Manufacturing outsourcing is often discussed as a binary decision.
Should we manufacture internally or should we outsource?
For most manufacturing companies, however, this is not the most useful question.
A product can contain many different production processes, and those processes do not necessarily have the same strategic importance.
Some represent critical know-how and competitive differentiation.
Others primarily require labour, production space and capacity.
This leads to a more useful question:
Which manufacturing processes should remain in-house – and which can be organized externally?
The objective should not be maximum outsourcing.
It should be the right allocation of manufacturing resources.
Start with the core, not with outsourcing
A good make-or-buy decision should start by identifying the capabilities that are strategically important to the company.
These can include product development, intellectual property, engineering know-how, proprietary technologies, critical production methods or processes that directly influence the company’s competitive advantage.
In many cases, these capabilities should remain under direct internal control.
They represent the manufacturing core.
Outsourcing decisions should therefore not begin with:
What can we move outside the company?
A better first question is:
What must we keep inside the company?
Once this is clear, the remaining production processes can be evaluated separately.
Not every production step creates the same strategic value
Many products require manufacturing activities that are essential for production but do not necessarily represent proprietary know-how.
Examples can include manual assembly, pre-assembly, electronics assembly, testing, inspection, rework, packaging and other repetitive production operations.
These processes still require professional production management and consistent quality.
But they may consume significant internal resources without creating the same strategic differentiation as engineering, product development or proprietary manufacturing technology.
This distinction is important.
A process can be operationally important without being a core competency.
Labour-intensive processes deserve particular attention
Labour-intensive production processes are often good candidates for a make-or-buy evaluation.
This does not mean they should automatically be outsourced.
But they can require significant headcount, production space, supervision and capacity.
The business case becomes particularly relevant when volumes fluctuate.
A company may need substantial internal capacity during peak periods but considerably less capacity at other times.
Maintaining sufficient permanent internal resources for maximum demand can therefore create unnecessary fixed costs and operational complexity.
An external manufacturing partner can provide an alternative source of capacity for suitable processes.
What makes a production process suitable for outsourcing?
There is no universal checklist that determines whether a process should be outsourced.
However, several characteristics can make external manufacturing worth evaluating.
A process may be a potential candidate if it is:
Quality requirements remain essential.
The fact that a process is outsourced does not mean that quality standards, documentation or process control become less important.
The external manufacturing partner must be capable of working within the customer’s required production and quality system.
Outsourcing can protect internal resources
One of the less obvious benefits of production outsourcing is the effect on internal focus.
Production managers, engineers and operational teams have limited capacity.
If these resources spend a significant amount of time managing relatively standardized production activities, they have less time available for process improvement, industrialization, automation, product development or other higher-value activities.
External manufacturing can therefore do more than provide additional labour.
It can allow internal teams to focus more strongly on the capabilities that differentiate the company.
In this sense, outsourcing does not necessarily weaken the manufacturing core.
Used correctly, it can help protect it.
Complete outsourcing is rarely the objective
There is an important distinction between strategic outsourcing and simply transferring as much manufacturing as possible to external suppliers.
The latter can create new risks.
Excessive outsourcing can lead to loss of know-how, increased supplier dependency, reduced process visibility or insufficient internal manufacturing competence.
The correct balance therefore depends on the company, product and production strategy.
For many manufacturers, the optimal model will be hybrid.
Core capabilities remain internal.
Selected manufacturing processes are performed externally.
The two systems operate as parts of the same manufacturing network.
European outsourcing creates another option
For German and Austrian manufacturers, outsourcing does not automatically mean moving production to Asia or another distant manufacturing region.
Contract manufacturing within the European Union creates another option.
Selected processes can be transferred to manufacturing partners in other European locations while maintaining geographical proximity, common regulatory frameworks and relatively short supply chains.
This can be particularly relevant for labour-intensive production processes or situations where additional manufacturing capacity is required.
The result can be a more diversified European production footprint.
What should companies evaluate before making the decision?
Before transferring a production process, manufacturers should evaluate more than the direct production price.
Relevant factors include:
The decision should be based on the complete production system.
A process that appears inexpensive internally may consume valuable production space or management resources.
Likewise, an apparently lower external price may not create value if logistics, quality or communication become significantly more complex.
Keep the core. Outsource selectively.
At Synermont, we see contract manufacturing as a way to complement a customer’s existing production capabilities rather than replace them.
Our manufacturing activities in Hungary support European companies with selected outsourced processes such as product assembly, electronics assembly, testing, packaging, production support and ramp-up.
The exact scope depends on the customer’s production strategy.
In some projects, this can mean one individual manufacturing step.
In others, several connected operations can be transferred.
The principle remains the same:
Keep strategic capabilities where they create the most value, and organize suitable production processes where they can be performed most effectively.
The most successful manufacturing strategy is therefore unlikely to be maximum in-house production or maximum outsourcing.
It is knowing which processes belong on each side.
In the wake of the pandemic, Western European companies have begun moving production from the Far East back to Europe. The impact of nearshoring can already be felt in Hungary, Synermont CEO Krisztián Kavas told us. The contract manufacturing company has seen quick success, with orders flooding in from around the continent, from Austria to Sweden.
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