Vertical integration has been out of trend for some time now. Outsourcing in manufacturing, on the other hand, is in. But the main question is, should you join the bandwagon?

Original design manufacturing has been known to outsource human resource for some time now. While it has helped provide employment to many developing countries, it also has its own setbacks to the employment of its country of origin. Manufacturers have become leaner. Plants and equipment have been eliminated and contract manufacturers have become their new production partners. Many original equipment manufacturers also have chosen to outsource since it helps them deal with the pressures brought on by price and profit increase.

The changing market requirements have also been a challenge for these manufacturers that they opt to deal with contract manufacturing outsourcing. In fact, there are many companies that do not own a single factory. They rely on contract manufacturing to create their products or run their operations.

Contract manufacturing services have become the booming business that is driving significant growth. As a matter of fact, the global market for outsource it services is projected to increase a significant amount according to an International Data Corporation. based in Massachusetts.

In North America, contract electronics manufacturers generated billions of sales in 2001 and are expected to grow its profit each year. Contract manufacturers have also expanded their services from one field to another. In addition to assembly and manufacturing, they now have services catering logistics and global distribution. The industry has grown successfully that it is not showing any sign of slowing down until today. European and American electronic manufacturers used to be the main patrons of electronic contract manufacturers. Today, even Japanese companies are outsourcing their products as well. Automakers are also considering this as an option to cut down on expenses. Outsourcing has reduced costs and capital spending.

Speaking of costs, outsourcing in manufacturing has helped manufacturers save on material and labor costs. It also gives attractive financial ratios so investors are lured into the business. Truth be told, cost is the main advantage in using outsource manufacture.

Since outsourcing has lower cost structure than original equipment manufacturers, they can reduce the cost per product. This means they can go to variable cost from fixed cost. This way they are only paying for what they have sold. The contract manufacturer, on the other hand, can collect demand from original equipment manufacturers. They use the competition to get better prices and stable supplies from the original equipment manufacturers. Economically, it is a win-win situation.

The advantages do not stop in cost alone. Time-to-market is another driving demand for contract manufacturing. Time-to-market affects an electronic products life cycle. The faster it is launched in a big market, the better.

However, there is a downside for outsourcing in manufacturing. Since the control is given up the moment an original equipment manufacturer deals with an outsourcing company, extensive engineering changes are more difficult to execute. Also, many companies are not prepared for the arduous task of transferring an internal manufacturing model to the contract assembly manufacturing. Finally, contract manufacturers are not good for companies with fluctuating product demands or those with complicated equipment.

Every little helps. Click the link below to learn how to outsource on a budget.

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