Most companies outsource in some capacity—whether it’s working with an external call center on the sales side, or paying a team in China to manufacture the whole thing—but deciding what to outsource can be tough. While it may be an easy decision to outsource something like custom part manufacturing, when it comes to core business processes like purchasing, inventory management and assembly, the decision gets a bit trickier.

The benefits of outsourcing purchasing, inventory and assembly

If you are thinking about outsourcing major processes like purchasing, inventory and assembly, there are definitely benefits to this approach. In offloading some of these processes to a contract manufacturer (CM), you free your in-house team up to focus on design and engineering. In many cases, this is a smart move because it allows your in-house team to develop strength in specific areas. Because purchasing and inventory is resource-intensive, assembling and training a team to manage it in-house can distract from product maintenance, development and other organizational priorities.

For some companies, outsourcing purchasing, inventory and assembly leads to significant cost savings. You may be able to reduce sourcing and shortage issues—since your contract manufacturer team is building the product, it can be synergistic to task them with finding and purchasing the parts as well. Plus, when you outsource the purchasing and inventory piece to a contract manufacturer, there is considerable potential for cost-reduction. Contract manufacturers often do similar work for multiple customers using the same components—if your parts get lumped in a volume purchase, economies of scale can save you some money.

When does outsourcing purchasing, inventory and assembly make sense?

While there are benefits in outsourcing purchasing, inventory and assembly, it’s not the right decision for everyone.

To help you decide how much of your production process you should outsource, start by asking yourself the following questions:

• What is your company trying to do? (If you are trying to develop core competencies or a competitive advantage in a certain area, you probably shouldn’t outsource it!
• How important is it to protect your IP? Can you take chances with an unknown supply chain partner—is there someone you trust?
• What are your priorities as an organization? Does outsourcing more to a CM free you up to focus on competitive differentiators and core competencies, or are the additional management responsibilities distracting?
• What is your tolerance for dependency? When you outsource major parts of your manufacturing process, you become more reliant on vendors and can increase your vulnerability.
• What is the cost of purchasing errors and rework? Are you willing to risk occasional miscommunications and errors by working with an external team?
• What is your system for managing BOMs and change—some of the outsourcing risks can be mitigated if you have an air-tight solution for collaborating with outside partners.
• How efficient are you operationally? Can your in-house team manage purchasing, or are they too focused on other business aspects?
• What’s your budget? (Everything has a cost!)

Once you get an idea of your business reality, you can begin to weigh your options, and decide if outsourcing purchasing, inventory and assembly is right for you.

A final word on outsourcing partnerships

If you ultimately decide to turn over purchasing, inventory management or assembly to a vendor, make sure you only work with people you trust! As with any outsourcing decision, selecting reliable vendors who supplement your internal skill sets and industry knowledge is key.

For more information

Is there a one-size-fits-all manufacturing strategy?

Share BOMs more effectively with the PDX file standard

How small manufacturers can establish better outsourcing relationships Pt. 1

How small manufacturers can establish better outsourcing relationships Pt. 2

Tips and resources for managing your outsourcing relationships

5 steps to scaling your business when your competition stumbles

We talk to many people working in high-functioning manufacturing departments who document everything thoroughly and consistently except for the fixtures they use to make their product. Big mistake!

Failing to document your fixtures and jigs can cause huge problems down the road, so you need to make it a regular part of your process.

Why do manufacturers forget to document their fixtures?

Fixtures are important—they are the tools with which you build your product. So why do so many organizations forget to document them?

The most common reason is that fixtures can be built over time as needed, and are usually seen as “tools” and not “products”—because of this, many organizations forget to assign formal processes for them.

The perception that fixtures are a secondary concern begins early in an organization’s life. When a company first starts up things happen fast, and no one has time to worry about developing formal documentation processes for fixtures—especially if there are only a few people in the company. At this stage in the game things are very tactical, so plans and processes are implemented as an after-thought in the mad scramble to get products built and out the door.

In an ideal world, documentation for fixtures would be adopted immediately, or at least incorporated into the process as soon as your head is above water, but once things begin to stabilize fixture documentation usually takes a back-seat to hiring additional support and building out product lines. At this point a precedent has been set, and fixtures are typically forgotten until they break or need to be replaced.

So you don’t document your fixtures and jigs—what’s the worst that can happen?

Consider this scenario.

Something changes with your contract manufacturer and your only viable option is to leave. Of course your CM isn’t happy, but you’ve done the research and a continued partnership just doesn’t make sense. As you make the transition you do your best to capture all the information your new CM will need, but right after the papers have been signed you realize you’re not sure how to build an important fixture. (Or what more commonly happens is that you don’t realize the oversight until your fixtures break a few months or years down the road!)

Now this is a bad situation with two choices—reverse engineer the fixture, or crawl back to your former CM and hope they can help you recreate it.

The last thing you want is your engineering team out on the floor with calipers trying to reverse engineer a fixture—at $70-$100 an hour, this is expensive labor! An even worse possibility is that you can’t convince your old CM to help you out (even at a premium) so production stops.

If you’ve never experienced this personally, you probably know someone who has. It’s a high price to pay for something that is completely avoidable—if you document your fixtures and jigs.

If you’re still not convinced you need to document your fixtures . . .

With proper fixture and jig documentation, not only can you avoid line delays or stops, but you can find opportunities to eliminate waste in your manufacturing line, and become a more lean and efficient organization. And if you’re trying to decrease defects by implementing a Six Sigma or lean manufacturing strategy, the best place to start is with your fixtures—proper documentation allows you to see if there are errors or inefficiencies associated with your fixtures so you can make a change.

Even if you outsource your manufacturing, reviewing your processes, and keeping documentation up-to-date should be an in-house competency. Think of it this way—manufacturing is the only part of business where saving a dollar is making a dollar, so putting resources in place to understand and refine how your products get to market is a great way to improve your margins.

For more information on documenting your fixtures:

• Why You Should Document Fixture and Jig Designs
• Tips For Finding & Documenting Electronic Components
• Everything Goes Boom: 3 tips for a complete AND correct BOM

How can you be ready to answer when opportunity knocks? Start preparing now. When we look at our customers who’ve successfully capitalized on opportunities for growth, what we see are companies that think about what it takes to scale and ready themselves even before the need arises. Based on the successes we’ve observed, Arena recently published an article that offers manufacturing businesses a step-by-step template for building a solid foundation for scaling their businesses in 2011 and beyond.

The steps are summarized below. You can also download a free one-page checklist of the 5 steps manufacturers can take to prepare for growth.

Step 1: Know your products

If you’re a manufacturer, your product is the core of your business. Most manufacturers are used to thinking of their products holistically (i.e. as a complete final product) but it’s just as important to think about the collection of individual parts that come together to create those products. Thus, having control over part data is vital to your products’ success.

Know your parts

To establish control, you must first know your master parts list, which should encompass all the details you need to order, build, receive and qualify your parts. Creating a centralized system that manages this information is helpful, especially when the information has to be shared across many departments of your company. Arena offers four tips on how to establish control over your master parts list (see the article for a detailed explanation):

1. Remove duplicate part numbers
2. Reduce the noise of inactive parts
3. Document your parts well
4. Find alternatives and multiple sources

Know your BOMs

Aside from knowing your master parts list, you must also understand your product bill of materials (BOM), the DNA of your product. It shows how each part is associated to the whole and how all the parts work together. Revisions and changes in parts and specifications are inevitable during the product development process, and your BOM needs to reflect these changes. It can be chaotic without full control over the information in your BOM. An accurate, up-to-date BOM, on the other hand, minimizes miscommunication and misinformation. To establish control over your product bill of materials, you must:

1. Control product revisions
2. Track product compliance
3. Locate cross-product commonalities
4. Identify substitute parts

These steps are described in more detail in the article (and yes, full disclosure, Arena does offer software that helps manufacturers centralize their product data and capture complete BOMs).

Know your key components

The last part of knowing your product is knowing your key components, so you can proactively find solutions before an issue brings down your line.  To identify the parts that represent significant risks to production, manufacturers should closely monitor long lead times, expensive components or assemblies and single sources.

Step 2: Know your supply chain

Although control over every phase of your manufacturing process might seem ideal, the truth is that it simply isn’t an option for most businesses. Instead, most manufacturers rely on a network of partners and suppliers to get their products designed and manufactured.  For your supply chain to be efficient and stable, it is important to know the status of your partners and suppliers, as well as the state of your relationships with them.

• Check your sources. Periodically checking in with your suppliers and partners minimizes the miscommunication that can lead to problems in the later manufacturing phases. Checking in also helps ensure that everyone is working with clean, accurate information and that no changes or revisions go unnoticed. Keeping a close eye on component lifecycles, custom part manufacturers and supply stability will also help you evaluate whether a potential supply chain setback will be a major or minor one.
• Evaluate your sourcing relationships. The better your relationship is with your partners, the more likely they’ll make choices that help you both succeed. Good relationships establish open communication paths, mutual understanding and respect. The Arena article advises companies to have detailed contracts with their key suppliers and CMs are in place and also to regularly evaluate the performance and relationships of their vendors.

Step 3: Know your processes

Manufacturers know that it takes systematic and sometimes complex processes to build a good working product. Evaluate your process documentation, yields and rework and repeatable processes to make sure your assembly process is efficient, clear-cut and ready to grow.

Step 4: Know your business

The success of your product is determined by more than just the outcome of the assembly process; it also requires support from the rest of your organization.

To determine if your company is ready to get your product into the hands of customers:

• Evaluate full product impact. The article describes it as thinking through both “what-if” and “and-then” scenarios, in other words considering what would need to change in order to grow and how those changes would affect your business. Doing so will help you be ready to scale your organization, adapt to changes, confront any problems quickly and effectively and balance different stakeholders’ needs.
• Know your financial health. Understanding your cash flow situation can help you make better decisions about when to spend or invest. Don’t hesitate to consult a professional to help you explore your financial options and think through when and how to expand. It’s also important to know your company’s contractual commitments with suppliers so you can be ready to renegotiate or seek out alternative options if an obstacle arises.

Step 5: Look for opportunities

Once you’re better prepared for growth, you can more successfully plan for the future. Be on the defense: identify risks and be ready to respond to changes quickly and effectively. But don’t be afraid to play offense: look for business opportunities and follow up on them when possible. With proactive planning, you’ll be prepared to capitalize on market opportunities, even when they’re most unexpected.

For more information, read the complete article on the 5 steps manufacturers can take to prepare for growth.

In the post, Wilson and Desouza discuss the other benefits of experimenting (decision-making informed by data, not just gut feelings) and the increasing ease of experimentation as affordable tools come “out of the R&D labs into the mainstream.” They also describe the three types of experimentation that their research has shown to be the “most accessible” for organizations:

1. Prototyping
2. Simulation
3. A/B Testing

The HBR blog post examines each type of experimentation in more detail and includes links to additional information about experimentation tools and real-life experimentation examples.

The company, an Arena customer, started making hands-free hydration systems for mountain bikers and motocross riders, “allowing them to drink without taking their hands off of the handlebars in technical terrain.” Since then “Camelbaks” have become popular for use while hiking, running, snowboarding and skiing in addition to cycling. They typically consist of a capped pouch of water with a long tube and bite valve, enclosed in some wearable form factor.

From this simple concept, Camelbak has built an incredible range of similar but specialized products: more than 90 hydration pack styles for recreational and military use. The company dominates the market through good use of technology (easy-to-use bite valve, rugged materials, easy opening and leakproof cap) and a willingness to customize its product for new sports or situations. Camelbak makes  a pack for refilling other packs (the Squadpak, 25L capacity) for use by a military unit, packs specifically designed for women, packs for use while skiing in sub-zero temperatures, packs for use under body armor and even a variety of “mini” packs (50 oz) for kids.

Another strategy is the purely cosmetic. Take Envirosax. These reusable shopping bags fold up into compact snap close packages. Envirosax has built its brand by offering a wide array of colors and graphics. Same bag design – different looks to appeal to different market segments.

You can also vary packaging and pricing. In addition to slight product differences, Superfeet uses color, pricing and packaging changes to sell its insoles to multiple market segments. The packaging and pricing for the product targeted at women differs from that aimed at athletes, “on their feet” professionals (doctors, nurses) or industrial workers. Inside the box you will find the same core product, with minor tweaks for the specific user segment.

These three companies have built on their primary product offering and diversified into adjacent markets without inventing a whole new product. Their strategy isn’t for everyone, but it might be worth considering whether your technology can be reused in new form factors or colors or marketed in a new way to appeal to other user groups. Who knows, variation on a theme might lead to your own empire.

Consider Volkswagen’s recently unveiled concept for a motorized, foldable bicycle. When announcing its first ever two-wheeler at the Auto China 2010 exhibition in April, VW’s chief of research and development, Dr. Ulrich Hackenberg was quick to point out that Volkswagen’s “focus on mobility” extends well beyond cars. The implication is that VW intends to take advantage of the room under its brand promise for more integrated solutions for getting you around, regardless of whether an automobile is involved.

At the same time, VW is careful to not distance the concept too far from its core brand values. The bike’s 12.5 mile range is clearly designed for short day trips (after having driven somewhere perhaps?) and with a top speed of 12 mph or so, it’s certainly not intended as a replacement for a car. And then, as if to leave no doubt about the symbiotic relationship between the bike and its cars, they show how the bike folds up to fit neatly into your VW’s spare tire compartment.

Next time you are planning your product roadmap, consider what adjacent customer experiences are there for the taking if you just expand your product offerings into them.

Read more on Autoblog Green.

Every day, thousands of bloggers post about the minutiae of their lives, including their interactions with the products that your company builds. Some bloggers have hundreds, thousands or even hundreds of thousands of followers, and their stories carry weight in a way that no advertising campaign can—they are the judgment of the masses for the masses. Twitter, Facebook and blogs give the market a new outlet for complaints, accolades and general product feedback. An influential blogger can make or break a product. Think Oprah’s Book Club, only on the internet—those books sell, baby!

If you’re not already monitoring what’s being said online about your product, service or company, you may wish to start. You can choose from a proliferation of free and paid tools that search social networks, groups, blogs, boards and other consumer-generated media (CGM) platforms for names or keywords associated with your product.

When you’re ready, you can start engaging in the conversation too. Participate in the networks and social media platforms relevant to your market or try a tool like GetSatisfaction.com, which provides a venue for dialogue between customers with questions or problems and other customers and company representatives.

At Arena, our marketing team monitors internet activity by setting Google and Twitter alerts and using web analytics tools. We also have discussion forums where customers can talk to each other and a presence on Facebook, Twitter and LinkedIn. Feel free to check out what we’re doing as an example…just know that we’re still figuring it out too!

Sometimes a company’s product really was cool and new–though it was doubtful it was going to make its mark in the manner envisioned. Occasionally a company was so enamored with its ideas and its technology that its team was unable to step back and see other potential uses or markets for the product.

Heather Fleming from Catapult Design has put together a list of 5 justifications people tell themselves when developing technology and products for people in need. Many apply to product development in general, not just product development for the third world.

Maintaining perspective when designing a new product is important. Projects can be so exciting and full of discovery that it is easy to get carried in new directions. It takes discipline, but by periodically evaluating your work, you can make sure the product you’re developing still meets the needs of the market, the goals for the project and the objectives of your company. It’s the difference between developing great products and developing products that could have been great if only…

Your opinion, although interesting, is irrelevant.

It’s a nice grounding statement, and more constructive than my Onion mug. But my mug delivers more than caffeinated goodness—it delivers a message that I need to step back whenever I get excited about a new idea, technology or cool feature and ask, “Does anybody else care?” Or, more specifically, “Will anyone pay money for this?”

After all, we don’t want to end up with the software equivalent of Smuckers Goober, Whizzers cordless power scissors, or the JL421 Badonkadonk Land Cruiser/Personal Tank. (Although I’ll admit that each of these products fascinates me in some way (cough, cough, Christmas present)….)

All product companies face the same challenge: coming up with what to build—which means figuring out which market problems to solve and for whom. Our product happens to be software, but the challenge is still there—and our approach to gathering and processing market intelligence is one that can be used by product companies of all types.

It’s a process that can be summed up in 3 steps:

1. Go get it.
2. Share it.
3. Live it.

I promise to expand on those steps in future posts [UPDATE: now available--use links above], but as long as we’re on the subject of Christmas presents for me, I’ve been wondering: How did the iPod Dock/Toilet Paper Holder make it off the sketchpad and into the market anyway?

In other words, we help companies get their products to market.

To make sure we give them help that’s actually, well, helpful, we’re constantly trying to understand everything we can about what it takes to design, develop, manufacture and ship great products.

That’s how we’ve ended up here—with a blog about all things product. We all know there’s no magic formula for building a winning product, so we won’t pretend we can offer one. But what we can offer are observations, opinions, research, learnings, experience and maybe even some wild imaginings from time to time.

We’ll talk about strategies, processes & tactics, particularly the ones that help successful companies do their thing. We’ll share our observations on global trends, market demographics and industry news, and we hope you’ll share yours too. We’ll point out problems when we see them, propose solutions when we have them and ask for your opinions on it all. We’ll highlight successes AND snafus, as there’s a lot to be learned from both.

Innovation? If you’re a small or mid-size manufacturer, innovation is most likely at the heart of your products and the core of your strategy, so we’ll be talking a lot about that too. The discussion may sometimes veer toward the academic (it is a meaty topic, after all), but real-world examples will abound. We love cool products, and we’ll share them when we find them. We may even throw in the occasional what-were-they-thinking examples of innovation gone wrong…just for good measure.

Let us know what you think.

Please join the conversation and help us make the blog a valuable source of information and a lively forum for discussion.

Now let’s talk product.