The Road to Contract Manufacturing Success

This is an excerpt of the original article. It was written for the May-June 2014 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2014

Getting the most from Sales and Operations Planning is a combination of people, processes, and technology. The Red Wing Shoe Company details the steps it took to improve S&OP processes, slash its S&OP planning efforts by 50 percent, and align manufacturing with sales—all while growing its business.

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“Make vs. Buy” continues to be one of the most strategic decisions manufacturing companies can make in this day and age. Whether the motivations to outsource manufacturing are bottom-line focused, capital driven, or intended to improve the top-line, discussions with many companies across a range of industries indicate that manufacturing outsourcing is often falling short of expectations. A recent A.T. Kearney survey sheds some light on why there is still a sizeable gap between strategic intent and operational execution and how that gap can be closed.

Outsourcing Manufacturing
Companies have been outsourcing their manufacturing operations for a variety of reasons and across the ebb and flow of the economy. In bad economic times, reasons quoted are often lowering costs, shifting from fixed costs to variable costs, or transitioning products that are end-of-life away from prime internal assets.

When the economic tide is turning, reduced capital investment needed to alleviate capacity constraints, less working capital needed, and increased flexibility are the main drivers for outsourcing. And when times are good and growth is on the strategic agenda, companies often turn to contract manufacturing to provide them with faster speed-to-market, quick access to new markets, and improved customer responsiveness. Increasingly, we even see companies leveraging their contract manufacturers’ design and development capabilities as well as their expertise in specialized manufacturing processes to jointly pursue process and even product innovation.

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