You may be considering bringing more functions in-house but be sure to consider the actual costs. Historically, companies have made a distinct effort to become increasingly vertically integrated.
Whether it was injection moulding, sub-assemblies, packaging, machining, or even sterilization, companies are prepared to pay large sums of money to bring these technologies in-house. The rationale for doing so is relatively easy to justify greater perceived control of the supply chain, quality, cost, lead times, etc.
However, over the last number of years, this line of thinking is changing. As companies bring more activities in house, they face new challenges. With each new technology, a new skill set is needed: additional hires, additional training, maybe even additional shop floor square footage. Once in place, each activity needs to justify its existence from a financial standpoint.
Potential drawbacks of in-sourcing
Overheads and investment.
Bringing more activity in-house leads to an increase in overhead, in particular your fixed labour costs and potentially energy costs, depending on the activity in question.
Labour force use.
Creating value is the most important aspect of any company. This value is created through having your workforce focused on making your product. In-sourcing an activity such as packaging and fulfilment will inevitably divert a part of your labour force away from this and lower their overall contribution to the bottom line.
Flexibility and Scalability.
Once you take the plunge and in-source a technology such as injection moulding, you are less likely to expose yourself to the limitless offering of the marketplace. R&D decisions around product design can become limited by the capabilities of your newly in-sourced technology.
Benefits of outsourcing
Some of these drawbacks/limitations are what have led companies to explore the option of outsourcing. It’s imperative that you do select the right contract manufacturing or outsource partner. To be a successful relationship, the partner needs to be seen as an extension of your very own production team and perform as such.
Access to foreign marketsWhen you outsource part or all your manufacturing process to a contract manufacturer with a global footprint, not only do you gain access to lower labour rates, but you also gain local knowledge and a trusted portal to sell your product abroad. |
Exposure to the latest and greatest manufacturing processesIt’s worth bearing in mind that by the nature of its business, a contract manufacturer is challenged with processing a whole variety of different devices on a daily basis. This drives the contractor to remain at the forefront of technology to stay relevant and economical. This exposure to different markets and products can only improve its processes, and, ultimately, it’s the customer that gains from this knowledge base. |
Control of overheadsAs discussed above and possibly one of the largest contributors to the shift toward outsourcing in recent times is the control it offers over overhead. We know that demand fluctuates; one week you need 40 people working, and the next week you don’t need any. In the in-source model, these 40 people remain on your books as fixed cost regardless of whether they are needed or not. In the outsource model, you simply turn on and off the overhead as and when needed, thus leading to a much leaner cost base. |
Why Choose Titan As Your Diagnostic Kitting PartnerTitan Solutions in an ISO 13485:2016 certified facility for the assembly of medical testing kits for the medical device and in-vitro diagnostics industry. We offer a wide range of customised kitting solutions for biotechnology, pharmaceuticals, and medical devices that require the packing of multiple components into one self-contained package. Our team collaborates with you to develop a kit that best serves your product specifications and end-user requirements. We have a broad portfolio of experience and services therefore, we are ready to help you in meeting demand, improving distribution, increasing efficiency, and expanding your company. We ensure the highest level of quality, every time. |
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Topics from this blog: Medical Devices supply chain optimisation News diagnostic test kitting med-kitting partners
