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- ---------------------------------------------------------------------------- ----- 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 ---------------------------------------------------------------------------- ----- --------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------