There are many benefits to outsourcing a portion or all of your manufacturing requirements to a trusted contract manufacturer (CM). However, there’s one in particular that is hard to ignore. In its simplest form, what I am referring to is the ability to convert fixed costs associated with internal manufacturing to variable costs associated only with your product volume demand. You are effectively converting what would be a combination of fixed costs (e.g., core assembly team, manufacturing support, test, inspection, packaging, and quality personnel, and facility and utility requirements) AND variable costs if you were to manufacture the product internally, to nearly 100% variable costs when you outsource to your trusted CM. This variable cost model can enhance your financials significantly during all stages of the product lifecycle. In the early phases of market introduction, demand from innovators and early adopters is often unpredictable. If they adopt quickly, your CM will be able to ramp with your needs. If there is a delay in production ramp due to any variety of reasons, your organization is not burdened with managing the fixed costs associated with the costs above. It’s also often difficult to predict how successful the growth stage will be, how consistent the maturity stage will be, and how steep the saturation/decline stage curve will be in your product’s lifecycle. Consider placing that burden on your CM while you invest your time, energy, and funds in product enhancements, IP generation, and marketing! As we all know there are also other economically driven upswings and downswings that can occur regardless of your product’s features and business plan. If you believe it’s advantageous to minimize your fixed costs and align your manufacturing expenses almost completely with product volume, you should seriously consider outsourcing as a core part of your business strategy.
About the Blogger:
Matt Giza is the General Manager for Cogmedix, A Coghlin Company