When a company decides to buy a part from outside suppliers, it is usually sub-contracted. In most cases, the sub-contractor is an ancillary unit. Subcontracting is the work of obtaining the prime manufacturerâ€™s requirements, mostly of fabricated parts and components, from outside sources in order to manufacture a certain product in the prime manufacturerâ€™s plant. Sub-contracting is being practiced to a much greater degree now, than in the past. The larger industry sub contacting must take the responsibility for providing technical know how and managerial guidance on â€“
1. Production process/method, equipment selection and layout.
2. Production aids like design, detailed manufacturing drawing, tooling, jigs and quality control procedure and equipment.
3. Manpower planning.
4. Organization and procedure for production planning, progressing and control.
5. Management ads like cost-accounting, industrial engineering, product diversification and marketing.
6. Sources of financing and procedures for obtaining them.
In addition, the outsourcing industry should also assume responsibility for providing:–
(a) Imported raw materials and components, scarce/critical indigenous raw materials and drawings.
(b) Tooling, jigs and fixtures to the extent that these are outside the capability of ancillary unit.
(c) Process quality control equipment control training facilities for the development of supervisory and artisan skills.
Sub contracting to Ancillary industries have many advantages. It results in spread of entrepreneurial base, it promotes industrial development and for the prime or parent company, regular supply of right quality items is assured and above all the components procured from ancillary industries cost the parent company much lesser as compared to their own in-house manufacturing cost.
There are a few problems associated with Ancillary units. Ancillary units are best fit when the parent company continues with the existing products. If the primary company embarks on a major modification of the existing product (s), ancillary units probably will not be able to meet the requirements of new products. Again the benefits, the parent company, otherwise would gain by buying from outside an outside supplier, in the form of sharing his superior quality and vast experience is lost (to the parent company). Providing technical and managerial guidance and offering other facilities for the development of ancillaries, add to the operational problem of the parent company.
The problems can be overcome by allowing Ancillary units to supply products to other industries as well and providing financial assistance to install new machinery when the parent company goes for modification of existing products.