Be Smart When Going Into Product Development Outsourcing

Offshore outsourcing or global sourcing is a practice that entails to take advantage of global efficiencies, especially when it comes to production

. This will lead to cost reduction, access to world class capabilities, revenue increase and maximizing of internal resources. However, companies should plan product outsourcing carefully first before actual implementation. They might fall to the usual problem of having complex operations instead of a simplified one. The company should know the correct price expended from an outsourced commodity and the total cost of the same commodity in real terms.

For professional assistance regarding product outsourcing, seek the help of commodity management teams or global procurement organizations. They have a list of key suppliers of every sourcing category. They will deal with the price negotiation to be able to give the best rate to the parent organization.

Even if the organization or company has a personnel already experienced in global sourcing, it will still be best to get professional assistance. There are so many factors involved in the process such as assessing quotes, cost improvement and manufacturing processes. The parent organization needs all the help it can get especially with a business decision this big.

In order to analyze the target cost, global procurement organizations use industry proven tools and methods. They have parametric cost estimating models to rely on. The parameters needed to identify the target cost of product development sourcing include manufacturing process, selection of optimum materials, automation levels and tooling amortization among others.

Once accurate cost models are in hand, price negotiation will definitely yield superior results. If you are thinking to outsource product development, it would be a mistake not to have accurate cost models. Furthermore, cost modeling will eventually help in waste elimination and continuous cost reduction.

Having target cost at the start of transaction with product development sourcing companies gives a lot of advantages such as process optimization, access to special variables, tight tolerance adjustments and material selection. Therefore, target cost should be the cornerstone of every company that plans to outsource manufacturing. It facilitates cost impact design alternative assessment in real time that fits the global sourcing environment of today.

by: Maria Tal

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