Subcontracting to Improve Competitiveness
| DOI | https://doi.org/10.1108/EUM0000000001431 |
| Pages | 29-31 |
| Published date | 01 July 1990 |
| Date | 01 July 1990 |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
SUBCONTRACTING
TO
IMPROVE COMPETITIVENESS
29
Subcontracting
to
Improve
Competitiveness
A
recent survey on the use of contract
manufacturing for electronic and electrical
work was carried out for Remploy
Manufacturing Services — one of the UK's
largest specialists in this field.
Introduction
The survey, carried out for Remploy Manufacturing
Services on the use of contract manufacturing, spanned
eight industry sectors (see Table I) and revealed that,
across the board, about half of the UK-based
manufacturers who responded now incorporate the use
of contract
services.
Interestingly, there
was a
major
divide
between electronically (62 per cent), as opposed to
electrically (32 per
cent),
"biased" manufacturers. In this
article
Divisional
Manager Norman Johnson
draws
on some
of Remploy's findings to examine the reasons why
companies should adopt this route as part of a planned
operating strategy and the steps they can take to get the
best from it.
Remploy's Findings
There is a growing trend among UK-based manufacturers
towards the use of subcontracting for competitive
advantage. The fact that contract manufacturers (CMs)
providing labour, or parts and labour, are now called on
regularly and consistently to handle certain aspects of the
production process
—
not just to do so when a firm is
overloaded with work — is a significant change in
management's approach to the need for manufacturing
flexibility.
Table I.
Use
of
Subcontracting
Electronically "biased" manufacturers
embracing:
Consumer electronics
Electronic data processing
Telecommunications
Office equipment
Use
(%)
62
Electrically "biased" manufacturers embracing:
Domestic appliances
Lighting
DIY
Automotive 32
(Survey carried out by Cegos Makrotest. Total survey
sample size: 85)
Why Contract out?
As a policy that is already much more developed in Japan
and the USA it recognises that all the processes carried
out by a manufacturer are not necessarily "core", that is
activities critical to that manufacturer's competitive standing.
Many factory activities
—
such as the production of PCB
subassemblies or assembly of
metal
and
plastic parts
—
may
be considered simply as production of multi-element com-
ponents. As such they may best be contracted out to an
approved supplier for
a
number of reasons, key ones being:
• An original equipment manufacturer (OEM) wishes
to concentrate management time and effort on
those core business activities which makes best
use of in-house skills and resources;
•
A
more cost-effective approach and better budget
control can be gained by using outside resources;
• There may be special difficulties in obtaining
suitably skilled labour to do the work in-house on
a permanent or temporary
basis;
neither the time
nor money may be available for training and
retraining;
• In today's volatile markets
any
downturn
in
business
results in the CM having to handle redundancies.
Who Contracts out?
Though the practice is
now
beginning
to
filter downwards,
it was mainly larger "blue chip" and multinational OEMs
who first recognised the value of the strategic
subcontracting approach. It also appears from our findings
that it is the younger, electronics-dominated sectors which
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