4 Common Problems of Outsourcing Chemical Manufacturing…and How to Overcome Them
- August 02, 2022
Outsourcing your chemical manufacturing can be a huge value-add for your business, opening the door to greatly increased production capacity, reduced capex needs, better deals on raw materials, and more.
Of course, there are pros and cons to everything; outsourcing carries some challenges that businesses commonly run into when hiring out. (We would differentiate these from the inherent risks of outsourcing, such as a loss of control and exposure of IP. )
These are four outsourcing problems and how you can resolve them…
Problem 1: Creating and Maintaining a Relationship with a Contract Manufacturer Requires Effort
Comparatively speaking, the savings you’ll accrue by letting a contract manufacturer handle the R&D, manufacturing, labeling, packaging, and whatever else dwarfs the amount of resources you’ll have to expend to find them.
Nevertheless, the search process can be complicated, and if you’re in a time crunch, it can escalate into a problem, because you don’t want to rush the vetting process for a company you’re entrusting with trade secrets, capital, etc. Once you have an agreement in place, you’ll also need to decide how in-depth your oversight process needs to be.
Solution: Put in the Effort Now to Save Major Resources Later
There’s not really any getting around the vetting process. You can save a little time by using our guide to selecting the best chemical manufacturer.
Many of the details we advise you to investigate–such as the company’s certifications and registrations–can be found online with relatively little effort and possibly no input needed from the company itself. You can also use email and phone to gather information from a prospect before finally doing a site visit (or visits), the most arduous part of the process.
And these lines of communication can and should be kept open for as long as you’re connected with the contractor to aid your oversight and generally keep things copacetic.
But your best tool for ensuring a successful relationship long-term is going to be the contract manufacturing agreement. In the same way that ‘good fences make good neighbors,’ an effective agreement that outlines the precise terms of your arrangement provides the boundaries for what should and shouldn’t happen from a performance perspective.
Including a reporting or accountability system in the contract itself is a great way to codify your oversight plan and keep everyone on the same page. Resolving disputes with your manufacturer is never fun or easy, but it will be a lot less taxing if you’re able to simply point to the contract to get a resolution.
Problem 2: Adjusting Your Process Makes it Difficult for the Manufacturer to Keep Up
Your company is no doubt used to operating independently, without any barriers to innovating and modifying your production process as needed. However, incorporating a third party into the mix introduces a new level of complexity, as well as problems if your change management isn’t firing on all cylinders.
You may end up with the contract manufacturer allocating resources to low-priority or irrelevant tasks; too much, not enough, or defective final products; damaged equipment and even unsafe work conditions; and other headaches and costly issues.
Solution: Involve the CM Early, Communicate Often & Document Everything
Communication is critical to averting a fiasco with your manufacturer during NPIs or process changes. As soon as it’s feasible, set up a shared data management system/automated process for real-time sharing, instead of relying on manual modes of communication such as phone or even email.
Get the manufacturer involved before implementing any changes so that their team can express any concerns about unintended consequences of making changes.
And finally, there should be a “paper trail” for everything and available to everyone, including:
- what changes are planned
- your change management rules or best practices
- the details (who/when/what) of the changes when they’re implemented
- the complete product record so the changes can be understood in the context of the chemical’s full journey.
Problem 3: Underestimating the Difficulty of Outsourcing Offshore
The advantages of sending chemical manufacturing offshore–primarily monetary via tax breaks and lower costs for wages, overhead, R&D, and raw materials, but also the lure of expanding the customer base and increasing name recognition in new markets–have a tendency to put a rose-colored sheen on what can be a complicated or even cost-ineffective process.
Even before the arrival of COVID-19–which brought with it congested ports, shipping delays 20 or more times the norm, massive workforce disruptions, and generally unprecedented business environments–more than a few companies experienced the difficulties of outsourcing their chemical production to places such as China.
Any or all of language barriers, political and cultural factors, little to no day-to-day oversight, regulatory hurdles, and the costs of moving staff and equipment can make offshoring more trouble than it’s worth.
Solution: Remember That Feasibility is About More than Cold Hard Numbers
Some industry pundits are writing off offshoring altogether, but even with ongoing tension in international relations, the economics can still be right to offshore, but only if your cost models justify it and only under the right circumstances that are clarified through detailed due diligence on your part.
For example, an ideal Chinese chemical CM will be:
- located in an industrial park in a province supportive of chemical manufacturing, with a stable regulatory framework and a predictable/flexible COVID response policy in case of outbreaks
- publicly owned
- experienced dealing with foreigners
- asked to produce only chemicals from its catalog, and not custom chemicals, as permits for these can take years to procure.
Visiting your potential CM overseas will be absolutely essential. Training for your stateside team in cultural matters and building up your resource base as much as possible at the production facility will help strengthen the relationship.
Problem 4: Losing Key Institutional Knowledge
There is a risk that the hard-earned expertise your team has accrued by producing your chemical can dissipate when you outsource, whether over the short-term or the long-term.
In a perfect world you could weather the coincident turnover that often accompanies a move to outsourcing by retaining key people in their current roles, but keeping them there through the life of the outsourcing contract is typically next-to-impossible due to attrition and internal promotions.
What’s more, this fragmenting of what had been a unified ideation team is liable to negatively impact your company’s ability to collaborate to innovate with your product or process.
Solution: Ensure There Are Skilled People on Both Ends
This is yet another area your vetting process needs to be thorough, so that you can do all you can to offset the knowledge loss on your end by engaging experienced pros as your CM.
Who they’ve worked with before and what types of work they’ve done in the past can give you insight into their ability to handle your product at the necessary scale.
But you don’t have to stop there, nor should you. You’ll want to make sure you’ve got two teams set up–a remaining operations team, and an outsourcing oversight team–that’s stocked with highly skilled personnel at the project and program manager levels.
The former will be the retained knowledge base for every aspect being outsourced, while the latter will handle CM oversight, from evaluation and negotiation all the way through the life of the manufacturing agreement.
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