Supply Chain Management or Contracting?

This is an interesting way of progressing and it has been found to significantly reduce costs during a project (or whilst the company remains in existence). At the end of the project the savings may or may not be realised. Of course, it all depends on how overheads are apportioned. If the company uses a system that incorporates overhead as an addition to manufacturing, outsourcing will be found to be increasingly attractive and in-house manufacturing less and less worthwhile. All the overhead associated with outsourcing - inspection, transport, import fees, warranty repairs, administration etc conveniently gets added to the manufacturing overhead. As more and more gets outsourced, manufacturing cost performance gets progressively worse whilst the outsourcing "saves" the bottom line. It is only when the manufacturing element disappears (too costly) and overheads are attributed to outsourced components or services that there is a realisation of whether the extensive outsourcing was wise or not. It can be difficult to bring this to the attention of the finance people as you need to explain the full scenario.