply not in the business of doing certain kinds of work, you’re enabled to ship more machines in a given amount of time, and finally you get improved cash flow, reduced inventory, and able to get parts when you need them at the exact time when you need them. Outsourcing has become a growing trend among industries for regional equipment manufacturers to do so with all or part of their assembly work.
Variable Versus Fixed Overhead
If you hire workers and have a large building, you have a lot of fixed overhead because you have to pay for that rent every month, you’ve got to pay the salaries of those employees, and you’ve got to pay for the benefits. So whether you have a lot of work to do or a little you still have to pay that fixed overhead. If you outsource that assembly work then you are only paying for the work when you need it and as much as you need it. Therefore, if you get a lot of work come in the door one day, you can outsource that and if things slow down, you don’t have to lay them off, you don’t have to fire them and you don’t have to pay unemployment. You just simply don’t place more orders and when things get busy again, you can place more orders with them.
No Cycle of Hiring, Training and Firing
Another positive point for outsourcing assembly work is you don’t have to go through the whole cycle of hiring, training, and then firing, and then basically doing that over and over again in order to maintain a good staff of assembly technicians.
Not in Business of Doing Certain Kinds of Work
Another good reason why a lot of companies outsource their assembly work is they are just not in the business of doing certain kinds of work. A control panel is a good example. If you’re not in the business of building control panels, then why build them yourself? Why not outsource them to a company that is in the business and has experts at doing this kind of work?
Not Limited in Resources
From an ownership perspective, it enables you by outsourcing all of the assembly work or a portion of it, in order to ship way more machines, so you’re not limited in the resources and space you have available. You can basically distribute that work out, and get more done in the same amount of time.
Cash Flow Improvement
With unlimited resources, you are able to improve cash flow so you basically get assemblies in, you don’t have to pay for them for typically 30 days after you get them in, and by that time you can get them installed in your machine. You also reduce the amount of inventory you have to carry so you don’t have that money tied up on the shelf in the form of parts. You can use it in the bank, where it’s working for you, and by outsourcing assembly work, you can utilize the just in time techniques that enable you to get parts exactly when you need them so that they can literally be married to the machine when it’s ready for them and get them out the door as quickly as possible.