Networking & Communications

What are you outsourcing? Henry Ford controlled as much of the process from ore to final product as he could, under a single roof. Trying to determine where an automobile originated from just the brand name alone is impossible today- most all but the final assembly has been outsourced. Is this what brought the US auto industry to its knees? I doubt it- compare the similar history of the British automobile industry from last century. Poor management destroyed both.

If your business is primarily cutting metal, you most likely have no option but to outsource the electronics you use to control your final product (as an example). Or, if you are an electronics house, you are probably better off outsourcing the packaging- it requires a totally different production environment. Should you outsource ALL production? Have a look at the likes of Dell and Hewlett Packard...

What is the life cycle of your product? Is it cheaper to outsource than to develop manufacturing technology that may have a limited utility life?

This is not a simple question with a simple answer. Let us rephrase it a little; "Can you continue to keep your loyal customers happy with your current practices, or do you need to think about doing things a little differently?"

what ever one outsources its a trade off between local talent and cost benefit of outsourcing and killing your own telnets instead of nurturing the available telnets,and encourage technology's development for few more quick $ or euros

crm

Depending on the technology level, outsourcing can be a mistake or a disaster. If the product is simple, you are separating manufacturing from anyone with real concern over quality. If the product is made in-house, the QC manager can walk out into the shop and see what's going on. If it's made 1000 miles away, by the time a problem is discovered, it's difficult to fix.

If technology is sophisticated, you are teaching someone else to become a competitor. Since they have lower costs (otherwise, why would you outsource to them), they will be able to undersell you.

Either way, any benefit appears to me to be strictly short-term.

Hi,

You would never think about producing yourself readily available components that you use (cables, switches, relays, fuses in a mechanical production shop).

So the question would have to be: benefits outsourcing your critical parts?

This looks very good as the intended producer is usually much cheaper. But within one month or one year a first (or more) disaster is coming up. And a big loss and a big loss in reputation.

So to be looked upon with care:

Is the quality comparably high and consistent.

Will the supplier survive and deliver in the next crisis? Who owns the company, likelihood of longterm relations?

Are the details of your product and specification leaking to everybody else including competitors.

Is there only one company able to act as second source and your company will still produce some of the parts or are there multiple possibilities - easy to switch from one to the next if the first fails.

What will happen to your company if you have no parts for how many days, weeks?

How is the feedback established between your development/construction department and the producer? Are they allowed to look into all details and do they get free information?

If you are outsourcing too much you will be no longer a producer but a dealer - would you like this, then start another company.

I saw many disasters with outsourcing, the successes will not be talked about.

Murphy's law acts against outsourcing. Not necessarily for more problems (outside compared to inside) but for slower problem solving.

High volume production or high complexity in products (cars, airplanes) needs a lot of outsourcing: so where to find the optimum. See what happened to Boeing with the dreamliner.

First question should be: why is your cost so much higher compared to the others?

Usually there is a simple answer: the overhead percentage is the culprit. If so, any company should analyse the structure of cost and if there are possibilities to make the contributors share more transparent and may be changed to reality.

With all this answered there should the decisions made: outsource some of the production and see what happens. Hold the production of complicated and proprietary parts in house and don't talk about.

Think about the learning processes in your company, this will need many levels of skills.

So in total I would answer: Yes, total outsourcing will destroy the abilities and kill the company.

If the competitor is much better you may be forced to learn from him, to buy his products and pay him licensing fees, and sell these with your own brand - until you learned to to better or your company is converted into a warehouse.

Good luck and clever and well thought decisions!

RHABE

Reasons for outsourcing:

The product needed is outside our own capabilities to make in house.

The company is backlogged and needs to outsource some of it's work to avoid bottle necking.

Costs is another issue. Even though a company can produce the product, maybe their machinery is outdated and needs to be outsources to a shop that can produce that part cheaper.

That's why you not only do a quote on the part in house but ask for at least three other quotes to compare. Then you negotiate the price a little. People want the work and will come down in price.

Another value in outsourcing is that the supplier is responsible for the costs in quality. You don't want loose out on the time factor of falling behind due to rework but at least the burden of the cost of reworking the part falls on the vendor.

until you learned to to better or your company is converted into a warehouse.

I would add "and the skilled are nowhere to be found"........lots of warehouse space in our manufacturing areas these days.

I would add "and the skilled are nowhere to be found"........lots of warehouse space in our manufacturing areas these days.

Thats because ware houses fetch hand sum rent with out the problem of overheads of Power bills,labour cost etc thats what i have found here in India

The root cause of this issue is the lack of attitude or loss of attitude this has become a world wide phenomena with younger lot how do you tackle this problem some how we need to remind New generation How Thomas Edison,ford,Graham bell built the technologies with their own hands and fonded Today's GE,Ford Corporation ,Bell corporation who are the light showing the way even to day i wish these noble gentlemen come back and lead us.

crm

We outsource all of our parts & do the assembly and processing in-house. If we had to make all of the parts ourselves the equipment & manpower costs would be unreasonable. We use parts that are made from steel, aluminium, copper, ceramic, quartz, fibre optic, sapphire & several other materials. These may be etched, machined, ground, electro-formed, sintered etc. We might only buy 1-off to 10-off of some parts. We are aware that we pay more for parts because we outsource but it gives us great flexibility in that we can consider any production process without having to consider the utilisation of in-house processes.

We find the quality issue is not bad as we work closely with our suppliers to ensure that they achieve what we require & they will feed back suggestions to make the parts easier to manufacture.

Maybe our situation is unusual in that our products are high value but low volume, many are 1-off designs.

Not an engineering example but...

A while ago there was a big flap over pet food that contained, IIRC something poisonous from China made in a plant that supplied Walmart. The really embarrassing part was that they also made food for IAMS (outsourced) that had the same flavors as the Walmart brand. IAMS claimed that they required special formulation.

At the time I was buying IAMS for the quality. My reaction to this information was 'Yeah, right'. I stopped buying IAMS and I suspect many people did the same because it wasn't on the store shelves for a long time.

This is an example of giving someone the opportunity to complete with you (the outsourcer supplied Walmart), taking a quality hit (the recalled pet food), and giving the impression that your high priced prestige product was the same as the low cost one (Walmart again).

How long ago was this because China has been making some good progress in manufacturing products that are up to U.S. standards. They've hired consultants from the states to help bring them up to par. Initially they weren't but they have the desire to be competitive quality wise.

I suspected when I read it that he was referring to a couple of years ago (certainly <5) and the problem was ground melamine in Baby food. A few babies (not to minimize, it may have been many, but I just don't know) died from it, and the uproar was something fierce. With good reason, obviously. But since then there does seem to be improvement, and China seems to have really moved to fix the problems (which were common, because in the preceding months it was Lead, and a LOT of it, in the paint on children's (why always the children?) blocks, that was the issue and, again, it was made in China). But nothing like it appears to have happened since.

So maybe you're right, and the issue now has moved to outsourcing other than China. But only for that one issue, and there are too many with outsourcing to make me comfortable. One my wife keeps bringing up (she has no manufacturing or business experience, just lots of good (un)common sense) is tied to the fact that what you outsource also teaches others how to outprice you with your own products. As she asks, "when did America become a SERVICE economy, instead of a producer of useful goods to the world?" To which I add "And what is the result going to be when our market for our SERVICES dries up, because other nations can do it cheaper, and money is tight?" Which seems to be where we are now, no?

Short term gain, life-time loss. And at the risk of igniting an inferno, Obama and his horse-thieves are only making it worse. But, then again, I don't trust ANY politicians to do what's best for "We The People", in ANY country.

We became a service oriented society of and industrial society because of labor costs. People were wanting more money and that was driving costs up and in order to stay competitive with the imported products we had to move companies out of this country for the cheaper labor to keep the prices down to competitive levels. Some companies can't do this so the government charges a tariff to bring their costs up to competitive levels with our local companies.

Basically NAFTA was an essential step because our products were become too overly priced to compete in the export.

No doubt all true, AND our own fault (I am no fan of the policies of modern unions, despite the fact that I readily admit they had their time of necessity for the American laborer, regardless of which America you want to speak of), but it is nonetheless a scary situation. It wasn't being a SERVICE economy that made us a world power (some say the greatest, but the former Soviet Union certainly gave us a run for our money, and now, Red China, by a totally different route, is really putting a hurting on us). In fact, THEY have become the producers, and we, dumb Americans that we have become, are the consumers! The balance has shifted, BIG, SCARY TIME!

And he who ONLY consumes, from he who both produces AND consumes, is left to dance to whatever tune the piper/producer wishes his pipes to produce. If we aren't there yet, we're certainly well on our way!!

I don't recall exactly but I think it was a couple of years ago (as in 2).

Sorry about the Red Herring about China. The point I was trying to make was the IAMS had outsourced the production of some of its pet food and it came back to haunt them.

On the plus side for outsourcing is that you should stick to what you are good at and outsource what you are not. For example, if I where a small volume car manufacturer I would concentrate on building cars and get the radios from Sony or someone else with expertise in that field.

I think most companies generally do, however to avoid backlog and bottle necking, companies have to outsource to meet deadlines.

Then there is the issue of budget in a contract. If the budget is tight, the company will have to look for ways to keep costs down. If they can find someone that can manufacture a product for cheaper then they themselves can produce it, then they are going to subcontract the parts for the lower price to stay within budget.

They are consumers. As such some of our companies have established divisions in China along with any other country that consumes our products because it cuts down on shipping costs. That's why Toyota and Honda both established manufacturing companies here in the States. The company I work for is owned by a French company, we have divisions in Chile and China and Australia and three locations in the United States and in several European countries because the machines we manufacture are as big as three train box cars and as heavy as the train engine itself. So it is a two way street in some regards but mostly we're the ones that import and not enough export. All of our money is going out of the country and boosting their GDP instead of our own.

Enjoyed the insightful posts on this thread. I believe that outsourcing itself does not destroy our ability to compete, but poorly managed outsourcing or with long term strategy flaws certainly can.

My companies are both component suppliers to the communication industry who do not fabricate their parts from raw material. One has 25-40 parts for each product, but the volume is too low to invest in all of the fabrication processes (milled, turned,stamped, etched, extruded, mim, etc.) so we have long term partnerships with businesses, with which I could never compete (price or technology). Although managing the quality has higher costs to manage the risk, it is still the lowest cost way to produce my products. My design is knowledgeable in all of their process capabilities, but managing those processes for us would be economically impractical.

It is painful when I have to outsource outside the USA to keep up with my competitors who do so. We have been able to innovate with our designs and processes for many years to hold off the tide, but my suppliers have not been able to compete with the cheap labor and government subsidized equipment support of other countries. Those other countries recognise the value of manufacturing to their economies (GDP, jobs, quality of life, etc.) and have put their money where their mouths are, while the USA has become complacent and has accepted the shift to a "service" economy. I personally see this trend as a formula for future economic and technological disasters.

Yet there are increasing conditions where I am forced to outsource outside of the USA to compete and stay in business. Sure, painfully I am sending jobs outside of the USA, but I have to protect my employees jobs and my businesses, otherwise it all just goes away! I am very interested if any one is aware of strategies which could stem this tide - anyone?

I agree with your comments about outsourcing beyond your home country. We buy from all around the world but this is not always driven by price, some components & processes are no longer available here so we have to shop around to stay in business.

Exactly what I fear; the more work I/we send out and close our domestic businesses, the more cost and risk we will have and the less competitive we will be! I don't have the answers or solutions and suppose you don't either or you would have told me?

Thank you for your reply.