Definition
Outsourcing
is the transfer of control of a process or product to a supplier. An
example
of a manufacturing process is plating of a part. Plating is difficult
and
messy and is often treated as a process "orphan" in a plant. In these
cases
companies haven't invested the time and money into plating process
improvements. Outside suppliers who focus on this business and have
better equipment and
technology, as an automated plating line, will outperform the process
with
better control, quality, and cost.
Companies outsource parts or components that are not one of their
critical core processes for economic gain or better quality. An
electronics
manufacturer may choose to outsource its sheet metal work for control
panels. Or an off-road equipment manufacturer may outsource a
sub-assembly, such
as a cab for a tractor.
At the strategic level, outsourcing allows not only the transfer
of control to an outsider, but also the method of manufacture using a
different
technology or process. In strategic outsoucing a company may transfer
an
entire product, a product line, or an entire plant for strategic value.
The Issues
The
biggest single issue in strategic outsourcing is the giving up of
control
of the process or product. The risks are (1)degrading of quality, (2)
delayed
deliveries, (3) starving production, (4) theft of proprietary design or
process,
and (5) inadvertent creation of a competitor.
A company is not present at a supplier from day-to-day, hour-by-hour
and can't possibly monitor production activities as it would in its own
facility. Given that a company is unlikely to farm out manufacture of a
component
to a shoddy producer, a quality producer can undergo changes with its
ownership,
management or workforce, and a gradual degrading of quality can take
place
if not effectively monitored.
Once a supplier has control of a component, it may compete for
production time with other customers. The customer with the greatest
sales
volume to a producer will likely get the most attention. This can cause
delays in delivery to other customers.
Production stoppages at a supplier facility due to catastrophic
events, or neglectful attention to customer orders with smaller volume
can
starve production for those customers.
Another high risk in strategic outsourcing is that a company may
effectively transfer control of a proprietary design or process that,
if
not controlled, may find its way into the hands of a competitor.
One of the highest risks associated with strategic outsourcing
is that by trusting the production of a core product to a supplier, a
company
may inadvertently create a new competitor.
Pragmatic Applications
For
starters a company should never engage in strategic outsourcing because
it
is in vogue, or the "fad of the month." Obviously, a careful analysis
of
current ecconomics and the opportunities that present themselves will
determine
whether or not it is sensible.
When outsourcing, a company should
be looking for economic or technical advantages that a supplier can
provide. Keep in mind that when going to the outside for services, or
product lines,
you are adding that company's gross margin to the cost of producing. A
company
just as inefficient as your own won't produce any gains.
Ensure that the scope, boundaries, and performance levels are well
defined
when engaging in negotiations. This will avoid some of the pitfalls
described
above. In addition this will avoid a supplier providing something that
was
not agreed upon and then charging a premium for it, or the supplier not
providing
something the buyer assumed it would be getting for the price it is
paying.
Our Approach: Tools from a Toolchest
Rockford
Consulting Group applies concepts and technologies as the situation
warrants,
that will result in the ultimate benefit to our clients. We treat
strategies,
technologies, and methodologies as tools in a toolchest, and use them
when
they offer practical solutions and achievable results. We believe that
each
client situation is unique, with its own unique set of solutions. (Please see our
strategic outsourcing consulting services Strategic Outsourcing Consulting Services
)
Why Us?
Rockford Consulting Group can provide long-term assistance to many companies in a variety of industries. The firm has a cadre of the best management consultants in the world today, providing high quality professionalism through the use of experience and innovation.
We subscribe to the Institute of Management Consultants Code of Professional Conduct. All consultants engaged on projects adhere to its principles. Whenever possible we will use consultants certified in their particular specialty area. Certification assures that consultants have substantial prior experience in their specialty, and their competencies have been tested by the IMC, and verified by a number of clients. This assures our clients that we are assigning the highest qualified consultants in the profession.
We provide technical expertise, team facilitation, leadership, and direction in deciding how you will meet the challenge. We refer you to our Qualification Statement for further details on our background, areas of specialization, concepts and technologies applied, staffing, operating policy, approach, companies and industries served, case studies and references. Equally as important, we train our clients to sustain new methods of manufacturing and the consequential benefits over time. Your company will benefit directly from this training.
We have achieved an efficiency in our approach to assignments that allows us to provide high quality technical and managerial advice in a much shorter amount of time than could be accomplished years ago. We are able to do this because of the extensive consulting experience that each of our specialists has.
©1999 Rockford Consulting Group, Ltd.