Outsourcing by Manufacturers — Benefits, Risks and Twelve Keys to a Successful Transaction

Over the last several years, there has been an increasing trend in outsourcing by manufacturers. Besides the traditional outsourcings of information processing (e.g., IT infrastructure) and business processes (e.g., finance and accounting, human resources/benefits and facilities management), manufacturers have significantly increased outsourcing of industry unique functions such as assembly, energy supply management, fabrication, and transportation. For instance, manufacturers of drilling rigs and facilities for oil exploration companies might engage other companies with expertise in die casting, grinding, forging and other technical specialties to fabricate key parts and components.

Regardless of the reason why manufacturers have increased the use of outsourcing over the past few years, experience has indicated that there are not only a variety of benefits and risks with this approach, but there are a number of recommendations which should be implemented by manufacturers in order to have a successful transaction. The purpose of this article is twofold: first, to highlight a few of the benefits and risks associated with the outsourcing of traditional manufacturing functions and, second, to identify some key recommendations to assist interested manufacturers in achieving a successful transaction.