7 Key Benefits of Subcontracting Which Boost Your Business
Companies can benefit from hiring subcontractors for a variety of reasons. From the flexibility that comes with being able to scale operations up or down during certain economic cycles, to bringing on specialized talent for project-specific duties, subcontractors are used in a multitude of industries.
As projects become more complex and global, working with subcontractors as a strategic benefit is becoming increasingly common.
Below are seven popular reasons why companies hire subcontractors, with corresponding industry examples illustrating their benefits.
1. Adapt to Economic Cycles
Every industry has periods of both contraction and growth. By using the services of a subcontractor, your firm is able to adapt to these varying cycles of demand. You can maintain much more flexibility by being able to ramp up staffing quickly without having to lay workers off when the contracts start slowing down.
A classic example of when this strategy makes the most sense is in the construction industry. The global financial crisis of 2008 is still fresh enough in most people’s minds to remind them that it’s much easier to downsize with subcontract firms and avoid mass company layoffs.
And when things do bounce back, it’s faster to get subcontractors on board who can begin work immediately than attempt a mass hiring while still trying to logistically accommodate the sudden increase in demand.
2. Keep Labor and Overhead Costs Low
Using subcontractors also allows you to keep your overhead costs low. As the main contractor, your company doesn’t have to worry about hiring and staffing, employee benefits and office space for permanent workers and equipment.
The furniture industry is one that makes extensive use of subcontractors, especially in overseas markets with cheaper labor rates.
For example, many furniture manufacturers rely on subcontractors to perform tasks throughout the manufacturing process, while they focus on just a few key processes, including assembly and finishing. This equates to having less equipment on hand and fewer permanent employees.
3. Limit Your Capital Investments
An additional benefit of utilizing subcontractors is being able to have access to capital equipment and skill upgrades without having to make a financial investment. The compensation that you give to your subcontractors allows them to upgrade their own capital equipment and employee skillset without your firm having to spend anything extra.
The aerospace industry is experiencing an increase in subcontracting activity, and they’re becoming more strategic in their use of subcontractors. Research by the organizers of the UK’s Subcon exhibition found that about a third of their survey’s respondents use subcontractors so they don’t have to invest in non-core capital equipment.
4. Specialized Labor Outside of Your Core Business
Your business excels at its core concepts, but perhaps you need help with those ancillary activities that are incredibly important, but are outside of your primary strengths. It might not make sense to try to add that division to your business, especially when you can hire a subcontractor to take on those tasks on an as-needed basis only.
This is especially true in the automotive industry, where rapid response times and continuous improvement and innovation are required. Automotive subcontractors are often employed for inspecting, presetting and balancing of important tools, as well as overall tool management and maintenance. These tasks aren’t directly involved in the production of an automobile, but are absolutely necessary in order to produce a vehicle.
5. Control Costs
Large projects are notorious for having cost overruns. By using a subcontractor and paying on a per project basis rather than by the hour helps avoid the inevitable overruns that come with these types of projects.
Nearly all industries can relate to something called the “optimism bias.” This principle states that predictions about how much time is needed to complete a task are typically underestimated. When you’re paying workers by the hour, this can result in drastic cost overruns.
However, if you’re able to work with a subcontractor on per project basis, rather than an hourly basis, the burden of cost and time estimation falls on the subcontractor rather than the main contracting firm.
6. Focus on Your Strengths
You and your core team most likely have a specific set of skills and strengths. However, by using subcontractors you can immediately expand your offering without having to employ extra staff. You’ll be able to take on larger and more specialized projects without having to bring on additional, permanent help.
The shipbuilding industry is one that benefits immensely from the use of subcontractors. Often hired by governments, shipbuilding is a massive project involving years of design and construction with additional through-life support. Governments tend to have very strict manufacturing and reporting requirements, and having a qualified staff in-house to meet all of those requirements is next to impossible.
Because these projects are so complex, shipbuilding firms often employ subcontractors for a variety of functions, including engineering, design, procurement, integration, test and delivery of command and surveillance systems.
7. There are Mutual Benefits
And remember, it’s not all about the benefits you receive as the main contractor. Working with subcontractors benefits them immensely, too. For example, most subcontractors won’t be eligible to bid on the projects that a primary contractor can spec. Thus, the subcontractors benefit by being able to participate in larger jobs and build their project roster.
This practice is often observed in machine building projects, in which there are hundreds, if not thousands of components that need to be designed, built and assembled. Often, small subcontractors are not even eligible to bid on a project without having full-fledged design and production capabilities.
Fortunately, subcontractors can work with the main firm to bid on the portion of the job that is their specialty, allowing them to work on higher profile projects while also building their client roster.