RS Machinery Group

Why outsource manufacturing could be an issue for your workshop

While many fabricators use heavy-duty machinery for fulfilling their production requirements, many workshops still decide to outsource manufacturing. This phenomenon happens for many reasons, but primarily because of human resources management strategies and financial goals.

Many metalworking fabricators think outsourcing several manufacturing operations to outside entities will decrease their production and labour costs, leaving operators with more time to perform other tasks inside the workshop. And this point of view stands for many reasons.

In-house manufacturing is undeniably a responsibility that requires a meaningful initial investment, time, technology, and team effort.

Taking all these factors into account, it is only right for certain fabricators to view outsourcing as the shortcut they need to get to the finished product. But for high-volume, fast-paced metalworking plants, in-house is a must.

Let’s analyse the roles of in-house and outsource manufacturing in today’s market and tomorrow’s industry.

 

Outsource manufacturing history

Manufacturers have been using outsourcing for decades, and in most cases, it has provided good results. It was first implemented as early as the ’70s, gaining widespread popularity in the ’90s. Later on, it was adopted as a long-term business strategy by numerous companies.

One of the biggest advantages of outsourcing, was cost-cutting. While this plan may work for newly founded companies or small-scale organisations, it is not sustainable. 

Therefore, companies have to look at outsource manufacturing from two perspectives;

  • in terms of overall strategic relevance (long-term view on market positioning, asset allocation, organisational performance, etc.)
  • production cost and product quality improvements (considering the quality and effectivity of the final product and overall operational performance)

The right approach is whatever applies best to your manufacturing facility. Clearly defined Key Performance Indicators will lead you towards the best solution that can give you the competitive edge you need.

Performance and Efficiency

Most modern CNC machine systems save resources, simplify operations, and guarantee precision. Before, a team of two or more workers had to monitor only one operation. Now we need only one person to oversee the progress of an entire production cycle.

Thanks to technological advancements, if you invest in in-house systems, you will almost immediately experience results. Enhanced efficiency, accuracy, quality control, and faster funnel movement are some of them. Furthermore; you can completely cut out a big outsourcing stage: delivery.

You will never have to wait anymore on delivery from outsourcing companies, and you can, in real-time, track your plant’s work and control the pace. You don’t have to send blueprints, wait on feedback, tweak deadlines according to third parties or consider delays.

Instead, you will be able to plan, conduct, and produce everything you need for your workflow. This will result in a significant cost reduction, high productivity and a quicker turnaround.

 

ROI and expenses

A counter-argument for that is of course the initial cost of researching, purchasing, and installing a machine system. Contracting an outsourcing company avoids the long journey of finding the right machine and training the staff to get a hold of new technology features. 

That’s why companies prefer to rely on third-party teams to cut internal labour costs, machinery maintenance, and other expenses that come with house production.

Paying another company to do the work may seem like a sound solution, but in the long run, it may be adding to your manufacturing costs. Working with outsource manufacturing companies means taking into account that the production process is not being conducted according to your level of priority, but theirs, which means you have to align several schedules for the completion of your requirements.

ROI projections-wise, almost all of the latest machinery have a return on investment within two years after purchase. In addition, any new machinery investment is currently eligible for the tax super deduction scheme. This provides you with a reduction on your current year tax bill that usually equates to an offset of between 24% and 27% of your investment.

 

Super deduction tax incentive

According to the www.gov.uk, from 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

  • a 130% super-deduction capital allowance on qualifying plant and machinery investments
  • a 50% first-year allowance for qualifying special rate assets

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, encouraging firms to invest in productivity-enhancing plant and machinery assets that will help them grow and to make those investments now.

To learn more, feel free to contact us. We will go through the figures, the features and will tailor the right solution to ensure your company derives maximum benefit from your investment.

 

Communication and Upskilling

One of the most noticeable changes we experienced in the last two years was the transformation of internal and external communications. All industry areas faced tremendous challenges with connectivity, having to implement remote work and halting on-site operations with no definite deadline.

These changes affected the majority of industries, with manufacturing being one of them. In-house operations may benefit companies to revive and strengthen the dynamics between coworkers. In-house projects will help teams maintain stronger communication and raise accountability for the quality of delivery.

However, attached to this comes also the biggest objection against in-house practices; training and upskilling. While it may be challenging to implement, if companies dedicate a special time for training and courses, operators can achieve a flow of progress, results, and newfound interest in their line of work.

 

Conclusion

Outsource manufacturing definitely has its advantages, and it undoubtedly is a valid way of doing business. On the other hand, the benefits of in-house are several, and one of the most important is having ultimate control over your manufacturing process and production line that you will lack when outsourcing.

Considering other external reasons such as competition, industry moves, or the government’s super-deduction tax scheme, we can see how this year is also one of the most beneficial to invest in an in-house department.

We advise making an assessment and plan according to what your company needs more at the moment, and most importantly, what will need in the future.

For further information and assistance, feel free to contact our team, schedule a meeting, or visit our website. 

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