Manufacturing Outsourcing: 7 Common Pitfalls to Avoid to Achieve Supply Chain Success Arena

  15. Februar 2022, von Sebastian


Industry boundaries expand from discrete types of mining machines to mining equipment systems. Smart, connected products can offer superior performance, customization, and customer value relative to traditional substitute products, reducing substitution threats and improving industry growth and profitability. However, in many industries smart, connected products create new types of substitution threats, such as wider product capabilities that subsume conventional products. For example, Fitbit’s wearable fitness device, which captures multiple types of health-related data including activity levels and sleep patterns, is a substitute for conventional devices such as running watches and pedometers. Smart, connected products have the potential to shift rivalry, opening up numerous new avenues for differentiation and value-added services. These products also enable firms to tailor offerings to more-specific segments of the market, and even customize products for individual customers, further enhancing differentiation and price realization.

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Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Follow the advice we’ve outlined for you in this practical guide, and you should have no problem getting fast business results with outsourcing.

Outsourcing Advantages

Babolat’s Play Pure Drive product system puts sensors and connectivity in the tennis racket handle, allowing users to track and analyze ball speed, spin, and impact location to improve their game. A good example of these new types of suppliers is the Open Automotive Alliance, in which General Motors, Honda, Audi, and Hyundai recently joined forces to utilize Google’s Android operating system for their vehicles. The auto OEMs lacked the specialized capabilities needed to develop a robust embedded operating system that delivers an excellent user experience while enabling an ecosystem of developers to build applications. Auto OEMs’ traditional clout relative to suppliers is greatly diminished with suppliers like Google, which have not only substantial resources and expertise but also strong consumer brands and numerous related applications . How Joy Global’s smart, connected heavy machinery optimizes mine performance and safety.


By partnering with energy providers, securing the data they provide, and integrating it with customer data, Nest enables customers to earn discounts or credits from their energy provider and to use less energy when everyone else is using more. The types of data a company chooses to collect and analyze also depend on its positioning. If the company’s strategy is focused on leading in product performance or minimizing service cost, it must usually capture extensive “immediate value” data that can be leveraged in real time.

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Since few reasonable people are moral ideologues in this sense, and it is not clear that we have good grounds for being ideologues in this sense, tragic choices are likely to be endemic to most humans in most decision-making contexts. The biggest thing to consider when choosing an outsourcing location is what your business needs. For example, if you need customer service agents who speak European languages, you may need to outsource to eastern Europe. If you’re looking for agents who speak English and Spanish, locations like Mexico or the Philippines could be a great fit. For general customer support outsourcing in English, the Philippines is a great option.

  • Producers of system components are restricted from accessing a closed system or are required to license the right to integrate their products into it.
  • The lighter areas are based on the 25th and 75th percentile of simulation-generated potential return pathways – the interquartile range.
  • This offers you better costs for labor and the ability to grow as fast as the demand in a market rises.

What you should do is find someone who’s worked with companies from your country operating within your industry. If they’ve covered projects similar in scope to yours, that’s a good indicator they have what it takes to successfully deliver your project, as well. Outsourcing involves commissioning an individual or a group outside your company to handle some or all of the workload. There are many benefits to this, the greatest one being saving time and money.

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When Is an Acquisition Considered Vertical Integration?

For credit and equity 22 examples of business ideas for the finance sectors we adjust our future cost of capital estimates at the sector level, such that all else equal, more/less sustainable sectors have lower/higher future costs of capital. The Contents have been prepared for informational purposes only without regard to the investment objectives, financial situation, or means of any particular person or entity, and the Website is not soliciting any action based upon them. The Contents are also not to be construed as soliciting or promoting any financial products or services. The name and the very nature of windfall profits suggest that such profits are unexpected and sudden – blown down by the wind.

This form of vertical integration is aptly named as a company often strives to acquire a raw material distributor or provider towards the beginning of a supply chain. The companies towards the start of the supply chain are often specialized in their distinct step in the process (i.e. a wood distributor to a furniture manufacturer). In an attempt to streamline processes, the furniture manufacturer would try to bring the wood sourcing in-house. We’ll never be able to predict what the next major crisis will be, so industrial and manufacturing companies will never be able to plan for these upheavals. Turn the process upside down and, instead of inputs, look at what the known outputs need to be to achieve your strategy.

It is often difficult for humans to randomise and manage large numbers of possible outcomes. So there are cases in which randomisation and machine-delegation go hand-in-hand. Still, there are other cases in which delegation is desirable but we do not want a purely random decision-making system.


Expertise in systems engineering and in agile software development is essential to integrate a product’s hardware, electronics, software, operating system, and connectivity components—expertise that is not well developed in many manufacturing companies. Product development processes will also need to accommodate more late-stage and post-purchase design changes quickly and efficiently. Interestingly, though, defenders of algorithmic decision-making argued that one potential virtue of such systems is that they make such tragic choices more salient, encourage responsibilisation and disincline us from illusionism (Kleinberg et al. 2018). Their insight was that, right now, when we rely on human decision-makers to determine what is fair, we often implicitly accept that there will be some fudging and compromise involved. This fudging takes place inside the minds of the human decision-makers and largely goes unquestioned. If we use algorithmic risk predictions, we have to make this compromise explicit and precise.

In the end, outsourcing can be successful if you have the right strategy, processes, people, and tools to maintain control of your business. Vertical integration is the business arrangement in which a company controls different stages along the supply chain. Instead of relying on external suppliers, the company strives to bring processes in-house to have better control over the production process. Though vertical integration may result in increased upfront capital outlays, the goal of vertical integration is to streamline processes for more efficient and controlled operations in the long-term. Companies use vertical integration to have more control over the supply chain of a manufacturing process.

Third, if the decision to delegate results in some significant and unanticipated social harm, this could be addressed through the use of social insurance funds that compensate the affected without applying a liability burden to an individual. Indeed, one could argue that the greater use of social insurance funds, as opposed to traditional legal tools of responsibility and liability, is an important implication of the argument being defended in this article. First, I will briefly review some of the literature on techno-responsibility gaps and situate my own argument relative to that literature.

Before implementing changes, involve your CMs and obtain their feedback on the change and its impact, as well as potential avenues to reduce any negative impact. Providing the CM visibility into the ECO while it still is under development enables a structured discussion. Again, modern PLM systems will allow suppliers to have this visibility into pending ECOs. This often occurs because the OEM doesn’t give visibility to the CM regarding unreleased or work-in-progress information. CMs are discovering manufacturability, cost, or sourcing problems so late in the process that correcting them causes time-to-market delays. Even if you are not planning on embarking on any new relationships, validate your existing solution from time to time to ensure ongoing alignment with the direction of your business or product roadmap.

By taking certain steps in-house, the manufacturer can control the timing, process, and aspects of additional stages of development. Owning more of the process may also result in long-term cost savings (as opposed to buying outsourced goods at marked-up costs). While a vertical integration stretches a company along a single process, horizontal integration is a more pointed approach that causes a company to become more specific or niche within a certain market. For example, instead of engaging in all aspects of a supply chain ranging from materials sourcing, manufacturing, or retail, a company can choose to master only one of those facets by acquiring similar companies to engage in horizontal integration.

This could lead to a slippery slope in which we extend the delegation strategy to all our choices, not just the tragic ones . IllusionismFootnote 3is where we convince ourselves that our choices are not tragic or that our decisions leave no moral remainders. In a sense, the arguments outlined in the previous section against the existence of genuine moral dilemmas are examples of the illusionist strategy at work. There are less sophisticated forms, often aided and abetted by well-known psychological biases.

To size al to private markets, we consider liquidity risk linked to the cashflow requirements of the investor. We show below how our toolkit can be deployed to design strategic asset allocations for specific client types, based on their individual needs, objectives and constraints. For the present financial period and the energy sector, a question for the excess income allocation would be the location of the rent-generating assets, since it can be considered one of the main sources and cause of economic rents. Of course, a case-by-case analysis may result in a different assessment depending on the actions performed by the key personnel, for example, to hedge risks or conclude certain contracts, as well as depending on the timing of these actions. Nevertheless, there would be solid arguments to take the position that the location of the asset is to be considered a key factor for allocating windfall profits in the energy sector. Second, in transfer pricing terms, as suggested by Hebous et al., the category of economic rents can conceptually be deemed equal to residual profits, but not always technically equal.

How can companies achieve sustainable competitive advantage in a shifting industry structure? To achieve competitive advantage, a company must be able to differentiate itself and thus command a price premium, operate at a lower cost than its rivals, or both. This allows for superior profitability and growth relative to the industry average. Second, consolidation pressures will be amplified in industries whose boundaries are expanding. In such cases, single product manufacturers will have difficulty competing with multiproduct companies that can optimize product performance across broader systems.


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