Local Suppliers vs. Outsourcing: Which is Right for Your Business

outsourced supplies

Product-based businesses must consistently meet consumer demand while maintaining quality standards. When choosing between American and outsourced supplies, businesses must use proper supplier management. Both options have distinct advantages and disadvantages, and making the right choice is contingent upon multiple factors. Here are some guidelines to help you decide where to find the right supplier for your business.

When to Use Local Suppliers

You’re in the initial stages.
If your business has a relatively low product demand, going the domestic route tends to be the better option. These suppliers can create smaller batches, which require minimal labor hours and reduced warehousing costs. If you need 1,000 pieces or fewer, outsourcing might be more trouble than it’s worth. However, American suppliers can comfortably meet your demand without exorbitant fees. Sticking with this technique is a great way to test the waters and prevent you from getting in over your head if a product doesn’t sell as well as you anticipated.

You want to keep an eye on quality.
Keeping production in America is a good idea when you want to conduct quality inspections yourself. You can visit product facilities more conveniently and maintain higher quality standards. This should minimize the potential for complications and is particularly important in certain industries that have strict safety regulations. Not to mention the loyalty this can establish with American consumers.

You need your product quickly.
Another advantage of domestic supplies is faster production and delivery. Shipping time is shorter, and there aren’t any international duty/tax payments or customs obstacles that could hold up delivery. If you’re looking to bring your product to consumers as quickly as possible, domestic supplier management is the clear choice.

You have small storage facilities.
In the event that your storage facilities have space restrictions, you may need to choose American supplies. To save money, foreign orders are usually shipped in bulk and with less frequency. This will be problematic if you don’t have enough room to accommodate outsourced products. Fortunately, domestic suppliers can usually offer smaller shipments at a higher frequency.

When to outsource supplies.

You Have Higher Demand

If you have a fairly well established consumer base and require large production runs, outsourcing is often the best choice. These suppliers are able to create products on the large scale and implement a high level of automation. When your business is experiencing significant growth and you’re having difficulty keeping up with demand, using foreign suppliers tends to be efficient and should keep consumers happy.

Current profit margins are low.

Keeping up with competitors in a saturated industry can be troublesome. You’re often required to sell at a reduced price, which translates to lower profit margins. This can force you to utilize cheaper labor, and going domestic isn’t an option. Outsourcing production is usually less expensive, especially with large-scale production. Going overseas should keep your business competitive while raising your profit margins considerably.

You have large storage facilities

Once products have been shipped from a supplier, it’s necessary to store them until the point of sale. If you have adequate room for storage, then outsourcing can be viable. The exception is if you have a product with a short shelf life that needs to be sold quickly.

Each business is different and has its own unique production needs. Smaller businesses with minimal demand are smart to choose domestic suppliers, at least in the beginning. Larger businesses with an emphasis on growth tend to benefit more from outsourcing. Regardless of your business’s current position, following these guidelines should help you turn higher profits while staking a claim in your industry.

Nick Mann

Related Supplier Management Resources

5 Tips on How to Screen a Supplier posted in Operations

screen your supplier

3 Steps to Develop a Preferred Vendor List for Your Company posted in Operations

vendor list

5 Ways to Increase Supply Chain Performance posted in Supplier Management

increase supply chain performance

Join the Conversation

Loading Disqus Comments ...
Loading Facebook Comments ...

Previous

NEXT