Margins are shrinking across the industrial sector.
Higher raw material prices, labour shortages and unpredictable supply chains are all eating into profit margins. Indeed, according to one survey 48% of companies have experienced squeezed profit margins due to increased costs.
The good news?
One sure-fire strategy to combat margin pressure is outsourcing. When executed properly, outsourcing can:
- Slash operating costs
- Free up your internal teams
- Give you access to specialised skills
And the best part? It doesn’t require a huge overhaul of your entire business.
Here’s the breakdown:
- Why Industrial Margins Are Under Pressure
- What Strategic Outsourcing Actually Means
- The Best Processes To Outsource
- How To Pick The Right Outsourcing Partner
Why Industrial Margins Are Under Pressure
Let’s talk about the elephant in the room…
Pressures are mounting on industrial businesses. Commodities prices are rising. Talent is becoming scarce. Energy costs continue to soar.
It’s a perfect storm for shrinking margins.
Per Boston Consulting Group research, supply chain and manufacturing costs are now the top target for cost savings, with 65% of surveyed executives saying it is their biggest area of focus. That’s far more than labour and overhead costs.
Why does this matter for you?
Every dollar you spend producing your products is one dollar taken from your bottom line. But you can’t just increase prices because customers demand quicker delivery times and lower prices. You have to be smart.
This is where outsourcing can help – especially when it comes to niche processes such as powder coating automotive parts, custom fabrication services and machining and finishing. Rather than purchasing costly machinery and hiring extensively trained employees, you can send your projects out to a company that specializes in those services. For instance, some companies in Arkansas who require heavy-duty automotive parts coating will use powder coating services in Benton to get commercial-quality finishes without having to operate a powder coating line themselves.
The result?
Lower costs. Improved quality. Faster turnaround. All while you focus on what you do best.
What Strategic Outsourcing Actually Means
Strategic outsourcing isn’t about shipping jobs overseas or cutting corners.
It’s about taking a hard look at your operations and asking one simple question:
What parts of my business do we excel at and which parts should we outsource?
Fact of the matter is… Most industrial companies operate as vertical silos. They machine, coat, finish, package and ship everything themselves. Feels like control – but it’s destroying your margins.
Every process you handle internally comes with hidden costs:
- Equipment purchases and maintenance
- Specialised staff wages and benefits
- Training and safety compliance
- Downtime when machines break
- Warehouse space for supplies
Now think of giving away only a handful of those processes to a professional. Poof… all those invisible costs vanish.
That’s the real power of strategic outsourcing.
The Best Processes To Outsource
Not all business functions make ideal candidates for outsourcing. Look for non-core tasks where the expert will outshine you in cost and quality.
Here are the top processes that industrial businesses are outsourcing right now…
Automotive Parts Coating
Automotive parts coating is a top candidate for outsourcing.
Why? Because it costs a fortune to operate your own coating department. Spray booths, curing ovens, safety equipment and trained technicians. If you aren’t running full tilt, you are losing money.
A coating company can subcontract that work out for a fraction of the price. They have enough work to amortize the equipment costs and know-how to get the finish right every time.
Metal Fabrication
Custom metal fabrication is yet another massive opportunity. Cutting, bending and welding steel requires serious machinery and equipment. Those skilled workers who can operate it don’t come cheap either.
By outsourcing fabrication work to a shop that specialises in it, you get:
- Cleaner cuts and welds
- Faster project turnaround
- No capital tied up in machinery
Logistics and Warehousing
Third-party logistics providers, or 3PLs, have been one of industrial businesses’ largest outsourcing success stories. They come with trucks, warehouses and software you would otherwise need to acquire from scratch.
Maintenance and Repairs
Rather than employ a full maintenance staff, many industrial companies hire contract techs to make repairs. You only pay for them when you need them.
How Outsourcing Improves Your Margins
Here are some real numbers…
Businesses claim outsourced services save them an average of 15-30% on costs, according to the IAOP Global Outsourcing Report. Imagine what that could do to your margins by simply outsourcing the correct processes.
But cost savings are just the start.
Strategic outsourcing also gives you:
- Predictable pricing – you know exactly what each unit costs
- No capex spending – no more massive equipment purchases
- Access to expertise – specialists deliver better quality than generalists
- Scalability – ramp up or slow down without staffing headaches
The interesting thing is, Outsourcing is becoming an established industry because two-thirds of U.S. companies already outsource in one department or another. It is no longer a gamble, it’s just business.
How To Pick The Right Outsourcing Partner
Choosing the wrong outsourcing partner can destroy your business. How do you choose correctly?
Focus on these things:
- Track record – how long have they performed this kind of work?
- Quality control – what systems do they have in place to catch issues?
- Communication – do they respond quickly and clearly?
- Location – closer partners often mean faster turnaround and less shipping
- Pricing transparency – no hidden fees or surprise invoices
Begin with baby steps. Hire your prospective partner on a trial project before agreeing to an ongoing arrangement. Find out how they perform under crunch time and react to errors when they occur.
If they do what they say when they say they will and to the specifications agreed upon, they’re probably pretty good. If they start dragging their feet or avoiding questions, cut bait.
Request references from businesses like yours. One phone call with a happy customer will mean more than a slick website ever could.
The Bottom Line
Industrial margins are getting tighter every year.
However, strategic outsourcing arms you with a way to fight back. By outsourcing non-core processes such as automotive parts coating, metal fabrication and logistics to experts, you can:
- Cut hidden operating costs
- Improve product quality
- Free up your team for what matters
- Scale without huge equipment investments
Begin with an assessment of your business. Ask yourself …. What processes are eating your margins? What processes would thrive under the management of a proven expert?
Then find the right partners and scale up slowly. Small victories accumulate quickly, and pretty soon – your margins will be going in the right direction.
