Analytics = Better Manufacturing Outsourcing

Discrete manufacturers often partner with third parties to produce specific components or parts used in the development of their products. In some cases, third parties have the expertise to produce such components or they’re able to offer prices that are lower than the costs to develop these components in house.

However, for a variety of reasons, including distances between manufacturers and partners and time to market pressures, manufacturers often aren’t able to determine whether they’re paying the lowest possible prices for the parts or components they rely on third parties to produce.

Manufacturers sometimes end up paying more than they should for outsourced parts because there simply isn’t enough time to solicit bids from other factories, as Julie Driscoll points out in a recent article for Supply & Demand-Chain Executive.

In many cases, sourcing executives rely on historical cost data when dealing with suppliers, notes Driscoll. Part of the challenge with this approach is that the prices of materials change daily, particularly as markets have truly become global. As a result, historical pricing data doesn’t offer manufacturers a good gauge for making effective price comparisons.

One useful approach for manufacturers is to use manufacturing analytics to help assess third-party parts makers and real-time market conditions to determine how best to outsource the production of components.

For example, risk analysis techniques can help manufacturers evaluate a range of factors for selecting an outsourced provider, including price, production capacity, transportation and distribution capabilities, as well as geopolitical and infrastructure risks (e.g., the reliability of power grids) in emerging markets. Manufacturing executives can use these insights to determine whether potential partners fall within acceptable levels of risk.

Big data and analytics can also help manufacturers identify, quantify, and prioritize margin improvements, in part, by analyzing what they’re paying for certain components and determining whether there are opportunities for improvement, according to a recent article in the The Wall St. Journal.

By gaining greater insights into product and contract costs, including the impact of distribution, energy, and other costs related to third-party outsourced manufacturing relationships, manufacturing leaders can gain leverage in negotiations with key business partners, especially if viable partnership alternatives can be identified.

Analytics can help manufacturers better identify potential partners that are using higher quality controls, materials, and processes than existing providers. In addition, manufacturers can also apply analytics to pinpoint opportunities for greater efficiencies in their supply chains.

This can include the ability to identify alternative suppliers or third-party manufacturers that may be able to deliver better quality parts, lower prices, or a combination of improved capabilities that can enable manufacturers to enter into more effective agreements and improve their operating efficiencies and their businesses.

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