Outsourcing vs. Offshoring: The Pros, Cons, and Differences

Outsourcing and Offshoring are thought to be the same thing. Due to this, people often use them interchangeably.

However, there is a big difference between the two.

For example, outsourcing is when pieces of a final product are from somewhere other than the main manufacturer. This can be any other location. Locations such as, another local company or a different state. It could also refer to, a foreign country.

However, offshoring occurs when moving parts or all of production to another country.

Local Outsourcing

Manufacturers may outsource some of their materials. This includes components they need to build for their final product. In the electronics business many companies put together various components of a finished good.

Using these components manufacturers create a final product. In these electronic designs, there are needs for wires, hardware, and even housing. All of these come together to form a finished product.

Companies outsource each of these individual pieces to other companies for efficiency.

Smaller companies will often outsource components to local companies. This exchange of work will help boost the local economy. Also, it will build a good rapport with the local supplier. A good rapport with local suppliers is an asset. Especially, in times of rush orders. It’s also an asset when a change in product has been made. Local connections create shorter lead times. In a time crunch, a manufacturer can physically go to the local supplier. There they can implement the component change quickly into their production.

 Offshoring Components

American manufacturers offshore components to foreign companies. This is to lower costs. It is also due to, their manufacturing needs not being met by an American company. Manufacturers offshore components the same way they outsource them. Wiring, hardware, housing, and other components can come from foreign countries. Countries such as, China or Japan. Manufacturers will use products from these other countries because of cost efficiency. Components from Asian countries can cost less to manufacture.

However, they also come with risks.

When outsourcing components locally, delivery often takes less time. This is in comparison to outsourcing from a foreign country. Depending on when the manufacture needs the parts a longer wait can affect the rest of production. Also, with farther to travel there is a higher chance of the loss of products.

When there is a loss of a component in transit, a manufacturer’s wait time is now double. This can create a critical situation for the manufacturer. Especially, if they are on a tight dead line.

Do to lower costs, the quality of goods may not be ideal. Also, damage to offshoring goods is more likely. This is as a result of, an increase in handling of a product (as in shipping to and from multiple facilities). When there are components that have damage, production must come to a halt. This halt will last until the repair or replacement of these pieces.

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