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-
---------------------------------------------------------------------------------
Technet Mail List provided as a free service by IPC using LISTSERV 1.8d
To unsubscribe, send a message to [log in to unmask] with following text in
the BODY (NOT the subject field): SIGNOFF Technet
To temporarily halt delivery of Technet send the following message: SET
Technet NOMAIL
Search previous postings at: www.ipc.org > On-Line Resources & Databases >
E-mail Archives
Please visit IPC web site (http://www.ipc.org/html/forum.htm) for
additional
information, or contact Keach Sasamori at [log in to unmask] or 847-509-9700
ext.5315
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Technet Mail List provided as a free service by IPC using LISTSERV 1.8d
To unsubscribe, send a message to [log in to unmask] with following text in
the BODY (NOT the subject field): SIGNOFF Technet
To temporarily halt delivery of Technet send the following message: SET Technet NOMAIL
Search previous postings at: www.ipc.org > On-Line Resources & Databases > E-mail Archives
Please visit IPC web site (http://www.ipc.org/html/forum.htm) for additional
information, or contact Keach Sasamori at [log in to unmask] or 847-509-9700 ext.5315
---------------------------------------------------------------------------------
|
