Outsourcing is in now, but will be dumped in the wastebin one day. Next wave of lunatic word may be 'in-sourcing'. No, don't laugh, you will not cease to be surprised by all new word inventions.Outsourcing is strange. I'm not an economist, so I may not understand. But processing something is what makes income, not administrating, not buying, not building...but processing is making money for you. And when the income is (temporarily)lower than expected, you let others do the processing instead. And finally take over maybe. Like Flextronics and other undertakers do. One of many flourishing companies that are 'in-sourcing'. If you produced eggs, and there was an income dip, you would not sell your Leghorns, would you, because they are the processing part that makes money. At least not until you saw the bird were rottening or sterile. But if you could speak with the hens and ask them to make painted eggs, wouldn't you keep them until Easter was over?
At some companies it seems as outsourcing is beginning to cease a little. At least in some areas. When they let go experienced people in the area of material science, analysis methods and component specialties, they thought it was just to get in a consultant company. But it wasn't that easy and practical. These don't always have the decades of work in the field behind, which is oftenly necessary,nor do they have the dayly and close cooperation with the design engineers that an inhouse expert has. And they are expensive because they have to pay on new investments. And the consultants can't always invest so it suits what you have in your mind for the next year. So...when 'simple' tasks such as questions about soldering appeared, the ol' foxes were gone and there was no solder Merlin to ask. Many are now filling the gap by engageing and encourageing new specialists and experts. But to rebuild something takes more time than to wipe out...sorry..source out.
As you see I don't understand the mysteries of sourcing.
Ingemar
-----Original Message-----
From: d. terstegge [mailto:[log in to unmask]]
Sent: den 24 april 2001 14:36
To: [log in to unmask]
Subject: Re: [TN] Loaded question...outsourcing vs. in-house
manufacturing...
Hi James,
If you outsource because of your own overhead costs being to high, your remaining activities will become even more expensive. So then you'll probably decide to outsource some more of these activities, because they're cheaper outside. In the end there's nothing left and you can shut down the company.
To some companies this has really happened !
This illustrates how the term "cost-price" can easily lead to bad decisions.
The real question is how cash flow is affected by the outsourcing activities. How much will we save on salaries when we outsource ? What will the extra expenses be when we do it in-house ?
I can recommend Goldratt's "The Haystack Syndrome" to anyone who's interested in this topic.
Kind regards,
Daan Terstegge
Unclassified mail
Personal Website: http://www.smtinfo.net
>>> "Marsico, James" <[log in to unmask]> 04/24 12:54 pm >>>
Hey Pete, what about the company who has the capability but also has a high
enough overhead that it becomes cheaper to outsource then to perform the
work in-house?
Jim Marsico
Senior Engineer
Production Engineering
AIL/Electronics Systems Group
An EDO Company
[log in to unmask] <mailto:[log in to unmask]>
-----Original Message-----
From: <Peter George Duncan> [SMTP:[log in to unmask]]
Sent: Monday, April 23, 2001 9:41 PM
To: [log in to unmask]
Subject: Re: [TN] Loaded question...outsourcing vs. in-house
manufacturing...
Hi, Steve,
This is a subject I used to stand on my soap box about a lot when I
was
with Marconi Defense. There we had our own PCB fabrication plant,
PCB
Assembly department, a machineshop that did far better work than any
other
machineshop I ever tried, our own IT dept, security men, personnel,
etc.,
etc. All these were 'outsourced', even personnel who are supposed to
be
impartial guardians of employee welfare (whose tune do they dance to
now, I
wonder!).
During the late 80's and 90's, there was something of a recession,
in the
UK, anyway. A great many people were made redundant, businesses
shrank,
once-busy facilities had little new work and contracted to fit what
was
left. These facilities were starved of investment and fell behind in
the
standard and condition of the plant and expertise they had.
Then business began to pick up again and along with the bigger order
books
came the notion of "core business" or "core competency" - what were
Companies GOOD at and what were others better at. Where were there
unnecessary overheads? What capacity was available for the
increasing
business, and how much would it cost to expand again, as opposed to
fragmenting the work to other "Centres of Excellence".
What it does come down to in the end is the Almighty bottom line -
dollars
and cents. Certainly not "do lots and sense" in many cases. To stop
being
facetious now, there are pros and there are cons to outsourcing:
The factors in favour of outsourcing arise where there is such a
lack of
capacity and/or expertise in a particular area, that it will cost
far more
in time and money to build up an in-house capability than it would
to find
a supplier already expert in the field concerned. Competition among
suppliers can often also mean lowering of prices that might not be
the case
in a cosy and secure internal department. It depends on the
management, but
it is also my belief that people are getting lazier and don't want
to be
bothered with managing a whole lot of different disciplines, and if
they
have to, they manage it ineffectively. So in that respect, it is
also
better for the business to outsource what the Company itself is no
longer
good at or can no longer be bothered with.
Both these factors will show a better bottom line and please the
accountants, but my experience is that there are more factors
against
outsourcing than there are factors in favour, though many of the
important
ones are intangible and don't show up on a balance sheet.
Considerations against outsourcing, especially for functions like
personnel
and security, is that Companies lose the proper balance of interests
that
they should have in an organisation, and the commitment to the
Company that
you might have from your own people. Where manufacturing is
concerned, if
there is a lack of diversity within a Company, there is nothing to
fall
back on if the "core business" should decline or fail. Companies are
increasingly putting 'all their eggs in one basket' and that's a
risky
thing to do, especially if they're small. For as long as outsourcing
works,
though, other contra factors include lack of familiarity with, or
commitment to, another Company's products by subcontractors. There
are
longer 'lines of communication' (you can't just wander down the
corridor
and get something sorted with a foreman on a personal basis). There
is a
definite lack of direct control over product quality or anything
else in
someone else's business, and time to delivery may increase unless
you have
really good commitment and response from your subcontractors. To get
a
really good response from your subcontractors you need "clout" - a
high-enough level of business that a subcontractor would hurt to
lose.
To me, if you have a long term requirement, outsourcing should be a
temporary thing until you can build up your own expertise and
facilities.
Otherwise, you're paying someone else's overheads and profit
margins.
Outsourcing versus Insourcing is a bit like paying rent instead of
buying
your own house - paying rent can cost about the same as buying but
the
difference is with renting you never own the asset, while with
buying you
do.
Without writing the complete book here, my summary is - before
choosing
whether or not to outsource something:
Be sure your supplier is better than you are - carry out bench
marking
exercises.
If you don't have the facility you need at all, calculate the
cost of
establishing it in house and what the payback period will be.
Compare
that with the cost of outsourcing. If you can sell the use of the
facility to outsiders, that will offset the cost of setting it up
and
maintaining it and you can make an allowance for it in your
calculations. Go for the smaller bottom line, as the accountant
will.
Be sure you can maintain the control you want over the jobs you
give
out.
Be sure that the hassles (and there will be hassles) don't
outweigh the
advantages.
Be sure that Management is committed to outsourcing as a
well-considered
and planned business move as opposed to just being lazy.
Otherwise it
will wind up costing a lot more than you expect.
Thanks for the chance to let off steam, and hope this helps. Good
luck!!!
Regards
Pete Duncan
ST Aero
"Stephen R.
Gregory" To: [log in to unmask]
<SteveZeva@AO cc:
L.COM> Subject: [TN] Loaded
question...outsourcing vs. in-house
Sent by: manufacturing...
TechNet
<[log in to unmask]
ORG>
04/24/01
08:25 AM
Please
respond to
"TechNet
E-Mail
Forum.";
Please
respond to
SteveZeva
Hi All!
I've was asked by one of our sales people if I could give some
information
on
why it makes sense for an OEM to outsource assembly vs. starting
your own
manufacturing capabilities. Obviously, this deals with printed
circuits...
I've done a lot of searching, and have some good info, but I thought
I
would
ask you all for your opinions to add to the mix...
Generally, the reasons I've found come down to dollars, and core
compentcies.
That is, a company may be very good in designing products, but lack
the
facilities to produce the products they design efficiently. Where is
the
line
that you decide to invest the capital in automation, or doing the
manufacturing yourself to produce what you've designed, or just
simply
outsource it?
I know this is a very ambiguous question, a lot depends on product
volume,
complexity of assembly, and a million other factors...
One of the big examples I've found on the NET is Compaq computers,
once a
OEM
making everything themselves, practically everything is outsourced
now...they
shut-down a beautiful manufacturing facility in Texas...but, they
went from
almost falling behind Dell, to surging ahead to #1 in PC suppliers
and
turning a profit...
Just interested in your thoughts...
-Steve Gregory-
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