Plastics : Outsourcing Production, Advantages and Disadvantages

Advantages of outsourcing plastic production:

1. Cost savings:

Reducing manufacturing expenses by leveraging lower labor and operational costs in other regions.

Examples:

• A toy manufacturer outsourcing production to facilities in Southeast Asia can reduce labor costs by 40-60% compared to domestic production
• An automotive parts company moving injection molding to Mexico saves on both labor and transportation costs to U.S. markets
• Medical device companies outsourcing to specialized facilities can avoid capital investment in cleanroom equipment

2. Access to specialized expertise:

Tapping into manufacturing partners with deep technical knowledge and experience.

Examples:

• A consumer electronics company outsourcing to a manufacturer specializing in complex multi-material molding techniques
• A packaging company working with experts in biodegradable plastic formulations
• A startup gaining access to advanced manufacturing processes without hiring specialized staff

3. Increased production capacity:

Expanding manufacturing capabilities without investing in new facilities.

Examples:

• A seasonal products company managing demand spikes by using contract manufacturers during peak periods
• A growing company scaling production rapidly without building new facilities
• A company launching multiple product lines simultaneously by working with different specialized manufacturers

4. Focus on core competencies:

Concentrating internal resources on design, marketing, and innovation rather than manufacturing.

Examples:

• Apple focusing on design and user experience while outsourcing production to companies like Foxconn
• A small business dedicating resources to product development and customer service instead of manufacturing operations
• A consumer goods company investing in marketing and distribution while partnering with manufacturing specialists

5. Geographic market access:

Establishing production closer to target markets to reduce shipping costs and time.

Examples:

• An American company manufacturing in Europe to serve European markets without import delays
• A global brand using regional manufacturers to customize products for local markets
• A company reducing carbon footprint by producing closer to end consumers

Disadvantages of outsourcing plastic production:

1. Quality control challenges:

Difficulty maintaining consistent product standards across distant facilities.

Examples:

• A children's product manufacturer discovering safety issues in outsourced components
• A food container company experiencing inconsistent wall thicknesses affecting product performance
• A medical device company facing regulatory problems due to quality variations in outsourced parts

2. Intellectual property risks:

Potential for proprietary designs or processes to be copied or leaked.

Examples:

• A consumer electronics company finding unauthorized copies of their products in the same region as their contract manufacturer
• An innovative packaging company seeing their design features appearing in competitors' products
• A company losing exclusive market position when a former manufacturing partner begins producing similar products

3. Communication and coordination difficulties:

Challenges in effective collaboration across time zones, languages, and cultural differences.

Examples:

• A product launch delayed due to misunderstood design specifications
• Quality issues arising from unclear manufacturing instructions across language barriers
• Increased management complexity and travel costs for in-person meetings and facility inspections

4. Less direct control over production:

Reduced ability to implement immediate changes or improvements to manufacturing processes.

Examples:

• A company facing delays in implementing design changes due to contract limitations
• Difficulty resolving recurring quality issues without direct management oversight
• Limited flexibility to quickly adjust production volumes based on changing market demands

5. Environmental and compliance concerns:

Potential risks related to different environmental standards and regulatory frameworks in outsourcing locations.

Examples:

• A sustainable brand discovering their manufacturing partner uses prohibited chemicals in processing
• A company facing reputation damage when their outsourced facility violates local environmental regulations
• Increased carbon footprint from long-distance shipping of finished products

6. Supply chain vulnerability:

Increased exposure to disruptions from international events, transportation issues, or supplier problems.

Examples:

• Companies experiencing production halts during the strikes for example
• Shipping delays caused by port congestion or container shortages affecting inventory levels
• Tariff changes or trade disputes suddenly increasing costs or restricting imports

Strategic considerations for outsourcing decisions:

Hybrid approaches:

Combining in-house and outsourced production strategically.

Examples:

• A company keeping high-precision components in-house while outsourcing standard parts
• Maintaining domestic production for quick-turn or custom orders while outsourcing high-volume standard products
• Using outsourcing for production capacity expansion while maintaining process development in-house

Due diligence in partner selection:

Thoroughly evaluating potential manufacturing partners before committing.

Examples:

• Lego's careful selection of manufacturing partners based on quality capabilities and environmental standards
• A medical device company conducting comprehensive audits of potential facilities before outsourcing sterile components
• A sustainable packaging company visiting multiple facilities to verify recycled content handling processes

Clear contracts and expectations:

Establishing detailed agreements about quality, intellectual property, and performance.

Examples:

• Detailed quality standards including acceptable tolerance ranges for critical dimensions
• Clear agreements about ownership of molds, designs, and manufacturing processes
• Specific performance metrics and remediation processes for quality or delivery issues

Real-world success and failure examples:

Success:

Nike's manufacturing model:

• Nike successfully outsources virtually all its production while maintaining strong quality control through dedicated teams that work closely with contract manufacturers. They've developed specialized expertise in managing outsourced relationships rather than direct manufacturing.

Success: 

LEGO's controlled expansion:

• LEGO maintains strict control over core manufacturing in Denmark, Hungary, Mexico, and the Czech Republic while strategically outsourcing specific components and packaging to carefully selected partners.

Failure: 

Mattel's 2007 recall crisis:

• Mattel had to recall millions of toys that contained excessive lead paint, costing the company over $110 million and damaging consumer trust.

Mixed results: 

Reshoring in plastic components:

Some companies like GE Appliances have brought plastic component production back to the U.S. after finding that the total cost of ownership (including quality issues, shipping, and inventory costs) made domestic production more economical despite higher labor costs.
By carefully weighing these advantages and disadvantages against your specific business needs, you can make more informed decisions about whether and how to outsource plastic production components.