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BPO in the Manufacturing Industry: What is It?

Cassio Sagawa
July 19, 2022
11 minutes to read

While today, business process outsourcing (BPO), is prevalent in almost every industry on the planet, its origins fall in manufacturing BPO services. The term means the delegation of authority and responsibility for the performance of specific business functions to specialized and expert organizations that perform these same functions for other companies.

In other words, BPO is the contracting out of a company’s non-core or non-essential activities to a third-party service provider. The company then becomes a client of the service provider, who takes on the responsibility for carrying out the activity. Businesses commonly outsource their human resources, accounting, and customer relations functions.

BPO in manufacturing can take many different forms but is most often seen as a way to cut costs while maintaining or improving quality. When done correctly, it can be a highly effective strategy that helps manufacturers stay competitive in an increasingly global marketplace.

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This can be a very broad topic, so let’s dig a little deeper. In this article we will explore:

Let’s start at the beginning.

What is BPO?

Very simply, BPO is the process of hiring another company to handle certain business tasks or processes that your company either cannot or does not want to handle itself.

This can be something as mundane as payroll processing or as complex as managing your entire supply chain. The important thing to remember is that BPO does not necessarily mean outsourcing your whole manufacturing process; it simply means hiring another company to handle a specific business function.

There are many different reasons why a company might choose to outsource a particular function. In some cases, it may be because the company does not have the necessary resources (time, money, manpower) to handle the task in-house. In other cases, it may be because the company does not have the expertise to handle the task effectively.

Whatever the reason, the goal of BPO is always to improve efficiency and/or reduce costs. When done correctly, BPO can be a highly effective way to achieve these goals.

One company that understood how effective it could be long before most is one we are all very familiar with — Coca-Cola.

History of manufacturing BPO services

In the same way that you could call McDonald’s a real estate company, Coca-Cola might be known as the outsourcing king.

In 1886, John Stith Pemberton started shipping his sweet drink to pharmacies in syrup form, where it was then mixed with soda water and sold for just a few cents. Today, Coca-Cola is the world’s largest beverage company, with over 500 brands and 3,500 products in 200 countries. So how did they get so big?

Outsourcing.

In the early days of Coca-Cola, the company outsourced everything from production to distribution to marketing. They relied on government-owned services like local water and recycling services to subsidize many of their costs, while not owning any of their supply chain.

They didn’t have sugar plantations, bottling plants, or any of the other things needed to get their product to the end user; just a spiderweb of relationships that made them able to reach the entire country while mitigating their own risk.

Coca-Cola’s success story is not unique. In fact, it’s quite common in the manufacturing industry. Many manufacturers outsource some or all of their production to stay competitive. And there are plenty of good reasons to do so.

Benefits of BPO for manufacturing companies

Most companies don’t have competency in all stages of product development. Maybe they have an idea for a product, but can’t design it and bring it to market. Maybe they can design and build it, but don’t have the marketing expertise to get people to buy it.

That’s where BPO comes in — by outsourcing specific tasks or stages of product development, manufacturing companies can focus on their core competencies while still getting the support they need to bring new products to market quickly and efficiently.

There are many benefits of BPO for manufacturing companies, including:

  • Increased efficiency and productivity: When you outsource non-core tasks, you free up your internal team to focus on more important things. This can lead to increased efficiency and productivity overall.
  • Improved quality: When you outsource to a specialist company, you can be confident that they have the expertise and experience to do the job well. This can lead to improved quality of your final product.
  • Reduced costs: One of the main reasons companies outsource is to save money. When you outsource, you can reduce your labor costs, as well as other associated costs such as office space and equipment.
  • Faster time to market: Outsourcing can help you get your product to market much faster than if you tried to do everything internally. This is because the specialist company will already have processes and infrastructure in place, and they will be able to start working on your project immediately.
  • Greater flexibility: It can give you the flexibility to scale up or down as needed, without having to make a long-term commitment. This can be very helpful if your business is seasonal or if you are launching a new product and are not sure how much demand there will be. In business, agility is everything.

More specifically, manufacturing BPO services can help in the following ways:

  • Developing new products: If you have an idea for a new product but don’t have the internal resources to develop it, you can outsource this task to a BPO provider. They will be able to take your idea and turn it into a reality.
  • Design and engineering: BPO providers can also help with the design and engineering of your product. This includes everything from creating prototypes to testing and quality control.
  • Manufacturing: Once your product is designed and engineered, the BPO provider can help with manufacturing. This can include sourcing materials, managing production, and quality control.
  • Distribution and logistics: The BPO provider can also help with getting your product to market. This includes things like warehousing, shipping, capacity management, and customer service.

As you can see, there are many potential benefits of BPO for manufacturing companies. However, it’s important to note that not all providers are created equal, and not all provide the same kinds of services.

How to successfully implement BPO in your own manufacturing business

So you want to be the next Coca-Cola but this is still going a bit over your head. Luckily, we’re here to give you a step-by-step guide on how to implement BPO in your business.

Assess your business needs

The first step is to take a good, hard look at your company and figure out which areas would benefit most from outsourcing. This will be different for every business, so there’s no one-size-fits-all answer.

Make sure you are:

  • Candid about the areas in which your company needs improvement
  • Objective when assessing whether outsourcing is the right solution
  • Realistic about what BPO can and cannot do for your business

Remember that sometimes, it might seem as though your company is handling a certain process just fine.

Your payroll is handled in-house, for instance, and there has never really been an issue. It is still worth taking a closer look at these parts of your business because they can:

Most importantly, is that the process may be difficult to handle as your business scales. When you are shipping 1,000 completed products a month, your in-house capacity planning may be more than enough.

But when you are offered a big purchase order and suddenly expected to ship 10,000 or 100,000 products a month, you may regret not being proactive.

Research service providers

Once you know which functions you want to outsource, it’s time to start looking for service providers who can do the job. Make sure to look at reviews and case studies to get a sense of each provider’s strengths and weaknesses.

Some simple things to look for are:

  • How long has the company been in business?
  • Do they have any experience with businesses in your industry?
  • What is their pricing model?
  • What do other customers say about them?
  • Do they align with your company’s direction?

This may seem like a lot of work but remember, you’re trusting this company with an important part of your business. It’s worth taking the time to find the right one.

Draft a contract

Once you’ve chosen a service provider, it’s time to draft an agreement that outlines the scope of work, expectations, timeline, and deliverables. This document will protect both you and the service provider in case anything goes wrong.

Set up communication channels

Before the project starts, make sure you have set up clear communication channels between your team and the service provider. This will make it easy to give feedback and keep track of progress.

The last thing you want is for the project to come to a standstill — or worse yet result in a conflict — because of a lack of communication.

A few easy ways to improve those channels are:

  • Regular video conferences
  • An easily accessible project management tool
  • A shared document where everyone can ask questions and leave comments

Monitor and adjust

Even after the project is up and running, it’s important to monitor results and make adjustments as needed.

Train your staff on the new agreements, systems, and processes so they can be successful. Have regular check-ins with your service provider to ensure things are going smoothly on their end and that your needs are being met.

Make sure you have a clear understanding of the metrics you’re tracking and how they relate to your overall business goals. Be prepared to adjust your strategy as you learn what’s working and what isn’t. BPO is an ongoing process, not a one-time event, so it’s important to be flexible and adaptable to maintain business agility.

Common pitfalls and how to avoid them

Handing off some of your business processes can be a daunting experience and many can quickly fall into the same traps repeatedly. Manufacturing BPO services is a wide, ranging field that is filled with options that can help you and many that can’t.

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Some of the most common mistakes when implementing BPO in manufacturing are:

  • Not defining the process: This is by far the most common mistake. BPO can be applied to any process within your company, but you need to first define what that process is and what its inputs and outputs are.
  • Failing to estimate costs: Make sure you have a clear understanding of all the costs associated with outsourcing before making any decisions. This includes not just the monetary cost but also things like training, knowledge transfer, and cultural differences.
  • Not assessing suppliers: Not all BPO suppliers are created equal and it’s important to do your homework to find the right one for your company. Make sure they have a good understanding of your process, are reputable, and have a solid track record of reliability or you risk the most important thing — business continuity.
  • Not managing the transition: The transition from in-house to outsourced can be tricky and needs to be managed carefully. Make sure you have a clear plan in place for how the transition will take place and who will be responsible for what.
  • Not measuring results: BPO should always be measured to ensure it’s providing the desired results. Set up key performance indicators (KPIs) upfront, make sure you have a plan in place to track them, and then don’t wait to make changes when necessary.
  • Forgetting to update: BPO is not a “set it and forget it” solution. As your company changes and evolves, so too should your BPO arrangement. Make sure you review and update your outsourcing contract regularly.

If you can follow the steps above while avoiding these mistakes, you’ll be well on your way to implementing BPO properly. Who knows, maybe you’ll be the next Coca-Cola!