Subcontracting is becoming a major player in the ceramic tile industry. Many manufacturers are choosing to concentrate on their core activities while outsourcing others. This business practice was first used by the car industry and has spread to most sectors of the economy.

The technical evolution is in favor of an emerging market for increasingly complex goods that combine very different technologies and materials, making it impossible to concentrate all these elements in the hands of one manufacturer. Many manufacturers choose to transfer non-core, secondary activities to more specialized partners known as subcontractors.

The Basics

In general, subcontracting can be defined as one company working with  exclusive specifications that are ordered by another company. However, a refined definition divides the concept into two categories: specialized and capacity subcontracting.

Whenever a manufacturer decides, because of its own strategy, not to master a specific part of the industrial process, it will turn to a specialized subcontractor. Due to increasingly complex tile designs and newly developed techniques, specialized subcontractors must have the know-how, the available production capacity and the flexible equipment to get the job done. Manufacturers often develop long-term relationships with specialized subcontractors, since this type of subcontractor provides a continually needed product or service.

Other manufacturers might occasionally delegate production to a capacity subcontractor because of temporary overloading or technical failure. Manufacturers might turn to a capacity subcontractor just once in an emergency situation, or they might work with the same contractor regularly as their product demands fluctuate beyond their own production capacities.

If You're a Manufacturer

Ceramic tiles on production line.

For manufacturers, subcontracting is the next best thing to having a clone. But the question remains: “To subcontract or not to subcontract?” On one hand, a manufacturer might desperately need some behind-the-scenes help in order to complement their product lines or to meet deadlines on filling orders. At the same time, they may be concerned about the capacity of the subcontractor to deliver the desired quality and quantities according to the prescribed deadlines. In fact, subcontracting can sometimes create more problems than it solves. It is important to do the homework and only enter into a subcontracting arrangement after careful preparation.

If you’re a manufacturer, you first need to determine what products you want to potentially subcontract out. Perhaps one product is too labor-intensive to be manufactured cost-effectively in-house. Maybe another product is causing a bottleneck in the production process. Whatever the reason, prepare detailed specifications for those products, in words and drawings, and provide the subcontractor with any packaging specifications, delivery needs, volumes and quantities as well. Just as important, decide what you can afford to pay a subcontractor.

Make sure the subcontractor is not a fly-by-night entrepreneur. Ask for references, visit the premises, make sure the machinery is up to par with your needs, and check the finished product’s quality. Give yourself a time cushion. Don’t put yourself in the hair-raising position of having a subcontractor cause you to miss a deadline with one of your clients. Factor in enough of a cushion that you’ll be able to meet your deadline, even if your subcontractor misses his.

Consider asking your subcontractors to sign a written agreement that spells out the details of the relationship, including information regarding delays, penalties, quality standards, etc. Pay your subcontractors promptly. The best way to earn their undying loyalty and to ensure that they squeeze in rush jobs for you in the future is to issue their checks right away.

If You're a Subcontractor

Tiles on their way to being fired.

Subcontractors sometimes become subcontractors because the market is slow and they decide they have some production capacity to rent out. One common pitfall of these opportunistic subcontractors is that they accept work on too many different products to the point that they become jacks of all trade and masters of none.

If you want to be a successful subcontractor, specialize in what you can do best based on your knowledge and equipment capacity. Don’t become a part-time or seasonal subcontractor. Instead, build a year-round business that manufacturers can depend on and feel secure working with on a regular basis.

Find firms with a need you can really fulfill. It is tough to get subcontracting work when you have to first learn the manufacturer’s business and techniques, because they have to make an investment in you before they can utilize you. If you come ready to hit the ground running, that’s an advantage.

An automated serigraphy printing line.

Modify your networking to include owners, partners and/or executives at larger firms. Make it clear that you’ve done this work before and are actively seeking it out. Since demand can sometimes ebb and flow with the economy and business cycles, stay in touch with these people periodically. Create a press kit or set of materials that emphasizes your subcontracting value, and include testimonials from other firms that have employed you in similar capacities.

When you do subcontract work, always clarify the following details:

• Who will pay you and at what intervals?
• Are there any guarantees or can you be “fired” on short notice?
• What can you say or not say about your own firm, and about your relationship with the firm giving you the contract?
• What are the correct procedures if you learn of problems with your clients?

Finally, study your pricing. Check subcontracting price histories for similar products. What are competitors charging? Are there special requirements for production, delivery and packaging? If so, price these requirements appropriately. Make sure to add your overhead and profits.

Unless you know your true subcontracting costs, you can’t be sure if you’re actually making money. Remember that even if you see an increase in sales, it does not mean that you’ll automatically enjoy an increase in profit. If your costs aren’t understood and properly evaluated, your subcontract pricing can’t be correct or competitive.

For more information regarding subcontracting in the ceramic tile industry, contact Design America at (514) 494-3232, fax (514) 494-0772, e-mail nsaba@designamerica.ca or visit the website at www.designamerica.ca.