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The Ins And Outs Of Subcontracting

Sep 4, 2008
Subcontracting has become standard practice as many companies seek to focus on their key capabilities in the ever-ending goal to improve profits. Focusing on in-house design and handing off less profitable manufacturing to those who can profit on it has grown into a necessity for many companies. Subcontracting can make both the contractor and the contracted more profitable ? if it is handled right.

There are many factors involved in subcontracting, three of which are cost, speed, and quality. Many businesses tend to focus on the bottom line, making cost the driving factor, which is not necessarily a surprise in todayas economy, but the fact is that ignoring the other two can lead a business into jeopardy.

Depending on the product that a company is trying to produce, there may be a wide selection of commercial houses from which to choose. However, these are companies that generally accept outsourcing business from anyone who can pay; they have no experience with a companyas individual product. Specifications are all well and good, but simply putting them in the hands of the foreman and walking away is virtually guaranteed to waste everyoneas timeiait is very unlikely that you an acceptable product will be produced. The more complex the product, the more unlikely this scenario is. Just because a subcontractor can build a product more cheaply than the business that actually did the design, there is no reason to expect that they can build it better.

It is important to have open lines of communication between the contractor and contracted companies. No matter where the two companies are located or what the product type is, this is an essential business practice. In some cases there may be a language barrier which requires translators and work above and beyond what might normally be expected in the corporate world, but this is becoming more and more common and is something that can be handled without too much difficulty. This is especially true with the technology that is now available. No matter where a contractor is, using a digital camera to take a picture of the problem part and send it to a design engineer may be the fastest way to solve a problemiacertainly faster than flying a person or an entire team to another site.

Supporting the smaller firm to improve their internal communications can improve them, to the benefit of the larger one. If the firm is still mired in paper, you can introduce simple levels of computerization into the office. The company I used to work for worked with many small machine shops that had only recently introduced e-mail. Buying them Microsoft Outlook and giving simple lessons can help reap more than adequate expense for the investment.

In all industries, there are certain standards that must be met. A small subcontractor may not be able to test to a larger companyas standards, and, particularly when said standards are an industry requirement such as ISO9000 or minuscule mechanical tolerances, this can seriously impact business. A small operation here and there may be able to do this, but it is very much a needle in a haystack situation. However, a larger company may be able to help train quality control staff at a small company. This training benefits both sidesiathe larger company is able to use the smaller, less-expensive company that would not have been able to do the work to the required standards before, and the smaller company now has employees with skills that will be useful in the long-term.

When subcontractors work with larger firms, they often find their inspection and testing facilities put to the test. More than occasionally, this leads to the upgrading of said facilities in order to keep up with requirements. Involvement with larger companies sometimes leads to the subcontractors choosing to add a testing capability that the larger company might lack, and with close contact between the engineers, the larger company should be aware of this new capability as soon as it is available. This allows them to not only quickly identify areas in the products being outsourced where the new testing capability will have the most impact, they can look at processes still being handled in-house and determine whether the new equipment could locate defects in them as well. Again, this is a situation that provides positive returns for both companies. The larger gets access to a new testing capability, and the smaller sees a quick return on their investment.

Shared information, shared learning experiences, shared cost for equipment upgrades and shared opportunities can come with subcontracting if it is approached from the right point of view. Subcontracting is often looked at only from the point of view of improving the financial bottom line. With careful consideration, the whole manufacturing process and employee skill set can be improved. In the end, this will help the bottom line of both companies.
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