Why You Should Outsource in This Uncertain Economy

What will this economy bring tomorrow? If you’ve asked yourself that question recently, you are not alone.

You’ve probably come up with the same answer as everyone else: I don’t know.

What I do know is that some big question marks are still out there.

We are not out of the woods yet. For example, first quarter 2011 US GDP growth was a meager 1.9%,

compared to 3.1% for 4th quarter 2010. Opinions vary on what the second quarter will bring

(that data is released on July 29), but the overall sentiment seems to be one of caution.

The Wall Street Journal recently polled its readers about the “strengthening of the US economy

in the second half of this year”. 73.7% of their readers did not feel the economy will strengthen

in the second half. Other factors include persistently high unemployment (another high report

last week of 428,000 jobless claims), and fluctuating gas prices. Make no mistake – this continues to be a tough economic environment.

Given that situation, is this a favorable time to ramp up your production level and add new personnel?

Or is it a time to outsource at least part of your production?

A while back, our e-newsletter reviewed some of the direct and indirect costs associated with internal sign production.

This seems like a good time to review those facts.

Internal production costs include: Higher payroll – Increasing your production capacity can mean adding personnel to staff the production equipment. That can add a significant layer of additional costs.

Your Time – Your time is valuable. So is your employee’s. What is your cost for the time spent on purchasing raw materials? Purchasing means spending time on negotiations, making and receiving vendor phone calls, placing the actual orders, and sorting the delivered materials into inventory.

Inventory – Where are you going to keep all of your raw materials? And who does the accounting for how much you have of each necessary component, and is responsible for reminding you (or your ordering employee) when a component supply needs to be refilled? We’re talking both time and floor space here – a double cost.

Manufacturing Errors – This one is particularly costly. Suppose you are making a channel letter set, and your shop produces the wrong face sizes. By the time you realize the mistake, the faces are finished and the trim caps have already been applied. You know the nightmare that kicks off at that time. You must use new acrylic sheets to make the correct size faces (hopefully those sheets are in your stock; otherwise you may pay an additional charge for an emergency delivery.) Then, all of the trim cap must be re-cut and re-applied. The bottom line? Goodbye profit. This does not occur with a quality outsource partner. If they make a production mistake, that is their problem – not yours.

Your product cost is FIXED. Worker’s Compensation – This cost obviously varies by state, but over time it can add up to a considerable piece of change. Particularly if you produce in a state with one of the higher worker’s comp rates.

Inventory Again – How much cash do you have tied up in unused raw material inventory? If you have some raw materials that are gathering dust, that cash would be better used elsewhere.

Your Time Again – How much more product could you sell when you get rid of the time spent on all of the above activity? Your sign business makes money when you and your employees are selling – not when you are spending time managing people, materials and machinery. Outsourcing your production opens up your selling time – which is something you need more of in this slow economy.

The bottom line: is this unpredictable economy the right time to be adding to your payroll and production capacity, or is it a better time to outsource at least part of your production? A quality outsource partner can be a great asset in this time of economic uncertainty.