How to outsource your furniture production?
LTP Furniture has decades of experience outsourcing various types of furniture manufacturing setups. From this knowledge, LTP has created a step-by-step guide on what is important to remember if you want to start outsourcing your furniture production or if you want to expand your current outsourcing strategy.
Step 1: Create your business case.
Shortly, your overall opportunities with outsourcing furniture production are reducing costs and complexity while keeping speed and flexibility. Meanwhile, your overall challenge can be if you do not choose the right production partner that aligns with your values and business model.
The opportunities and challenges of outsourcing might seem easy to identify, but some aspects are not so obvious. LTP Furniture has, therefore, created the below list for you to evaluate if outsourcing could add value to your business.
List of opportunities:
- You will be able to reduce your costs for production salary, both direct and indirect staff.
- By placing your production in a low-cost area, you will get access to a supply chain where the components are at a more competitive price. LTP has experienced everything from 5% - 15% in cost reductions on materials.
- You can outsource in various steps: Covers, seats and backs, fully upholstered sofas, chairs, lounges, etc.
- By structuring the supply chain intelligently, you can often reduce the transportation costs for incoming materials significantly.
- Moving your production to a specialized partner, you can dramatically improve your capacity without sitting with the planning of the manufacturing and personnel in peaks and low periods.
- You will have access to a larger scale of flexibility and capacity so that when seasonal fluctuations peak, your orders will not create overtime or prolonged delivery schedules, reducing labor costs and increasing sales. Consequently, you will be more competitive and agile in the market.
- By outsourcing, you move the dead cash, caught in the inventory, to your production partner, thus decreasing your financing costs.
- You will free up space which you can use for growth in other areas without building or renting new square meters.
- Your organization can focus on sales, marketing, operations, etc., because of a more streamlined HR and production department.
- Indirect costs are often hard to move or adjust without making structural changes such as outsourcing.
- A production partner will grant you access to modern production methods and machinery without bearing the investment risk yourself.
- If you outsource a complete piece of furniture, you can benefit from direct transportation from your production partner to your end customers, i.e., a Sofa-in-a-box solution.
List of challenges and how to mitigate them:
- The transport costs can be higher if you move your outsourced upholstered components from low-cost areas to an assembling factory. You can avoid this cost by outsourcing fully assembled furniture that has direct delivery to your end customers.
- Risky to change procedures and structures, though you can eliminate the risk by making a thought-out plan with your production partner.
- You may need to establish new routines and systems to support an outsourcing structure. Here your production partner can be a support in sharing best practices for an easier transition.
- You may need changes in your IT processes for product development, orders, etc. Therefore, look for a digitalized production partner that provides transparency and a quick response time.
- There can be a one-time cost of laying off some staff.
- The scrapping value of machinery can be high if not possible to sell or continue to use them.
Step 2: Finding the right production partner.
When searching for a production partner, you must evaluate if they have the right skills, experience, and production capacity that fits your needs.
To help you evaluate your future production partner, LTP has created the below questions to ask yourself and your potential partner:
- Flexibility and capacity: How large will your volumes be? Does your production partner have any specifications about Minimum Order Quantities? What are the Lead-times?
- Quality: What quality systems and processes does the production partner use? It is crucial to know about this, as many can produce one good sample.
- Communication: Does the partner seem transparent, proactive, and good at communicating? You will need that when the daily work starts.
- IT structure: Does the partner has an appropriate IT setup to support and develop your operations? Including tools to control an easy material flow, a transparent overview of general performance, and a way of integrating both companies' systems into your mix of orders, even if they are complex with many variants.
- Competitiveness: Do they have attractive price models? Are they willing to run open books? What are their terms for sampling and price quotations? What services can the partner provide you?
- R&D: Does the partner have strong skills in product development, so they can support you in developing new products?
- Sustainability: What are your and your partner's expectations for sustainable solutions?
- Partnership: Does the partner seemingly work towards a common goal to obtain growth for both parties?
Step 3: Create your outsourcing strategy.
There are several ways to structure an outsourcing operation, and it might seem like an impossible task. But if you divide the process into shorter actions, it will be a lot easier to plan:
- Often it is best to start with your current component suppliers and let the production partner take that over. Hereafter, you will analyze and optimize the setup.
- Decide which products, if not all, would be the best to move and in what order. If the partner is new, start with the most simple products.
- Consider which operations will be the most efficient to outsource in the first round, e.g., sewing, upholstery, assembling, etc.
- The best profitability is in the time-consuming products or the products where you can optimize the supply chain.
- Align on the product development process: What documentation should you provide the partner? What is the Lead time for development? What is the general process?
- Create order flows and delivery schedules with the partner. Afterward, you should design the most optimal logistical flows, including stock levels and reorder points.
- Share your visions and forecast with your partner, as aligning on targets and planning will be easier.
Step 4: Prepare the implementation.
When you find the right partner, both sides must prepare for the implementation of the new furniture outsourcing setup. It needs time and patience, as a thoughtful implementation can minimize potential future risks.
Here are some important topics to focus on when preparing the implementation of your furniture outsourcing strategy:
- You need to decide on a process for approving samples and how you will set the quality level. This learning is also beneficial for when the running production starts.
- You need to consider if you, and your new production partner, have a logical structure in data so both parts can communicate and integrate better. It will ease the transition from one order flow to another.
- Taking it one step at a time is most reasonable, meaning it is often best to carry on with the current supply chain when starting up with a new production partner, as it eases the transitioning period. After a while, the suppliers and transportation should be discussed and optimized.
Step 5: Implementation.
Creating the best foundation for a successful implementation is essential for long-term production partnerships. LTP has collected some areas to help you ensure this:
- Quality control on all your outsourced products for some time.
- Guarantee to transfer the needed skills and knowledge from you to your partner. It will enhance efficiency in the long run, and although it is a more time-consuming task that some might not think of, it is worth it in the long run.
- After your production partner has learned about your products and the manufacturing is running, both parties should start working on improving all possible processes in a structured way.
Do you want to know more about your furniture outsourcing opportunities? Contact us here.
About LTP Group A/S
LTP Group A/S is a privately Danish-owned company consisting of two divisions: LTP Garment and LTP Furniture. From 12 privately owned factories in Lithuania, Belarus, Ukraine, Vietnam, Romania, and Mexico, we produce clothing and furniture for more than 100 recognized brands worldwide. LTP's head office is in Copenhagen, Denmark. LTP Group A/S was established in 1991 and now employs 2,700+ dedicated employees and has a turnover of 100+ million EUR with solid financial results.