Why Subcontracting is an Easier Sell to Investors than Outsourcing
The complexity involved in the manufacturing of even the simplest products today makes it harder and harder for manufacturers to handle every process in-house and still turn a profit. Yet there are plenty of risks to subcontracting with outside service providers, including the public’s distaste for what they see as outsourcing.
If you’re trying to increase the subcontracting done by your company for better products and higher profits, you may be fighting a board of investors that consider subcontracting the same as outsourcing. But despite what they may think, subcontracting is very different from outsourcing and has far fewer disadvantages. Find out how to highlight the differences so it’s easier to sell your investors on the idea of increasing subcontracting within the business.
Stronger Company Culture
Firstly, subcontracting rarely involves removing entire departments at once. Outsourcing generally has this kind of effect on a company because entire parts of the business are relegated to a service provider. For example, a common form of outsourcing is eliminating in-house customer service and having a centralized provider cover it. You don’t need subcontracting for these kinds of services because subcontracting is generally limited to a manufacturing process or design service.
Keeping your departments intact and working together maintains a stronger company culture, and subcontracting won’t make anyone think they’re losing their job just because they’re no longer performing one or two of their former job responsibilities.
Better Quality Control
Subcontracting differs greatly from outsourcing in the amount of control you retain over processes and final products. Every subcontracting relationship starts with negotiations about the exact products and services you need provided, usually on a routine basis. When creating a subcontracting agreement, you can specify everything from cost, delivery window, manufacturing methods used, and even sourcing requirements and green initiatives.
In contrast, an outsourcing contract is largely set by the service provider with little room for negotiation. Quality control is difficult and can lead to serious problems. Subcontracting allows you to work directly with the team handling your products or adjusting your designs, giving you greater control over the entire process.
There’s a greater degree of transparency in all your dealings with a subcontracting company that you’ll usually find absent from an outsourcing company. Since a subcontracting company is likely handling very specific tasks for you, such as thermal processing of metal parts or prototyping for a new design, they’re happy to share information at every step of the process.
Outsourcing companies tend to manage these processes themselves to free you from worrying about them, but this also can lead to confusion when you’re having trouble getting information from different departments. Subcontracting contracts are easily presented to shareholders and investors so they can understand the scope of subcontracting involvement on each project.
Diverse Supply Streams
Some investors are resistant to the idea of any outside subcontracting contact with other businesses, even for essential processes that would cost much more to source in-house. For these investors, you’ll need to focus on the need for diversifying your supply streams in order to stay competitive. Subcontracting is the right way to diversify, especially when you need to reach legally mandated requirements set by your country or region.
You can start multiple subcontracting arrangements without having to commit to just a single provider, making it easier to adapt to sudden changes in your manufacturing or design needs. Since subcontracting is just as applicable to one-time needs as long-term supply arrangements, there’s no need to worry when you need to end a subcontracting arrangement due to a retired product or a design change.
Limited to Procurement
In general, you can only apply subcontracting services to a limited amount of your business activities. Subcontracting is primarily a form of procurement or sourcing, so it’s best utilized for getting raw materials, ordering specially made components, prototyping and design services, and similar needs. Outsourcing has far greater scope and reach, with some companies outsourcing entire departments of product development, marketing, and customer service. It’s much easier to get investors and shareholders to agree to a limited subcontracting arrangement than a long-term outsourcing arrangement.
Fewer Legal Complications
Investors are often rightfully concerned about the legal complications posed by subcontracting outside parties in a business venture. There’s always a chance of someone stealing sensitive information, neglecting to follow protocols, or otherwise causing a legal scandal that affects your operations. The risk is far lower with subcontracting rather than outsourcing. Outsourcing companies hire their own secondary set of employees and contractors, creating more security risks. You’re working directly with another company by subcontracting, and they’re just as concerned about legal ramifications as you are.
Let your investors know that it won’t take you long to find the right subcontracting partners once they’ve approved the change. European Subcontracting Network has all the contacts you need in one convenient source.